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The Gerald R. Ford School of Public Policy at the University of MichiganThe Gerald R. Ford School of Public Policy at the University of Michigan

CLOSUP report cited in a recent Christian Science Monitor article, "Tax holiday: 'tis the season when many states waive sales taxes."

Monday, August 9, 2010

A Center for Local, State, and Urban Policy (CLOSUP) report was cited in a recent Christian Science Monitor article discussing sales tax holidays, a popular policy tool. Families like them because they cut costs on back-to-school purchases and other exempted items. Businesses like them because they boost sales. However, the jury is out on whether they help or hurt local governments, particularly at a time when jurisdictions are struggling to balance their budgets.

The CLOSUP report summarizes the doctoral dissertation research of Adam J. Cole, a 2009 University of Michigan graduate who now serves as a financial economist with the Office of Tax Analysis at the U.S. Department of the Treasury in Washington, D.C. Cole's research, which looked specifically at computer purchases, found that in a nine-state sales tax holiday on computers in 2007, consumers purchased 161 percent more computers during the tax holiday compared to the prior week, demonstrating a significant increase in sales. Unfortunately, the states that offered this tax holiday also collectively lost between $3.3 and $5.1 million in sales tax revenue.