(The Center Square) – Tennessee parents purchasing school supplies and clothing for their children will get a break on the sales tax beginning Friday, but a report from the Tax Foundation says tax-free holidays are not always a vehicle for tax relief.
Clothing and school supplies $100 or less, and computers $1,500 or less, will be tax-free through Sunday at 11:59 p.m.
Some items are exempt. They include jewelry, handbags, printing supplies, software and appliances, according to the Tennessee Department of Revenue.
“Tennessee’s sales tax holiday has become a back-to-school tradition for families,” Revenue Commissioner David Gerregano said in a statement.
A report from the Tax Foundation says tax-free holidays do not deliver the promised economic benefits.
“While some consumers make incidental ‘impulse’ purchases during these holidays, those additional purchases are not enough to justify the revenue costs associated with these holidays, even if such impulse purchases are desirable,” the organization said in a report. “Since sales tax holidays shift the timing of demand but do little to increase its magnitude, sales tax holidays reduce state and local tax collections for little or no economic benefit.”
The loss of sales tax has to be made up somewhere, according to the Tax Foundation.
“While revenue losses associated with most sales tax holidays are not particularly large, they still have to be offset by revenue generated elsewhere, which is a net negative for states’ overall economic health since other revenue sources are often more economically damaging than sales taxes,” the Tax Foundation said in its report. “And states that can consistently cover these holidays out of surplus revenues could better utilize their excess funds on more economically efficient tax reforms, particularly rate reductions.”
Tennessee’s sales taxes are the second-highest in the country for both the state rate and the combined state/local rate, according to the Tax Foundation, a nonpartisan tax-policy nonprofit. The state’s sales tax is 7%, second behind California’s 7.25%.
Local governments can charge up to 2.75%, resulting in a combined state rate of 9.61%.
Only Louisiana has a higher combined rate of 10.11%, which is the state’s 5% sales tax rate combined with local sales tax rates of up to 7%.
Tennessee has offered the back-to-school sales tax holiday for two decades, according to a release from the Tennessee Department of Revenue.
“Tennessee’s strong track record of fiscal stewardship has allowed our state to cut taxes and put dollars back in the pocket of hardworking Tennesseans,” said Gov. Bill Lee. “I encourage every family to take advantage of back-to-school savings, and thank the General Assembly for their partnership to provide direct financial relief for taxpayers.”
In 2026, 20 states are holding sales tax holidays, according to the Tax Foundation. Some states ended the tax-free periods, which the Tax Foundation says are sometimes “an inefficient vehicle for providing tax relief or generating additional economic activity.”
“They often end up hurting the taxpayers they intend to help,” the organization said. “They inject unnecessary instability into government and business revenue streams; create administrative and compliance costs for businesses, governments, and consumers; and do not promote long-term economic growth.”
