Summer sales tax holiday on the table in Wisconsin

A bill seeking to establish a summer sales tax holiday is moving through the Wisconsin Legislature. If approved, it could help boost sales at amusement parks, arcades, brewpubs, movie theaters, restaurants, and taverns — businesses devastated by restrictions put in place to slow the spread of COVID-19.

The tax-free period proposed in Assembly Bill 242 would run from June 1 through August 31, 2021. During that time, sales of tangible personal property and taxable services by qualifying businesses would be exempt from Wisconsin’s state sales and use tax, as well as applicable local sales and use taxes (i.e., county sales and use tax, resort sales and use tax, local exposition district food and beverage tax). The temporary exemption would not apply to admissions to activities or events.

Only businesses classified as a qualifying business under the North American Industry Classification System would be eligible for the temporary sales and use tax exemption. However, businesses classified otherwise on or before March 1, 2021, could apply to the Wisconsin Department of Revenue for the appropriate classification, in a yet-to-be-determined process.

Speaking in support of the measure, Representative Gae Magnafici urged colleagues to help “incentivize customers to visit these once flourishing industries.” Representative Patrick Snyder said it could boost over 11,000 businesses. And Representative Scott Krug said the proposed sales tax holiday is a type of stimulus that “should generate a little more business than would ordinarily occur, just for a time. It’s brilliant.” 

Do sales tax holidays make cents?

Not all experts consider sales tax holidays to be brilliant. They generally reduce sales and use tax collections and offer little in the way of savings.

According to the Tax Policy Center, a back-to-school sales tax holiday typically shaves about $4 off the total cost of school supplies for one elementary school student. More affluent consumers may not register the difference; and while low-income consumers likely appreciate every dollar saved, the Tax Foundation finds sales tax holidays to be “an inefficient way” to “provide tax relief to the working poor.”

Historically, sales tax holidays are offered as a feel-good measure or to boost sales of specific items, such as disaster-preparedness supplies or energy-efficient products. The summer sales tax holiday on the table in Wisconsin is a bit different in that it’s designed to support businesses hit hard by pandemic-related closures and restrictions.

Tax-free periods as tax relief may be a growing trend.

COVID causes new sales tax holidays

In August 2020, Tennessee provided a short sales tax holiday for restaurant food and drink and increased the price thresholds of qualifying items during its 2020 annual sales tax holiday (thresholds are set to return to normal in 2021). The state may also start studying the effectiveness of sales tax holidays as a temporary tax relief measure.

Several lawmakers in New York have proposed a weeklong sales tax holiday for restaurant food and drink, though the idea hasn’t gained much traction.

Support for the Wisconsin sales tax holiday isn’t unanimous: Eight members of the Committee on Jobs and the Economy recommended passage, and four were opposed. Attempts to establish a one-time sales tax holiday failed in 2014 and 2016 but was approved in 2018.

If a summer sales tax holiday is created in Wisconsin, it will be in good company. See 2021 sales tax holidays for a list of other tax-free periods offered this year.

For help managing sales tax compliance during sales tax holidays and the rest of the year, checkout avalara.com.

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