(The Center Square) – Gov. J.B. Pritzker says an upcoming sales tax holiday on certain purchases will lower costs, but a tax policy analyst says consumers will get only modest relief.
During the 10-day period from Friday through Aug. 16, Illinois consumers can buy qualifying clothing with a retail price of less than $125 per item as well as school supplies and receive a five-percent reduction in the state’s portion of sales tax due.
Local taxes will still be applied during the holiday that was enacted under the fiscal year 2027 state budget and revenue package.
“We listened to parents, and the state is stepping up to lower costs. Every child deserves to walk into the classroom on equal footing with every other child,” Pritzker said at a store in Palatine on Monday.
The governor said families are squeezed by inflation due to failed policies in Washington.
“Illinoisans need relief. Americans need relief. The General Assembly and I have prioritized responsibly lowering costs wherever we could,” Pritzker said.
Tax Foundation Vice President of State Tax Policy Katherine Loughead said sales tax holidays are an inefficient way to offer relief.
“Sales tax holidays create steep compliance costs for businesses and offer only modest relief to consumers. They also pick winners and losers, losers, since the sales tax rate reduction applies only to certain goods and applies only during a very limited time frame,” Loughead told The Center Square.
Pritzker touted the sales tax holiday just two days after the state imposed a permanent 0.25% sales tax increase on six Chicago-area counties. The governor signed legislation last December that provided for the 0.25% increase to fund public transit.
Loughead said it would be better for Illinois to have a lower sales-tax rate year round than to offer limited, targeted relief.
“Sales tax holidays implicitly acknowledge that the sales tax rate is higher year round than it would otherwise need to be to bring in the desired amount of total revenue,” Loughead said.
Loughead said sales tax holidays generate little or no economic benefit to offset their administrative costs.
“We did a review of the economic literature that has been conducted on sales tax holidays, and most studies show that sales tax holidays primarily shift the timing of purchases that folks would have made anyway,” Loughead said.
