As North Carolina lawmakers consider bringing back the state’s back-to-school sales tax holiday starting in 2026 as a savings benefit to families, critics warn the tax break may be more alluring than substantial, offering political appeal but limited economic impact.
The North Carolina House’s budget proposal would revive the once-popular initiative that gives families a break at the register for one weekend during back-to-school season. If approved, the state would reinstate its Sales Tax Holiday beginning in 2026, allowing shoppers to buy school supplies tax-free for one weekend a year.
Supporters say it’s a win-win for families and businesses, while critics argue it’s more of a symbolic gesture than substantive economic policy. Two voices on the tax policy offer contrasting views on whether the popular weekend reprieve delivers meaningful relief or masks broader fiscal tradeoffs.
Andy Ellen, President and General Counsel of the North Carolina Retail Merchants Association, is a strong proponent of the measure. He argues that the sales tax holiday would offer real savings at a time when parents are stretched thin financially as they prepare for the school year.
“A Sales Tax Holiday is a win for both North Carolina’s hard-working families and retailers,” said Ellen. “Coupled with the sales that many retailers time to coincide with the Sales Tax Holiday, shoppers will see meaningful savings on necessary items.”
Ellen also believes reinstating the tax-free weekend could strengthen North Carolina’s retail economy by pulling shoppers who have gone out-of-state.
“A Sales Tax Holiday could also bring shoppers back to North Carolina who are taking advantage of the Sales Tax Holiday in our neighboring states of Virginia, Tennessee, and South Carolina,” added Ellen.
North Carolina previously offered a sales tax holiday, but it was repealed in 2013 as part of a broader tax overhaul. Since then, neighboring states have continued to offer similar incentives, often around the same time in late summer.
But not everyone is convinced the holiday delivers subtantial tax policy for North Carolinians. Joseph Harris, a fiscal policy analyst at the John Locke Foundation, cautions that the benefits are overstated and may not reach the families most in need.
“While sales tax holidays may seem to offer meaningful tax relief to working families, they are more of a symbolic gesture than a substantive policy measure,” Harris said. “Sales tax holidays impose compliance costs that disproportionately burden small businesses, and rather than stimulating new economic activity, they typically only shift the timing of purchases to the tax-free period. This means that the state sacrifices tax revenue without generating new economic growth.”
Harris also raises concerns that the policy unintentionally favors wealthier households that have the flexibility to time their spending. Many lower-income families may not have the financial flexibility to wait and do all their shopping during a single weekend if they’re living paycheck to paycheck.
“Moreover, sales tax holidays are often touted to help working-class families; however, wealthier individuals can more easily shift their spending to the tax-free period, thus enjoying greater benefits. Furthermore, sales tax holidays are often accompanied by price increases that erase much of the savings to consumers,” Harris added.
North Carolina’s debate over the sales tax holiday mirrors broader national conversations. According to the Tax Foundation, 19 states are offering some form of sales tax holiday in 2024. The Tax Foundation notes that while sales tax holidays “remain popular despite their economic inefficiencies, unintended consequences, and frequent inability to achieve their stated goals.” The organization noted it’s not only politically popular with eleted officials due to the highly visible direct discount, but it also popular among consumers who often believe they’re getting a good deal, whether it’s real of perceived.
When it comes to the North Carolina Senate’s tax policy proposals, leaders have offered up increased income tax rate reductions for all workers in the state instead of a weekend tax break for school items.
As budget negotiations continue in Raleigh, tax policies among the two chambers is sure to be a focal point in the debates.
The post Sales tax holiday could return to NC, but who really benefits? first appeared on Carolina Journal.