As back-to-school shopping season begins across the country, the Institute on Taxation and Economic Policy has released a new brief examining the costs and effectiveness of state sales tax holidays. While lawmakers often promote these temporary tax breaks as relief for families facing high costs, ITEP’s analysis finds they provide little lasting benefit while draining hundreds of millions of dollars from state and local budgets.
Key findings:
- Twenty states have sales tax holidays on the books in 2026, two more than last year after Alabama and Illinois enacted one-time holidays.
- Sales tax holidays will cost states and localities nearly $600 million in lost revenue this year.
- These temporary tax breaks are poorly targeted and do little to reduce the regressive nature of state sales tax systems because they last only a few days and apply to limited purchases.
- Higher-income households are often better positioned than low-income families to take advantage of sales tax holidays because they can shift the timing of purchases, while many families living paycheck to paycheck cannot.
“Sales tax holidays offer the appearance of tax relief without delivering much of the substance,” said Miles Trinidad, State Analyst at ITEP and author of the brief. “They are brief, poorly targeted, and expensive—and higher-income households are often better positioned to benefit than the families lawmakers claim to be helping.”
The brief also finds that sales tax holidays reduce revenue that could otherwise support public services and investments, forcing states and localities to make up the difference through spending cuts or other tax increases.
More effective alternatives include refundable low-income sales tax credits, Earned Income Tax Credits, and Child Tax Credits that can provide targeted, year-round tax relief to families who need it most.
ITEP experts are available for interviews and background conversations on:
- Why sales tax holidays provide limited benefits to working families
- Which states are offering sales tax holidays in 2026 and how much they cost
- How sales tax holidays affect state and local budgets
- Why sales taxes are inherently regressive
- Better-targeted tax policies, including refundable sales tax credits, Earned Income Tax Credits, and Child Tax Credits
