Nebraska doesn’t always rank highly when it comes to taxes, but not having a Sales Tax Holiday is one area where the state gets tax policy right. Sales tax holidays are periods of time when certain goods are exempted from sales tax. Many of the selected items exempted in other states are back-to-school supplies, clothing, computers, hurricane preparedness items, Energy Star appliances, and others.
Politically these tax holidays are popular. From a tax policy standpoint, they complicate the tax code and cause politicians to incentivize certain businesses or industries over others. In 2017, 16 states will hold a sales tax holiday, including our neighbors in Iowa and Missouri. Georgia was the most recent state to end its sales tax holiday.
Sales tax holidays do not promote economic growth. A recent study by the Federal Reserve shows that these tax holidays only shift the timing of purchases. Some retailers even raise their prices during the holiday to take advantage of increased sales.
“Political gimmicks like sales tax holidays distract policymakers and taxpayers from genuine, permanent tax relief. If a state must offer a “holiday” from its tax system, it is an implicit recognition that the state’s tax system is uncompetitive. If policymakers want to save money for consumers, then they should cut the sales tax rate year-round.”
Check out how different states treat this issue in the map below, and learn more about Nebraska tax policy by subscribing to our weekly email.