For decades, Connecticut officials have been trumpeting the annual sales-tax-free week, including this year’s promotion, which begins Sunday and runs through Aug. 23.
But such sales tax holidays increasingly are coming under fire from policy groups.
Progressive organizations note that relatively brief exemption periods, usually limited to a week or even just a weekend, deliver extremely modest relief to consumers, often helping poor households the least.
And other groups argue these promotions are equally ineffective at boosting the economy, adding that the hype from politicians far exceeds the impact.
“Since sales tax holidays shift the timing of demand but do little to increase its magnitude, sales tax holidays reduce state and local tax collections for little or no economic benefit,” analysts Katherine Loughead and Brayden Myers wrote for in a recent brief for the Tax Foundation, a nonpartisan, Washington-based policy group.
Consumers generally don’t make enough “impulse” purchases — extra buys they wouldn’t have made — were it not for the holiday, the analysts wrote. Instead, they simply defer purchases that normally would have been made earlier in the year to take advantage of the sales tax promotion.
In Connecticut, that promotion involves waiving the 6.35% sales tax levy on clothing and footwear items that cost less than $100, whether purchased in-store or online, according to the state Department of Revenue Services.
Nineteen states either have held or are scheduled to hold such promotions in 2025, along with one municipality in Alaska, according to the Tax Foundation.
Besides clothing, other items commonly featured in sales tax holidays in other states include computers, energy efficiency equipment, books and other school supplies.
And while proponents argue these promotions draw out-of-state consumers into the local economy, Loughead and Myers counter that “since so many states now have tax holidays, and because the holidays often apply to lower-cost items that wouldn’t justify a large detour, their effect in attracting out-of-state purchasers is doubtful.”
Critics say states would better serve their economies by focusing resources on reducing everyday tax rates.
And they aren’t the only ones.
The Connecticut Retail Merchants Association has said some Connecticut businesses count on this annual mid-August promotion to secure a huge chunk of their annual profits.
The National Federation of Independent Businesses has long endorsed such sales tax promotions. NFIB Connecticut State Director Andrew Markowski said, “We think it’s a good economic driver and it helps get feet in the doors.”
But Markowski also said Connecticut officials should focus “getting on a more even playing field” with neighboring states when it comes to the sales tax. Massachusetts has a 6.25% sales tax rate and exempts clothing items costing less than $175 from its sales tax year-round. New York has a 4% sales tax rate — which climbs to 8.8% in New York City — but also exempts clothing costing less than $110.
ITEP: Sales tax holidays do little for consumers
Sales tax holidays also are increasingly facing scrutiny for delivering minimal relief.
A family that spends $500 on back-to-school clothes for its children during Connecticut’s promotion would save $31.75.
The Department of Revenue Services estimates the tax holiday will cost the state between $2 million and $3 million.
A $2 million cost represents 1/120th of 1% of the state budget’s General Fund. By comparison, Gov. Ned Lamont’s administration estimates Connecticut closed the last fiscal year on June 30 with almost $2.5 billion unspent, which represented almost 11% of the General Fund.
Lamont and the General Assembly in 2023 ordered the first state income tax rate reduction since the mid-1990s, boosted a tax credit for the working poor and expanded exemptions for pension and annuity earnings. These changes cost the state close to $500 million annually, but low- and middle-income households benefit between $200 and $400 per year.
“A two- to three-day sales-tax-free shopping spree for selected items does nothing to reduce taxes for low- and moderate-income taxpayers during the other 362 days of the year,” Miles Trinidad, an analyst for the Washington-based Institute on Taxation and Economic Policy, wrote in a brief last month.
Most states’ sales tax systems, including Connecticut’s, already are largely regressive, meaning consumers pay the same rate regardless of their income or wealth. And these holidays are too brief to effectively reform this unfair system, Trinidad wrote.
A 2010 study from the Federal Reserve Bank of Chicago found that households making less than $30,000 annually generally couldn’t even afford to time their purchases to take advantage of these sales tax promotions. Instead, they had to buy clothes or other basic items only when their resources allowed it.
Some retailers also increase prices to take advantage of the increased customer traffic during a sales tax holiday. A 2003 study of Florida retailers found that up to 20% of the price cuts that consumers thought they were receiving from the tax holiday effectively had been reclaimed by last-minute price hikes.
Fazio: ‘A nice PR stunt’
So why are nearly four out of every 10 states offering sales tax holidays this year?
“Sales tax holidays are politically popular with elected officials because they offer direct discounts, whether real or perceived, to consumers in a highly visible way,” Loughead and Myers wrote.
“Permanent solutions tend to be deprioritized when politically easier, temporary gimmicks like sales tax holidays persist,” wrote researchers for the Tax Foundation. Another Tax Foundation official once told the New York Times these holidays are “political catnip.”
Connecticut’s promotions have long been lauded by politicians here.
“Our annual sales tax holiday gives Connecticut consumers some extra savings during the busy back-to-school retail season,” Lamont said Monday. “I encourage everyone to take advantage of these savings and, as always, support our many locally owned small businesses.”
Promoting the event last year in West Hartford, Lamont said, “This is Christmas in August.”
Sen. Ryan Fazio of Greenwich, who is exploring a bid for governor and currently is a ranking Republican on the legislature’s Finance, Revenue and Bonding Committee, also backs the sales-tax-free week — but says state officials real focus must be on further, ongoing income tax rate cuts.
Sales tax holidays are “a nice PR stunt for leadership in state government with the third-highest taxes in the country who have refused to deliver real long term tax relief,” he said.