Personal Finance

Sales tax holidays are coming up. Here's where your state stands

Key Points
  • In all, 16 states offer shoppers a break on sales taxes that apply to clothing, shoes, school supplies and more.
  • Numerous small businesses have closed or limited their hours due to coronavirus, while parents remain uncertain about how the back-to-school season will look.
  • Meanwhile, states’ coffers are hurting from falling sales and income tax revenue. Total state budgets face an estimated $110 billion shortfall for the 2020 fiscal year, according to the Center on Budget and Policy Priorities.
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This summer, more than a dozen states are offering shoppers a back-to-school sales tax break.

Whether it'll be enough to draw legions of parents to mom-and-pop shops amid a pandemic is looking iffy.

Depending on the state where you're shopping, you can knock off anywhere from 4% (Alabama) to 7% (Tennessee) when you're buying clothes, shoes and school supplies during select weekends, according to personal finance site WalletHub and the Federation of Tax Administrators.

These are the 16 states that are offering a back-to-school break this summer: Alabama, Arkansas, Connecticut, Florida, Iowa, Maryland, Massachusetts, Mississippi, Missouri, New Mexico, Ohio, Oklahoma, South Carolina, Tennessee, Texas and Virginia.

Five states currently don't assess a sales tax. They are Alaska, Delaware, Montana, New Hampshire and Oregon.

A cruel summer

Bill Gates: Benefits of young children returning to school outweigh costs in most locations
Bill Gates: Benefits of young children returning to school outweigh costs in most locations

The timing of this year's tax holidays is less than auspicious.

"The rhetoric is that one of the beneficiaries of sales tax holidays are these local Main Street businesses," said Howard Gleckman, senior fellow at the Urban-Brookings Tax Policy Center.

"The problem is that in a lot of places, those businesses are closed," he said. "Who are you helping? Walmart, Target and other big chains that have the resources to stay open."

Indeed, as of July 10, some 26,119 shopping and retail businesses were closed, according to data from Yelp. Close to half of those businesses have shut their doors permanently.

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Further, parents remain uncertain about what the school year will look like.

They might feel less inclined to freshen kids' wardrobes and snap up new backpacks if their kids are going to spend most of their time distance-learning at home, said Gleckman.

Finally, the tax holidays come at a time when states' coffers are under pressure, due to falling sales and income tax revenues.

Layoffs and business closures have hampered states' budgets, which fell short by $110 billion during the 2020 fiscal year, according to estimates from the Center on Budget and Policy Priorities.

The 2021 fiscal year, which started on July 1, is already looking worse: Budgets face an estimated shortfall of $290 billion, the center found.