States expand sales-tax holidays as Americans feel price increases

Teresa Houston put off her daughter's back-to-school shopping until Illinois's new sales-tax holiday went into effect this August to save a couple bucks.

"I think just generally we're more money conscious this year, just because everything is more expensive," said Mrs. Houston, a high-school teacher from Roselle, Ill. "We're just more frugal this summer in general, with gas and everything."

As the cost of household goods rose this year, more states are introducing or expanding their existing tax holidays, which allow shoppers to make a variety of purchases tax-free or at a lower state sales tax. Some states like Illinois also had some extra money from budget surpluses to help pay for the measures.

This year 20 states either lowered or abandoned their sales tax for at least a few days, according to the Federation of Tax Administrators, up from 18 states last year. Tennessee, Florida and Connecticut also expanded their state sales-tax holiday offerings in 2022.

Illinois and New Jersey are the latest states to offer weeklong tax holidays. Illinois reduced its sales tax to 1.25% from 6.25% during its holiday, while New Jersey isn't charging any sales tax during its holiday. But there are limits on the retail value of items that qualify in the majority of states.

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Elected officials have pitched adding or expanding sales-tax holidays as a way to help consumers save money as the rate of inflation remains near a four-decade high. Fast economic growth from the U.S.'s rebound from the Covid-19 pandemic, fueled in part by lower interest rates and government stimulus, helped produce the elevated levels of inflation.

The legislature in Illinois passed a law earlier this year creating the tax holiday. It was part of a $1.83 billion package that also included income and property tax rebates.

Florida expanded its sales-tax holiday to include certain dates for baby clothes, children's books and items for hurricane preparedness.

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Many U.S. consumers have largely shrugged off rising prices and maintained their levels of spending, according to the Commerce Department. But there are indications that consumers with lower incomes have been opting to put off some purchases or are switching brands to save money, according to market-research firms.

With prices on the rise, 38% of consumers said they are trimming spending to cover the cost of items for the coming school year, according to a July survey by the National Retail Federation and Prosper Insights & Analytics.

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Consumers are expected to spend $37 billion on back-to-school shopping, matching 2021's record high, according to the survey. Families with children in K-12 schools plan to spend an average of $864 on school items, about $15 more than last year.

Michelle Foszcz said rising prices contributed to her decision to spend around $80 on qualifying items for her children during Illinois's back-to-school sales-tax holiday.

Graphing calculators have gone up $10 to $20 depending on the brand, she said.

"I remember being like, 'Oh, my God, this was only $9 last year, and this year it's $19.99,' " said Mrs. Foszcz, who lives in Hanover Park, Ill.

Sam Greenberg, executive vice president of Zemsky's, a uniform supply store in Chicago, said retailers don't gain much from a sales-tax holiday, but customers do get a break.

Critics of sales-tax holidays say the measures, while politically popular, can cost states millions of dollars in sales-tax revenue while providing negligible help to consumers. They also aren't effective at helping low-income consumers because they are designed to occur during specific periods of the year, said Lucy Dadayan, a senior research associate at the Urban-Brookings Tax Policy Center, a think tank based in Washington, D.C.

"The low-income taxpayer doesn't have the luxury to time their purchases to shop during the holiday," Ms. Dadayan said. "It will be much more useful to provide direct aid to low-income taxpayers rather than to provide holidays."

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Janelle Fritts, policy analyst with the conservative-leaning Tax Foundation, said tax holidays aren't well targeted to aid people who need the most help.

"People with higher incomes also benefit, just as much, if not more, because they're able to spend more during those tax holiday," Ms. Fritts said.

In Illinois, consumers are expected to save $50 million from the tax holiday, a spokeswoman for the state Department of Revenue said. The Florida Legislature has estimated that consumers will save a combined $853.7 million as a result of the 2022 sales-tax holidays, according to a spokeswoman for the Florida Department of Revenue.

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Rochelle Soffer, a speech-language pathologist from Coconut Creek, Fla., said she always takes part in the back-to-school tax holiday. She considers the savings on tax minimal but said discounts drive the holiday.

"We might make a big deal on saving on sales tax, but no, we're saving on products," Ms. Soffer said.