Massachusetts Tax Holiday – Setting Up for Boom or Bust?

A two day tax holiday is being promoted in Massachusetts in an attempt to increase sales and drive the economy. It is the belief of many, both in government and in the business community, that this small break in taxes will increase sales and be beneficial to the economy. However, not all business owners are sure if they are in favor of this type of tax holiday. Many believe that this will encourage consumers to delay purchases and will skew inventory tracking.

Benefits Of A Tax Holiday

The main benefit of this type of tax holiday is the psychological impact it will have on consumers. Consumers feel they are being given a break by not having to pay taxes and will increase their purchases on those days. Some proponents here in Massachusetts point to Florida businesses having been so successful that the state has increased their back-to-school tax holiday to 10 days and now have a tax holiday for hurricane supplies at the end of May each year. Businesses have been able to easily adjust their inventory levels and have benefited from the increased sales.

Drawbacks Of A Tax Holiday

In some cases, consumers delay making larger purchases until there is a tax holiday. This delay can disrupt regular inventory and alter sales cycles. Many businesses can counteract this issue by either running promotions prior to the holiday to make purchases more enticing, or run large promotions coinciding with the tax holidays to boost sales. And, of course, any reduction in tax revenues – however temporary – can cause problems with the budget further on down the road.
Overall, the changes that take place in inventory and sales figures during the implementation of a tax holiday can quickly be overcome during future tax holidays. Businesses are encouraged to take advantage of the data they generate during this type of event and plan for the future.

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