Tax holiday

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A tax holiday is a temporary reduction or elimination of a tax. It is synonymous with tax abatement, tax subsidy or tax reduction. Governments usually create tax holidays as incentives for business investment, although the arrangement has also been characterized as a form of corporate welfare that leads to a redistribution of resources away from smaller businesses and private citizens and towards monopolies and other forms of consolidated wealth.

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Tax relief can be provided in the form of tax concessions to assure the investment of new businesses or the retention of existing ones. [1] Tax holidays have been granted by governments at national, sub-national, and local levels, and have included income, property, sales, VAT, and other taxes. Some tax holidays are extra-statutory concessions, where governing bodies grant a reduction in tax that is not necessarily authorized within the law. In developing countries, governments sometimes reduce or eliminate corporate taxes for the purpose of attracting foreign direct investment or stimulating growth in selected industries.

A tax holiday may be granted to particular activities, [2] in particular to develop a given area of business, [3] or to particular taxpayers. [4] Researchers found that on sales tax holidays, households increase the quantities of clothing and shoes bought by over 49% and 45%, respectively, relative to what they buy on average. [5]

Sales tax holidays in the United States

In New York, a statewide sales tax holiday was first enacted by the New York legislature in 1996, enabling the first tax-free week in January 1997. Local governments in New York were given the option of whether or not to participate; most accepted. [6] Since then, the initiative has been adopted by thirteen states. It commonly takes the form of tax-free weekend lasting Friday through Sunday, usually during a major shopping period for necessities, such as just before school starts. During that period, sales tax is not collected on selected items, such as clothing and school supplies. The items subject to the sales tax exemption may also be restricted by price (e.g., clothing up to $100), but consumers are free to buy unlimited quantities of the included items.

As with other sales taxes, visiting residents of non-participating states who purchase tax-free goods (holiday or not) may still have to pay use tax on the goods they take home.

State (or equivalent)Items IncludedPeriodDays
Alabama clothing, computers, school supplies, books / severe weather preparedness [7] 3rd weekend in July / last weekend in February3
Arkansas clothing, school supplies, books [8] 1st weekend in August2
Connecticut clothing3rd week in August7
District of Columbia Repealed [9]
Florida clothing, school supplies, books2nd week in August3
Georgia clothing, school supplies, computers (suspended in 2017)1st weekend of August4
Iowa clothing1st weekend of August2
Louisiana all TPP – $2,500, hurricane preparedness items – $1,500, firearms, ammunition and hunting supplies [10] 1st weekend of September2
Massachusetts Most items for which the sales tax would normally apply; purchases up to $2500 included [11] 2nd weekend of August2
Maryland clothing & footwear [12] August 14–207
Energy Star productsFeb 19–21, 20113
Missouri clothing, school supplies, computers [13] 1st weekend in August3
New Mexico clothing, school supplies, computers1st weekend of August3
North Carolina Repealed as of July 1, 2014
Oklahoma clothing1st weekend of August3
South Carolina clothing, school supplies, computers1st weekend of August3
Tennessee clothing, school supplies, computers [14] Last Friday of July3
Texas emergency supplies (e.g. batteries, flashlights) [15] 3rd weekend of April3
electrical products (e.g. air conditioners, light bulbs) with the Energy Star label [16] Memorial Day weekend in May3
water products (e.g. toilets, soaker hoses) with the Water Sense label [17]
clothing, diapers, backpacks, school supplies [18] 2nd weekend of August3
Virginia clothing, school supplies, green appliances, hurricane preparedness itemsMay, August, October3

Five US states (Alaska, Delaware, Montana, New Hampshire, and Oregon) do not impose general sales taxes at all but may have excise taxes on specific categories of goods such as gasoline, E911, cigarettes, alcohol, or meals. See Sales taxes in the United States for details.

Some governments create tax-free weekends as incentives for business investment.

Related Research Articles

<span class="mw-page-title-main">Revenue</span> Total amount of income generated by the sale of goods or services

In accounting, revenue is the total amount of income generated by the sale of goods and services related to the primary operations of the business. Commercial revenue may also be referred to as sales or as turnover. Some companies receive revenue from interest, royalties, or other fees. "Revenue" may refer to income in general, or it may refer to the amount, in a monetary unit, earned during a period of time, as in "Last year, company X had revenue of $42 million". Profits or net income generally imply total revenue minus total expenses in a given period. In accounting, revenue is a subsection of the equity section of the balance statement, since it increases equity. It is often referred to as the "top line" due to its position at the very top of the income statement. This is to be contrasted with the "bottom line" which denotes net income.

