Sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. holidays, designated periods when select goods or services are exempted from state (and sometimes local) sales taxes, continue to be politically popular among the states: 20 have held or will be holding sales taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. holidays in 2026, up from 19 last year, as Illinois added back a holiday previously in effect in 2010 and 2022. Alabama added a new sales tax holidayA sales tax holiday is a period of time when selected goods are exempted from state (and sometimes local) sales taxes. Such holidays have become an annual event in many states, with exemptions for such targeted products as back-to-school supplies, clothing, computers, hurricane preparedness supplies, and more. on SNAP-eligible food items to its existing severe weather preparedness and back-to-school sales tax holidays.
This total does not include the local sales tax holiday offered by one municipality in Alaska. This total also does not include state gas taxA gas tax is commonly used to describe the variety of taxes levied on gasoline at both the federal and state levels, to provide funds for highway repair and maintenance, as well as for other government infrastructure projects. These taxes are levied in a few ways, including per-gallon excise taxes, excise taxes imposed on wholesalers, and general sales taxes that apply to the purchase of gasoline. holidays that have been offered in 2026 by some states in response to rising fuel prices.
Sales tax holidays target a variety of consumer goods. Numerous states have exempted clothing during their holidays, while Maryland, Missouri, Texas, and Virginia have targeted energy-efficient appliances for temporary sales tax relief. Sales tax holidays are popular with policymakers because they offer a visible and easily understood tax break. The perception of savings makes them popular with consumers, despite their limited benefits, economic inefficiencies, and unintended consequences.
Proponents of sales tax holidays claim they create economic growth by increasing retail activity within their timeframes. However, studies show that much of the increased shopping during holidays is shopping that consumers would have done at other times but moved to the holiday timeframe to take advantage of discounts. While some consumers make incidental “impulse” purchases during these holidays, those additional purchases are not enough to justify the revenue costs associated with these holidays, even if such impulse purchases are desirable. Since sales tax holidays shift the timing of demand but do little to increase its magnitude, sales tax holidays reduce state and local tax collections for little or no economic benefit.
Additionally, states often schedule sales tax holidays to exempt specified goods and services during times when demand for these goods and services is highest, such as back-to-school products in August and hurricane preparedness supplies before storm seasons. As a result, most of these revenue losses are associated with retail transactions that would have occurred without the added incentive.
The prevalence of sales tax holidays points to deeper structural weaknesses in state tax codes: their existence reveals that the sales tax is overly burdensome throughout the rest of the year. If policymakers believe that suspending the sales tax for a single week, for example, can stimulate economic growth, they are implicitly acknowledging that the tax suppresses economic growth for the other 51 weeks. Sales tax holidays are not genuine relief; they instead acknowledge flaws in the underlying tax structure while revealing a lack of will to enact meaningful, permanent reforms.
While revenue losses associated with most sales tax holidays are not particularly large, they still have to be offset by revenue generated elsewhere, which is a net negative for states’ overall economic health since other revenue sources are often more economically damaging than sales taxes. And states that can consistently cover these holidays out of surplus revenues could better utilize their excess funds on more economically efficient tax reforms, particularly rate reductions.
Proponents of sales tax holidays sometimes suggest that they encourage out-of-state consumers to travel for discounts, increasing in-state sales. Since so many states now have tax holidays, and because the holidays often apply to lower-cost items that wouldn’t justify a large detour, their effect in attracting out-of-state purchasers is negligible. Furthermore, while compliance is undeniably low, a consumer who makes a sales-tax-free, out-of-state purchase intended to be consumed in their own state is legally obligated to pay use tax on that purchase.
Tax holidays also incentivize consumers to put off shopping for selected items. A lower-income family that waits to buy school supplies until a back-to-school sales tax holiday on the weekend before school starts—a point when many families have already finished their shopping—might have been better off if they had shopped earlier, when products are most likely to be well stocked. This is just one aspect of sales tax holidays that can inadvertently harm lower-income consumers.
