Iowa sales tax holiday is Aug. 7-8

Iowa’s Annual Sales Tax Holiday will take place Aug. 7-8, exempting clothing and footwear purchases under $100 from the state’s 6% sales tax and 1% local option sales taxes.

The annual holiday — a feature in 20 other states — gives consumers some relief from sales taxes. Proponents of the holiday argue that it helps economic growth because it increases retail activity.

Opponents of the holiday point to a study that says it does not help economic growth because consumers would have shopped at different times.

Kathrien Loughead, the vice president of State Tax Policy, said sales tax holidays suggest policymakers recognize that state sales taxes can discourage economic activity.

“The prevalence of sales tax holidays points to deeper structural weaknesses in state tax codes: their existence reveals that the sales tax is overly burdensome throughout the rest of the year,” Loughead said in a news release. “If policymakers believe that suspending the sales tax for a single week, for example, can stimulate economic growth, they are implicitly acknowledging that the tax suppresses economic growth for the other 51 weeks.” 

Loughead added that state revenue losses from sales tax holidays are small and she believes revenue would have to be generated from elsewhere to make up for the losses, which would result in the state losing revenue.

“They inject unnecessary instability into government and business revenue streams; create administrative and compliance costs for businesses, governments, and consumers; and do not promote long-term economic growth,” Loughead said.

Iowa’s tax holiday is shorter than those in some other states, where exemptions can last up to a week and cover a broader range of consumer items.