Sales taxes are an important revenue source, making up close to half of all state tax revenues. But sales taxes are also inherently regressive because low-income families spend a greater share of their income on goods and services subject to the tax.
Twenty states have sales tax holidays on the books in 2026, two more than last year. The combined annual cost to state and local budgets this year is estimated to be around $600 million. Nationwide, we saw two states, Alabama and Illinois, enact one-time sales tax holidays, both of which notably coincide with election cycles. Another state, Ohio, downsized its sales tax holiday after a major expansion in 2025.
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