BOSTON — Shoppers get a reprieve from the state’s sales tax this weekend, but the annual two-day “tax holiday” comes at a make or break time for many retailers who are struggling from pandemic-related losses.
The respite Saturday and Sunday, Aug. 29 and 30, will allow shoppers to avoid paying the 6.25% Massachusetts sales tax on most retail items — excluding food and drink at restaurants — costing less than $2,500.
Main Street retailers view tax holidays as a chance to lure shoppers during a slow season and level the playing ground with Amazon and other online merchants. It’s also important for communities along the New Hampshire border that compete year-round with stores in the sales-tax-free Granite State.
But this year is different, said Jon Hurst, president of the Massachusetts Retailers Association.
“We know the consumer has unlimited options today, whether it’s going across the New Hampshire border or using a smartphone,” Hurst said at an event earlier this week to highlight the tax holiday. “But this year, even more so, we need them to shop locally, as if jobs depend on it, because, frankly, they do.”
Hurst said the pandemic has battered the retail industry. While most stores reopened following coronavirus shutdowns, they’re still limited to half the number of customers in their stores as possible under the state’s reopening plans. More than 80% of the association’s retailers say sales are down substantially over last year, he said.
For the state, the tax holiday comes at a cost. The Department of Revenue estimated Massachusetts forfeited more than $30 million in revenue over the sales-tax weekend last year. That’s meant less money for the MBTA, the state’s school building fund, and other recipients of the sales tax revenue.
Economists say the state could be taking a $6 to $8 billion hit to its revenues in the next fiscal year as a result of economic fallout of the virus.
Gov. Charlie Baker joked at a press briefing this week that his friends often rib him about the yearly loss of revenue for the state’s coffers.
“A tax break is always good for the taxpayer, obviously, but this year in particular we really want everybody to think about taking advantage of the chance that this provides for you to go shop in locally owned, locally operated business in your community,” he said.
Retailers suggest that sales before and after the tax-free weekend will help the state recoup some of the tax revenue it will lose.
Massachusetts is one of 16 states holding a tax holiday this year, according to the retailers association. Tax watchdogs are skeptical of the impact of tax-free holidays, with some arguing that it subsidizes businesses at the expense of limited state funding for other programs.
To be sure, not everything is tax-free. The holiday won’t apply to big-ticket items such as cars and boats, or single items costing more than $2,500. Nor would it include taxes on energy bills, restaurant meals, tobacco or marijuana products.
There’s no state sales tax on groceries or clothing costing less than $175.
Retailers say the Massachusetts sales tax puts them at a competitive disadvantage. It’s third-highest in New England, behind Rhode Island’s 7% and Connecticut’s 6.35%.
Hurst called on consumers to shop locally this weekend to support the state’s retailers as they recover from the pandemic.
“Consumers have a lot of power,” he said. “The importance of where we spend and how we spend really has an impact on our Main Streets and local businesses.”
Christian M. Wade covers the Massachusetts Statehouse for North of Boston Media Group’s newspapers and websites.