Governor’s Proposal Would Grant Two-Day Sales Tax Holiday in August Sales Tax Holiday Would Save RI Taxpayers Over $5 Million

Governor Donald L. Carcieri’s proposal to grant a two-day sales tax holiday in August is scheduled to be heard at 2:00 p.m. today by the House Finance Committee. The Governor’s sales tax holiday plan was included as part of his budget proposal for the coming fiscal year (FY 2007).

Specifically, the Governor has proposed to enact a sales tax holiday on August 12 and 13, 2006. The sales tax holiday would enable Rhode Island retailers to compete with a similar holiday in Massachusetts, while saving Rhode Island taxpayers approximately $5.3 million.

“Last fall, I asked the General Assembly to enact a sales tax holiday for the weekend after Thanksgiving Day,” Governor Carcieri said. “I also asked them to approve a two-day sales tax holiday every August, to coincide with a similar holiday that Massachusetts holds each year.”

“Now that the General Assembly is back in session, and that some members of the House have expressed support for this plan, I hope they will enact the two-day sales tax holiday that I included in my budget for the coming fiscal year,” the Governor said. “As the cost of living goes up, I believe we should help Rhode Island consumers get the most out of their paychecks. A sales tax holiday will do that by giving Rhode Islanders a break on consumer goods.”

“I also believe that Rhode Island must be able to compete economically with our neighboring states,” Carcieri said. “With a lower total tax burden than Rhode Island, Massachusetts already puts us at a serious competitive disadvantage. Forcing our retailers to compete with a sales tax holiday in Massachusetts only makes the situation worse.”

“Rhode Island retailers and their employees deserve the opportunity to compete on a level playing field during those two days each August. We should not sit idly by while Massachusetts lures millions of dollars of business away from Rhode Island retailers. An August sales tax holiday will give Rhode Island retailers and their employees a fighting chance to compete with their counterparts in Massachusetts,” Carcieri said.

During the Governor’s proposed two-day sales tax holiday, the state would collect no sales tax on most goods costing $2,500 or less. The state would continue to collect sales and use taxes on a limited set of goods and services, including automobiles, telecommunications services, cigarettes, restaurant meals and hotel accommodations, and all business to business transactions. The State Budget Office estimates that the sales tax holiday would save Rhode Island taxpayers approximately $5.3 million.

On October 4, 2005, Governor Carcieri proposed a one-time, two-day sales tax holiday on November 26 and 27, 2005 -- the Saturday and Sunday following Thanksgiving Day -- to make up for the sales tax holiday that Massachusetts held on August 13 and 14 of last year. The Governor also proposed that Rhode Island enact a two-day sales tax holiday in August of each subsequent year.

The Governor argued that a sales tax holiday in late November would help retailers and consumers who are feeling the pinch of increased energy prices. A sales tax holiday would also give Rhode Island retailers the opportunity to make up for sales lost to Massachusetts retailers during Massachusetts’ sales tax holiday last August.

In 2004, twelve states enacted sales tax holidays: Connecticut; District of Columbia; Florida; Georgia; Iowa; Massachusetts; Missouri; New York; North Carolina; South Carolina; Texas; and New Mexico.

During the 2005 and 2006 period, fourteen states and two major cities have held or are scheduled to hold sales tax holidays: Louisiana, Connecticut, Georgia, North Carolina, South Carolina, Massachusetts, Missouri, Iowa, Texas, Florida, New Mexico, New York, Maryland, and Tennessee, as well as New York City and Washington, D.C.

The Massachusetts Department of Revenue estimated that the sales tax holiday Massachusetts held on August 14, 2004 resulted in increased retail sales of approximately $200 million, for a total taxpayer savings of approximately $10.1 million. A similar two-day sales tax holiday on August 13 and 14 of last year generated an estimated $300 million in exempt sales, saving taxpayers approximately $15.4 million.

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