What does the future hold for sales tax holidays in the Buckeye State? The 2024 Sales Tax Holiday was expanded from a three-day period exempting items priced up to $75 for “back to school” to a ten-day period exempting most items priced up to $500 and the total impact of the expanded Holiday is still not known.
Ohio jumped into the world of sales tax holidays with the enactment of Senate Bill 243 in 2014 sponsored by then-state Senator Kevin Bacon. The bill created a sales tax-exemption window from August 7 to August 9 of 2015 for clothing priced at $75.00 or less per item and school supplies/instructional materials priced at $20.00 per item or less. Both state and local “piggy-back” sales taxes were exempted on these items during the holiday. This initial weekend of limited tax-exempt shopping proved popular, so similar bills were passed for holidays in 2016, 2017 and 2018.
After this flurry of legislative “one-off” sales tax holidays, Sen. Bacon and fellow state lawmakers concluded the popularity of a sales tax holiday warranted legislation making the three-day exemption holiday “permanent.” Senate Bill 226 in 2018 was enacted with overwhelming, bipartisan support. Ohio would have its three-day “back to school” sales tax holiday annually. Until legislation in 2023 expanded the sales tax holiday for 2024, that is.
A Bigger Holiday
As we reported in our Buzz, Ohio Enacts Major Tax Cuts & Provides New Economic Development Benefits, a vastly expanded sales tax holiday was enacted in the state’s biennial operating budget of 2023 (House Bill 33). Starting in 2024, shoppers in Ohio would enjoy sales tax exemptions on all items of tangible personal property priced at $500 or less excluding motor vehicles, watercraft, alcohol, marijuana, and tobacco/vape products. Initially, a 14-day “holiday” was sought, but 2024’s holiday ended up being 10 days – July 30 through August 8. Additionally, language was added to allow the Tax Commissioner and the Office of Budget & Management (OBM) Director to decide how long the holiday will be (at least 3 days) based on certain parameters.
The Ohio Department of Taxation provided vendors and consumers with an array of useful information here in the months leading up to the expanded sales tax holiday in 2024 and will do so in the future.
The budget also transferred nearly three-quarters of a billion dollars into a reimbursement fund to replace moneys foregone by the state General Revenue Fund (GRF), the Public Library Fund (PLF), the Local Government Fund (LGF), and any permissive tax distribution funds. The fiscal impact of this expanded sales tax holiday continues to be reviewed by state officials, and the final “cost” (really, the final savings to the taxpaying public) will be known within the next few weeks. Notably, this reimbursement of foregone revenue had not occurred in prior iterations of the sales tax holiday.
As discussed above, moving forward, Ohio will continue to have an “expanded sales tax holiday” to be three days or more, held on or around the first full weekend of August, so long as the reimbursement fund contains at least $60 million. If that benchmark is met, the Tax Commissioner shall, in consultation with the OBM Director and the County Commissioners’ Association of Ohio, determine the length of the next sales tax holiday.
If there is less than $60 million in the reimbursement fund, Ohio reverts to its prior “back to school” sales tax holiday with no reimbursements for any of the governmental units who forego revenue.
How It’s Funded
So, how does money get into the “expanded sales tax holiday fund” which is used for holding the GRF, PLF, LGF, and local sales tax funds harmless? At the start of a state’s fiscal year, there is a hierarchy of what happens to available GRF moneys:
- One-half of one percent of GRF revenues for the previous fiscal year is used as a cashflow, carry-over balance.
- The state’s Budget Stabilization Fund, sometimes called the rainy day fund, receives any available amount necessary to get its balance up to ten percent of the GRF revenues for the preceding fiscal year.
- The remainder of the available prior year balance flows into the expanded sales tax holiday fund.
Where do we go from here?
As current law reads, there will be a sales tax holiday in 2025 and beyond regardless of the state’s fiscal circumstances. A smaller “back to school” sales tax holiday will occur if the expanded sales tax holiday fund does not sit at $60 million or more. Or an expanded sales tax holiday will occur if the $60 million trigger is reached.
As members of the General Assembly will remind you, though, “They call it the ‘revised code’ for a reason.” The biennial operating budget for FY 26 – FY 27, set to be adopted in June of 2025, could change the statutory parameters, as could any subsequent legislation dealing with this issue.
Stay alert, and plan accordingly. And remember to look at prices for items you might buy during a sales tax holiday before the holiday starts. It’s only a good deal if you’re paying less than it would have cost pre-holiday including sales tax. Mrs. Perera will be enjoying the American-made furnace filters I stocked up on for years to come.
If you would like to further discuss the future of Ohio’s sales tax holiday, please reach out to Brian Perera, or any of our ZHF professionals.