<span class="mw-page-title-main">Cost of goods sold</span> Carrying value of goods sold during a particular period

Cost of goods sold (COGS) is the carrying value of goods sold during a particular period.

<span class="mw-page-title-main">Sales tax</span> Tax paid to a governing body for the sales of certain goods and services

A sales tax is a tax paid to a governing body for the sales of certain goods and services. Usually laws allow the seller to collect funds for the tax from the consumer at the point of purchase.

The goods and services tax is a value added tax introduced in Canada on January 1, 1991, by the government of Prime Minister Brian Mulroney. The GST, which is administered by Canada Revenue Agency (CRA), replaced a previous hidden 13.5% manufacturers' sales tax (MST).

A tax credit is a tax incentive which allows certain taxpayers to subtract the amount of the credit they have accrued from the total they owe the state. It may also be a credit granted in recognition of taxes already paid or a form of state "discount" applied in certain cases. Another way to think of a tax credit is as a rebate.

The harmonized sales tax (HST) is a consumption tax in Canada. It is used in provinces where both the federal goods and services tax (GST) and the regional provincial sales tax (PST) have been combined into a single value-added tax.

FairTax is a single rate tax proposal which has been proposed as a bill in the United States Congress regularly since 2005 that includes complete dismantling of the Internal Revenue Service. The proposal would eliminate all federal income taxes, payroll taxes, gift taxes, and estate taxes, replacing them with a single consumption tax on retail sales.

Tax competition, a form of regulatory competition, exists when governments use reductions in fiscal burdens to encourage the inflow of productive resources or to discourage the exodus of those resources. Often, this means a governmental strategy of attracting foreign direct investment, foreign indirect investment, and high value human resources by minimizing the overall taxation level and/or special tax preferences, creating a comparative advantage.

Tax exemption is the reduction or removal of a liability to make a compulsory payment that would otherwise be imposed by a ruling power upon persons, property, income, or transactions. Tax-exempt status may provide complete relief from taxes, reduced rates, or tax on only a portion of items. Examples include exemption of charitable organizations from property taxes and income taxes, veterans, and certain cross-border or multi-jurisdictional scenarios.

<span class="mw-page-title-main">Goods and services tax (Australia)</span> Type of value added tax used in Australia

Goods and Services Tax (GST) in Australia is a value added tax of 10% on most goods and services sales, with some exemptions and concessions. GST is levied on most transactions in the production process, but is in many cases refunded to all parties in the chain of production other than the final consumer.

An ad valorem tax is a tax whose amount is based on the value of a transaction or of a property. It is typically imposed at the time of a transaction, as in the case of a sales tax or value-added tax (VAT). An ad valorem tax may also be imposed annually, as in the case of a real or personal property tax, or in connection with another significant event. In some countries, a stamp duty is imposed as an ad valorem tax.

<span class="mw-page-title-main">Sales taxes in the United States</span>

Sales taxes in the United States are taxes placed on the sale or lease of goods and services in the United States. Sales tax is governed at the state level and no national general sales tax exists. 45 states, the District of Columbia, the territories of Puerto Rico, and Guam impose general sales taxes that apply to the sale or lease of most goods and some services, and states also may levy selective sales taxes on the sale or lease of particular goods or services. States may grant local governments the authority to impose additional general or selective sales taxes.

An urban enterprise zone is an area in which policies to encourage economic growth and development are implemented. Urban enterprise zone policies generally offer tax concessions, infrastructure incentives, and reduced regulations to attract investments and private companies into the zones. They are a type of special economic zone where companies can locate free of certain local, state, and federal taxes and restrictions. Urban enterprise zones are intended to encourage development in deprived neighborhoods through tax and regulatory relief to entrepreneurs and investors who launch businesses in the area.

A tax incentive is an aspect of a government's taxation policy designed to incentivize or encourage a particular economic activity by reducing tax payments.

