INDIANAPOLIS — People looking for tax-free back-to-school shopping will have to look outside of Indiana.
Across the country, 17 states are participating in tax-free holidays for back-to-school shopping in 2022. Additionally, there are four states that never collect sales tax on purchases.
The closest state to Indiana shoppers can get their back-to-school shopping done sales tax-free is Ohio. They offer a sales tax holiday on the first Friday, Saturday, and Sunday of August each year. This year, the holiday goes from August 5 through August 7.
During the holiday, shoppers can get clothing, school supplies, and school instructional material without sales and use tax. However, items used in a trade or business are not exempt.
There is a cost limit per item for the tax holiday. Clothing needs to be cheaper than $75. School supplies and instructional materials need to be priced at $20 or less. However, there is no limit on the amount of the total purchase.
While Indiana does not have a sales tax holiday, some lawmakers tried to change that during the last legislative session. This includes both Republican and Democratic lawmakers.
Representative Chris Campbell (D-26) introduced House Bill 1161, which would create a sales tax holiday on back-to-school items from August 1 through August 7. This would include clothing, backpacks, school supplies, and computers.
Rep. Campbell introduced the legislation on January 6. It was referred to the Committee on Ways and Means after the first reading, where no action was taken on it.
Senator Travis Holdman (R-19) authored much more ambitious legislation. He introduced Senate Bill 325, which would create a sales tax holiday beginning July 15 through July 31. The legislation proposed a temporary tax reprieve on any retail purchase.
In an interview with the Indiana Business Journal, Holdman said he wanted the tax holiday to target families buying clothes, school supplies, and other large items.
Sen. Holdman introduced the legislation on January 11. It was referred to the Committee on Tax and Fiscal Policy after the first reading, where no action was taken on it.
While a sales tax holiday might be welcome to parents facing an average of $864 on back-to-school shopping, the nonprofit tax policy organization the Tax Foundation, says it is bad policy.
The organization claims evidence shows sales tax holidays don’t promote economic growth or significantly increase consumer purchases. Instead, people shift the timing of their purchases to take advantage of the holiday.
They claim these holidays are based on poor tax policy and distract from real, permanent, and economically beneficial tax reform. The organization says if policymakers want to save money for consumers, they should cut the sales tax year-round.
Data from the Sales Tax Institute shows Indiana has the 3rd highest sales tax in the country, tied with three other states at 7%. The highest sales tax comes from Puerto Rico, which has a massive 11.5%
However, when you factor in local sales tax, which several states allow combining with the state sales tax, Indiana’s rate is near the middle at #23, tied with Rhode Island and Oregon.
Indiana has a record $6.1 billion surplus, feeding from tax collections including the state sales tax. In 2021, some legislators talked about proposing reductions to the sales tax and other taxes.
Those talks resulted in a $1.1 billion income tax cut bill. The bill could reduce Indiana’s income tax rate from 3.23% to 2.9% over seven years.