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HOLIDAY BARBECUE?

August 01, 2005

Iowa's annual sales tax holiday takes place this Friday and Saturday (August 5 and 6). As explained by the Department of Revenue:

No sales tax, including school and local option sales taxes, will be collected on sales of an article of clothing or footwear having a selling price less than $100.00.

The exemption does not apply in any way to the price of an item selling for $100.00 or more.

The exemption applies to each article priced under $100.00 regardless of how many items are sold on the same invoice to a customer

The Tax Foundation blog isn't feeling festive. They make "The Case Against Sales Tax Holidays" thusly:

Is it possible that a gimmick which lowers taxes is actually poor tax policy? Economically speaking sales tax holidays are poor tax policy for two main reasons.

First, sales tax holidays are distortionary because they are non-neutral across products. This means that consumers have an incentive to buy products which fall under the sales tax holiday as opposed to goods that are not covered in the holiday.

Second, sales tax holidays are non-neutral over time, which means that they create incentives for consumers to purchase items during the sales tax holiday that they otherwise would have purchased at another time.

Additionally, sales tax holidays add to retailers' compliance costs and make the tax code less stable. Although sales tax holidays are good for certain consumers of certain products, they are poor tax policy overall.

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