Several states have “sales tax holidays” where for a day or a few days specified during the year, there is no sales tax on specified items. For example, it might be on children’s clothes or school supplies close to the time when school begins. Some states have them for guns and emergency preparedness items. The Federation of Tax Administrators maintains a list of these holidays in the states.
September 16, 2015, Colorado had a holiday on marijuana – but just the special 10% and 15% taxes (there are a lot of taxes on marijuana in Colorado). The reason is complicated and ties to the fact that when recreational sales became legal in Colorado and new taxes added, they raised more than allowed. HB15-1367 explains some of this (in 33 pages!).
All of this is odd and bad tax policy. For Colorado, too bad no one thought of a law modification earlier that if too much marijuana taxes were raised, it would be used to reduce other taxes or for backlog infrastructure projects, or something other than a one-day tax holiday. I’ll get back to the tax issues next, but also want to note that this is also odd – isn’t the state now encouraging more people to buy marijuana today due to the greatly reduced cost? What is the purpose of that?
Tax problems include the inequity of making somethings tax exempt, but not other things. Also, everyone, regardless of need gets the tax break. For example, someone making $200,000 per year who buys school supplies for their child during a state sales tax holiday period for these items saves a few dollars of tax. Why? If the holidays are to help low income individuals, it would be better for the state to give them gift cards for stores that sell these items (or some other way to give money for them).
Some might be too broad. For example, what all falls under school supplies or emergency preparedness? Time is needed by the tax agency to define the terms, if possible. And how, for example, does the store know if someone buying paper during the holiday is doing so for school?
The compliance and administrative burdens are also high. A vendor needs to be sure it handles the holiday correctly and the state needs some way to verify that it did.
And the effect to vendors is odd. The holidays will cause many people to wait to buy items then causing operational challenges for stores and their suppliers.
What do you think?
Original Post By: Annette Nellen
Annette Nellen, CPA, Esq., is a professor in and director of San Jose State University’s graduate tax program (MST), teaching courses in tax research, accounting methods, property transactions, state taxation, employment tax, ethics, tax policy, tax reform, and high technology tax issues.
Annette is the immediate past chair of the AICPA Individual Taxation Technical Resource Panel and a current member of the Executive Committee of the Tax Section of the California Bar. Annette is a regular contributor to the AICPA Tax Insider and Corporate Taxation Insider e-newsletters. She is the author of BNA Portfolio #533, Amortization of Intangibles.
Annette has testified before the House Ways & Means Committee, Senate Finance Committee, California Assembly Revenue & Taxation Committee, and tax reform commissions and committees on various aspects of federal and state tax reform.
Prior to joining SJSU, Annette was with Ernst & Young and the IRS.
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