<span class="mw-page-title-main">Economy of Texas</span>

The economy of the State of Texas is the second largest by GDP in the United States after that of California. It has a gross state product of $2.636 trillion as of 2023. In 2022, Texas led the nation with the most companies in the Fortune 500 with 53 in total. As of 2023, Texas grossed more than $440 billion a year in exports, more than double the next highest state California.

Taxation in Iran is levied and collected by the Iranian National Tax Administration under the Ministry of Finance and Economic Affairs of the Government of Iran. In 2008, about 55% of the government's budget came from oil and natural gas revenues, the rest from taxes and fees. An estimated 50% of Iran's GDP was exempt from taxes in FY 2004. There are virtually millions of people who do not pay taxes in Iran and hence operate outside the formal economy. The fiscal year begins on March 21 and ends on March 20 of the next year.

Consumption taxes have been levied in the Canadian province of British Columbia since the introduction of the Provincial Sales Tax (PST) on 1 July 1948, as part of the Social Service Tax Act. Sales in the province have also been subject to the federal Goods and Services Tax (GST) since its introduction on 1 January 1991.

The United Arab Emirates is a federation of seven Emirates, with autonomous federal and local governments. The UAE has historically been a low-tax jurisdiction. The federal government and local governments are entitled to levy taxes on citizens and companies. The federal government currently levies a value added tax, corporate income tax, and excise taxes. Some emirates levy property, transfer, excise and tourism taxes. Some emirates also charge corporate taxes on oil companies and foreign banks.

<span class="mw-page-title-main">Value-added tax</span> Form of consumption tax

A value-added tax (VAT or goods and services tax (GST), general consumption tax (GCT)), is a consumption tax that is levied on the value added at each stage of a product's production and distribution. VAT is similar to, and is often compared with, a sales tax. VAT is an indirect tax because the consumer who ultimately bears the burden of the tax is not the entity that pays it. Specific goods and services are typically exempted in various jurisdictions.

Texas Tax Code Chapter 313 creates a state tax incentive program for certain large businesses to limit the appraised value of their property for the purposes of local Texas public school district property taxes.

References

  1. ↑ Caves, R. W. (2004). Encyclopedia of the City. Routledge. p. 658. ISBN   978-0415862875.
  2. ↑ For example, Indonesian tax holidays for certain investments.
  3. ↑ For example, New Jersey's Urban Enterprise Zones.
  4. ↑ For example, New York City property tax reduction programs Archived 2011-03-12 at the Wayback Machine .
  5. ↑ Federal Reserve Bank of Chicago, The Effect of Sales Tax Holidays on Household Consumption Patterns, July 2010
  6. ↑ "Oct/Nov State Legislatures magazine: On Holiday from the Sale Tax". Archived from the original on 23 April 2006. Retrieved 15 April 2009.
  7. ↑ "Sales Tax Holidays".
  8. ↑ "Archived copy" (PDF). Archived from the original (PDF) on 13 August 2011. Retrieved 25 July 2011.{{cite web}}: CS1 maint: archived copy as title (link)
  9. ↑ "Sales Tax Holiday Repealed – otr". otr.cfo.dc.gov.
  10. ↑ "Home Page – Louisiana Department of Revenue". www.revenue.louisiana.gov.
  11. ↑ "It's official: The Massachusetts sales tax holiday is happening after Gov. Charlie Baker's sign-off". masslive.com. 10 August 2018.
  12. ↑ "Shop Maryland- the state's tax free week". Archived from the original on 7 August 2011. Retrieved 8 August 2011.
  13. ↑ "Back to School Sales Tax Holiday". MO.gov Website. Retrieved 31 July 2011.
  14. ↑ "Tennessee Sales Tax Holiday".
  15. ↑ "Emergency Preparation Supplies Sales Tax Holiday". Texas Comptroller of Public Accounts. Retrieved 22 April 2023.
  16. ↑ "Energy Star Sales Tax Holiday". Texas Comptroller of Public Accounts. Retrieved 22 April 2023.
  17. ↑ "Water Efficient Product Sales Tax Holiday". Texas Comptroller of Public Accounts. Retrieved 22 April 2023.
  18. ↑ "Sales Tax Holiday". Texas Comptroller of Public Accounts. Retrieved 22 April 2023.
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