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The Boston Herald reports today that legislative leadership and the governor are on board for a two-day sales tax holiday that will likely take place, as have previous holidays, on an August weekend, with a date not certain as yet.

Last year's two-day August sales tax holiday saved taxpayers an estimated $20 million, and would likely achieve similar results this year as long as the holiday is structured similarly to past holidays (no holiday for car sales, no holiday on purchases of $2,500 or more, no holiday on items purchased for business use; see Technical Information Release 10-10 for the rules and regulations that governed last year's holiday).

The holiday began as a one-day event 2004, and has been held annually since then with the exception of the summer of 2009, which was the same time the sales tax increased from 5 percent to the current 6.25 percent. The savings to taxpayers have been estimated as follows: 2004, $10.1 million; 2005, $15.4 million; 2006, $16.9 million; 2007, $15.9 million; 2008, $14.9 million; and 2010, $19.9 million (first time holiday was held with sales tax rate set at 6.25 percent).

DOR publishes annual reports to the Legislature for every year in which there is a sales tax holiday.

The sales tax is an important revenue source for the Commonwealth, generating revenue not only for the General Fund but for specific funds dedicated to School Modernization and Reconstruction Trust, Commonwealth Transportation, and Substance Abuse.

In DOR's June revenue report announcing FY11 tax revenue collections of $20.507 billion, sales tax receipts accounted for $4.905 billion, up $293 million or 6.4 percent for the year. Looked at another way, sales tax now generates nearly 24 percent of state tax revenue. Had the sales tax remained at the previous 5 percent rate, the state would have collected approximately $1 billion less in revenue, with all the attendant implications for delivery of state services and assistance.

Clearly, sales tax revenue has helped Commonwealth revenues recover from the recent low of $18.259 billion in FY09 (after hitting a high of $20.888 billion in FY08) back to $20.507 billion in FY11, with a FY12 revenue projection now pegged at $20.636 billion.

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