LEGISLATIVE SERVICES AGENCY
OFFICE OF FISCAL AND MANAGEMENT ANALYSIS
200 W. Washington St., Suite 301
Indianapolis, IN 46204
(317) 233-0696
iga.in.gov
FISCAL IMPACT STATEMENT
LS 6084 NOTE PREPARED: Oct 17, 2021
BILL NUMBER: HB 1161 BILL AMENDED:
SUBJECT: Sales Tax Holiday.
FIRST AUTHOR: Rep. Campbell BILL STATUS: As Introduced
FIRST SPONSOR:
FUNDS AFFECTED:XGENERAL IMPACT: State
XDEDICATED
FEDERAL
Summary of Legislation: This bill defines "clothing", "backpack", "school supply", and "computer". It
provides a Sales and Use Tax exemption period beginning on August 1 through August 7 of each year for
the following items:
(1) A backpack or school supply, if the backpack or school supply is purchased for use by a student in a
public or private elementary or secondary school, and if the sales price of the backpack or school supply does
not exceed $100.
(2) Certain articles of clothing, if the sales price of the article of clothing does not exceed $100.
(3) A computer, if the computer is purchased for use by a student in a public or private elementary or
secondary school, and if the sales price of the computer does not exceed $500.
Effective Date: July 1, 2022.
Explanation of State Expenditures: The Department of State Revenue (DOR) could incur additional costs
to administer the Sales Tax holiday and enforce the bill’s provisions regarding the Sales Tax holiday. The
DOR should be able to implement the bill’s provisions within its existing level of resources.
Explanation of State Revenues: Summary: The bill could reduce Sales Tax revenue by an estimated $6.6
M to $17.8 M annually beginning in FY 2023. Revenue loss due to a Sales Tax holiday would depend on the
volume of planned purchases that are shifted to the week in August when certain items are exempt. Sales Tax
revenue is deposited in the General Fund (99.838%), Commuter Rail Service Fund (0.131%), and Industrial
Rail Service Fund (0.031%).
HB 1161 1 Additional Information: The bill provides a Sales Tax exemption for clothing (including shoes), backpacks,
school supplies, and computers not exceeding a specified price from August 1 through August 7 every year.
While all clothing items priced at $100 or less would be exempt during the Sales Tax holiday, the bill states
that only backpacks, school supplies, and computers purchased for use by elementary and secondary students
would be exempt. The estimated revenue loss includes clothing, backpacks, school supplies, and computers
purchased for use by elementary and secondary students. It also includes clothing purchased for use by adults
and infants. However, the revenue loss could be greater to the extent that additional backpacks, school
supplies, and computers are purchased during the Sales Tax holiday.
According to surveys sponsored by the National Retail Federation over the past five years, families with
children in elementary, middle, and high school planned to spend an average of $241 on clothing, $143 on
shoes, $125 on school supplies, and $233 on electronics and computer-related equipment in preparation for
each school year. Adjusting for Indiana prices relative to other states, total average expenditures in Indiana
are estimated to be around $713 per family. Based on Census Bureau data, there were an estimated 534,160
households in Indiana with children ages 6 to 17 in CY 2019.
The revenue loss from exempting clothing during the Sales Tax holiday would also be significant. Based on
an analysis of Consumer Expenditure Survey data published by the Bureau of Labor Statistics and Personal
Consumption Expenditure data published by the Bureau of Economic Analysis, LSA estimates that
consumers in Indiana spent between $4.4 B and $6.3 B on clothing and footwear in 2019 (before taxes).
Excluding children’s clothing and back-to-school purchases by college students, the average weekly sales
are estimated to be at least $53.7 M.
The estimated revenue loss depends on assumptions regarding the share of purchases that will be shifted to
coincide with the Sales Tax holiday. Research on this subject has shown mixed results. Some recent studies
have found no evidence of consumers shifting the timing of their purchases due to a sales tax holiday.
Another study found that sales tax holidays are associated with a 4.18% reduction in revenue for the month
in which the holiday occurs, and a significant portion of that fiscal impact is due to shifting. The lower limit
estimate is based on the assumption that the Sales Tax holiday will not affect the timing of purchases. The
upper limit estimate assumes that consumers planning to shop for back-to-school items two weeks before and
two weeks after the Sales Tax holiday will shift their purchases to coincide with the holiday.
Explanation of Local Expenditures:
Explanation of Local Revenues:
State Agencies Affected: Department of State Revenue.
Local Agencies Affected:
Information Sources: National Retail Federation, Annual 2021 Back-to-School Spending Survey, Annual
2021 Back-to-College Survey, https://nrf.com/insights/holiday-and-seasonal-trends/back-to-school. U.S.
Census Bureau, 2019 American Community Survey 1-Year Estimates, Households and Families.
Aladangady, Aditya, Shifrah Aron-Dine, Wendy Dunn, Laura Feiveson, Paul Lengermann, and Claudia Sahm
(2017). "The Effect of Sales-Tax Holidays on Consumer Spending," FEDS Notes. Washington: Board of
Governors of the Federal Reserve System, March 24, 2017, https://doi.org/10.17016/2380-7172.1941.
Agarwal, Sumit, Nathan Marwell, and Leslie McGranahan. 2017. “Consumption Responses to Temporary
Tax Incentives: Evidence from State Sales Tax Holidays.” American Economic Journal: Economic Policy
HB 1161 2 9(4): 1-27. Cole, Adam J. 2009. “Sales Tax Holidays: Timing Behavior and Tax Incidence.” Dissertation,
University of Michigan. National Center for Education Statistics, Enrollment by age category, level of
student, attendance status and gender: Fall 2019. U.S. Bureau of Labor Statistics, Consumer Expenditure
Survey, 2019. U.S. Bureau of Economic Analysis, Total Personal Consumption Expenditures by State,
Personal Consumption Expenditures by Type of Product, 2019.
Fiscal Analyst: Lauren Tanselle, 317-232-9586.
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