Baker proposes two month long Massachusetts sales tax holiday

What would you buy if the sales tax holiday weekend lasted for two months?

Gov. Charlie Baker filed legislation Wednesday to establish a sales tax holiday throughout the months of August and September.

“A two-month sales tax holiday will provide a boost to Massachusetts’ taxpayers and Main Street economies as we continue to recover from COVID-19,” Baker said. “Massachusetts’ economic recovery is off to a good start, but it’s crucial that the Commonwealth takes action now to spur more economic activity in communities and support taxpayers. Thanks to stronger than expected tax revenues, the Commonwealth has managed to grow the Rainy Day Fund to a balance higher than it was at the beginning of the pandemic, and we can also afford to return these tax dollars to our residents and small businesses.”

State tax revenues for Fiscal Year 2021 continue to exceed projections, with revenues to date 14.9 percent above benchmark, according to a news release from Baker’s office. Strong revenues across the board have allowed the Commonwealth to grow the size of the Stabilization Fund and be poised to end the fiscal year with a significant surplus for the FY21 budget.

“We recognize that many residents, families, and small businesses continue to face challenges related to the COVID-19 pandemic,” said Lt. Governor Karyn Polito. “As a result of the Commonwealth’s strong revenue performance, we are proposing to extend the annual sales tax-free weekend to two months to help support small and local businesses throughout Massachusetts and power our economy forward.”

Massachusetts has been awarded significant federal resources since the start of the COVID-19 pandemic, including Coronavirus Relief Fund dollars through the CARES Act which have helped reduce pressure on the operating budget.

Tax revenues have continued to come in at higher-than-expected levels. Tuesday, the Department of Revenue certified to the Comptroller that a total of $2.3 billion in capital gains tax revenue has so far been collected in FY21. This figure is $947 million higher than the FY21 capital gains tax collections threshold, meaning that under state law, $852 million is transferred to the Commonwealth’s Stabilization Fund. Therefore, the Stabilization Fund balance will now stand at approximately $4.4 billion, which is higher than it was at the beginning of the pandemic and nearly quadruple the balance when the Administration took office in 2015.

If enacted, this proposal would be an expansion of the annual sales tax-free weekend, which designated now for August 14-15. In 2018, the annual sales tax holiday was made permanent.

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