Because sales tax holidays induce high demand for an often narrow, predetermined set of goods during a limited timeframe, retailers often increase prices to avoid running out of stock. Though this aspect of sales tax holidays is difficult to study, some research has suggested companies can absorb up to 20 percent of the benefit of sales tax holidays through price increases, blunting their benefit for consumers with the lowest incomes. These shoppers are also the most likely to face difficulties in being able to prepare for sales tax holidays by increasing household savings or requesting time off work. If governments truly want to help low-income consumers, targeted assistance policies are better options. Better yet, policymakers could permanently ease tax burdens by trimming rates year-round—but permanent solutions tend to be deprioritized when politically easier, temporary gimmicks like sales tax holidays persist.
In addition to their inefficiencies as a vehicle for tax relief, sales tax holidays often have economically distortive structural flaws. For example, by imposing a cap on the price of goods that qualify for the sales tax holiday, consumers may be influenced to purchase a less expensive and lower-quality product when they otherwise would have purchased a higher-quality product that exceeds the specified price threshold. Low price caps can also disadvantage goods from small businesses whose prices may be higher.
The compliance costs associated with sales tax holidays are further damaging to small businesses. Additional short-term staffing is often necessary to handle the induced spikes in demand, and that can be harder to schedule for businesses with fewer employees. Moreover, small businesses may find it more difficult to absorb the spending slowdowns in the weeks immediately before and after sales tax holidays, as consistent revenue is more important when margins are thin. Even if overall revenue remains only slightly changed, the timing distortions can be painful. Additionally, the work required to comply with sales tax holiday provisions (e.g., determining which products qualify for exemption and changing cash register settings accordingly) can be especially difficult for small businesses, which are often unable to sustain entire teams dedicated to legal compliance.
Sales tax holiday structures vary widely from state to state, exacerbating these compliance difficulties. Beyond the differences in product lists and price caps, different states treat shipping, handling, layaway sales, and “rain check” sales differently. The difficult task of compliance must often be done on short notice, because details sometimes aren’t agreed to until just weeks before holidays are scheduled to take place. For example, Illinois Public Act 104-0468 was signed into law on June 16, 2026, reinstating a 2022 back-to-school sales tax holiday from August 7 through August 16, 2026. During this period, the state’s 6.25 percent sales tax rate on qualifying items is reduced to 1.25 percent.
For small online retailers selling into states with sales tax holidays, compliance can be a nightmare. There are legal consequences for over-collecting sales tax from consumers, so last-minute sales tax holiday legislative decisions force sellers to scramble to make sales tax determinations on an evolving range of products, and often with definitions that require careful product-by-product eligibility judgments.
Some businesses thrive on sales tax holidays while others struggle to comply with them. Some consumers benefit from them while others might be inadvertently hurt by them. Sales tax holidays pick winners and losers—and their costs aren’t offset by any meaningful economic benefit.
While most sales tax holidays impose steep compliance burdens on retailers, Nevada’s National Guard sales tax holiday places the compliance burden onto the consumer. Eligible Guard members and qualifying relatives must apply for the exemption at least 45 days in advance of the sales tax holiday, pay the tax upfront during the holiday, and then later request a refund from the Department of Taxation by providing supporting documentation. While this approach is simpler for retailers, the cumbersome refund process may deter participation, particularly for smaller purchases where the savings may not justify the effort.
From a political standpoint, sales tax holidays are harmful because they create space for politicians and lobbyists to pick political favorites in the process of selecting eligible products. Any decision about which goods are and aren’t exempt will discriminate against some consumers.
Overall, sales tax holidays are an inefficient vehicle for providing tax relief or generating additional economic activity. They often end up hurting the taxpayers they intend to help. They inject unnecessary instability into government and business revenue streams; create administrative and compliance costs for businesses, governments, and consumers; and do not promote long-term economic growth. Several states realized these downfalls and accordingly abandoned their sales tax holidays in recent years. However, their electoral utility remains an incentive for policymakers, and with 20 states offering sales tax holidays in 2026, it doesn’t look like they’re going away any time soon.
For a more detailed analysis of the arguments for and against sales tax holidays, see our 2022 full-length report.
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