COVID-19 prompts talk of sales tax holidays in Washington state

Sales tax holidays are limited periods of time during which specified items that are normally subject to sales tax are temporarily exempt. Several lawmakers in Washington state are interested in establishing multiple sales tax holidays for small businesses in the coming year.

Approximately 15 states provide one or more sales tax holidays annually — for clothing and school supplies, disaster preparedness supplies, energy-efficient appliances, or guns and hunting supplies. See 2020 sales tax holidays for state-specific details.

Whether sales tax holidays make fiscal sense is debatable. They tend to create extra work for retailers and shift sales rather than boost them: People buy items during the tax-free period that they would normally buy anyway. They also reduce sales tax collections for state and local governments. Yet they’re popular among consumers, because who doesn’t love an opportunity to not pay sales tax?

Like most other states in the west, Washington currently doesn’t provide any sales tax holidays. That could change if the Legislative Republicans’ Safe Economic Restart Plan is adopted. Republican lawmakers believe sales tax holidays would help the more than 230,000 small businesses that were shut down by order of the governor on March 25, 2020, in order to slow the spread of the new coronavirus (COVID-19).

The Legislative Republicans’ Safe Economic Restart Plan calls to “jump-start business activity statewide” within 6–12 months of lifting the business-closure order, in order to minimize “the economic damage associated with the COVID-19 emergency.” Among other proposals, the plan would:

Defer reporting and payment of small business B&O tax, sales tax, and use tax to the end of 2020

Provide sales tax holidays that align with “known shopping promotions,” such as back to school, Black Friday, and Cyber Monday

Other proposals include a year-long holiday from the state’s unemployment insurance social-cost tax and waiving the state minimum-wage increase that was set to take effect in 2021.

Sales tax holidays would reduce sales tax collections, of course, but could encourage Washingtonians to buy from struggling small businesses that were forced to close or limit sales during the pandemic. The plan doesn’t define “small business.”

The Washington Legislature isn’t scheduled to convene until January 11, 2021, though Governor Jay Inslee may call a special legislative session before then. In the meantime, his spokesman Mike Faulk says he has no doubt the governor and his staff will review the Republican proposal.

For more information about worldwide tax relief related to the pandemic, see our COVID-19 tax news and resource hub.