Tax Analysts Blog

Sorry, Folks -- Clothes Should Be Taxable

Posted on Feb 25, 2015

North Dakota Sen. George Sinner (D) is sponsoring a bill (SB 2223) before the legislature that would eliminate the sales tax on all clothing purchases. Sinner no doubt means well, but this is an awful idea. The senator is motivated by the fact that the sales tax is regressive and that exempting necessities such as clothing will provide relief to low-income citizens. It will -- but at the expense of sound tax policy.

Here is what you should know. The sales tax should fall on all final personal consumption. Everything you buy, be it tangible personal property or services, should be subject to the tax. Such a broad base minimizes economic distortions, allows for overall lower rates, and makes both administration and compliance easier. How do I know this? I have studied the great thinkers of sales taxation -- preeminent scholars like John Mikesell, Bill Fox, and Matt Murray.

Exempting and partially exempting items are terrible policy choices. In this case, exempting all clothing is an expensive approach to providing tax relief. Everyone buys clothes. So in helping the poor, Sinner will also be helping the rich. There is no reason to exempt a lawyer's purchase of a $2,000 Armani suit from tax. The poor would be better off with an overall lower tax rate.

Moreover, exemptions like this greatly complicate the tax system. The state needs to define clothing. Sinner says it does not include accessories or protective and sporting equipment. The people -- and as importantly, the vendors -- in North Dakota will be wondering whether belts, suspenders, athletic supporters, sports bras, and yoga pants are taxable. Remember, the vendor is on the hook for the tax. There will be a cost in figuring all of this out -- and if the vendor is wrong, only bad things happen.

Other states have unfortunately done this. Clothing is fully exempt in Minnesota, New Jersey, Pennsylvania, and Vermont. Massachusetts, New York, Rhode Island, and Connecticut cap the exemption. In New York, the first $110 of clothing purchases is exempt. That just causes people to buy their sweaters, jackets, pants, etc. in different transactions.

Connecticut exempts the first $50 of clothing purchases. Shoes are exempt. Boots are not. Bandannas are exempt. Headbands are not. Baby bibs are exempt. Lobster bibs are not. Chef uniforms are exempt. Aprons are not. Baseball caps are exempt. Athletic uniforms are not. Gloves are exempt, but not if they are of the athletic, garden, golf, rubber, surgical, tennis, or work variety. Earmuffs are exempt. Ski pants are not. Anyway, you get the picture.

The exemption for clothing, like that of food for home consumption, is well meaning. My cynical friends would say that the purveyors of clothing and food for home consumption seem to be behind these ideas. But they are bad policy choices. A very broad sales tax base with very low rates would serve everyone -- rich and poor alike -- much better.

This post is an excerpt of an article that appeared in State Tax Notes and State Tax Today. Visit for information about these and other products.

Read Comments (12)

edmund dantesFeb 24, 2015

Agree that all clothing should be taxed, disagree that services should be
taxed. You want to apply a sales tax to a doctor visit? What would you tax,
the co-pay or the full value of the exam (which might double the co-pay cost)?
You'd apply a sales tax to performing surgery? Would the health insurance
company be paying that?

Similar arguments apply to legal services, most especially contingent fees.
Bad idea. Sales taxes should be limited to tangible personal property--stuff I
can get from Amazon, to avoid them.

vivian darkbloomFeb 25, 2015

Underwear should definitely be taxed--it's optional after all.

But seriously, you're right. What percentage of clothing do people buy that is
actually essential? The economic costs of implementing this proposal are not
insignificant, but how many politicians ever think about those kind of costs?
It's not their problem because the costs are hidden.

david brunoriFeb 25, 2015

Edmund, You identify some admittedly tricky situations. In a perfect world (at
least in my perfect world), all service purchased by consumers would be subject
to tax. The reality is that some services, like the medical examples you note,
would be difficult. Other services, however, are not so difficult. If you went
to an attorney and had a will prepared, imposing a tax on such a transaction
would not be terribly difficult from a compliance or administrative
perspective. I would like to tax more and greatly lower the rates.

emsig beobachterFeb 25, 2015


Why shouldn't the tax be placed on the full value of the services rendered?
Yes, legal and accounting services should be subject to sales tax as well. The
fact that you don't like paying (potentially) paying for them should not drive
tax policy. We'll work out ways to impose the tax on these services at some
time. Sales taxes on services, food and clothing might make the sales tax less
progressive but the yield would be less volatile; and, perhaps the rates can be
lowered somewhat. Besides, you can always travel to NH, OR, MT, or DE for your
surgery and legal and accounting advice.

emsig beobachterFeb 25, 2015

Vivian: A true consumption tax would not discriminate between essential or
discretionary purchases. One person's definition of essential is discretionary
to another -- interpersonal comparisons here are meaningless. Further, business
to business sales should not be subject to tax in order to prevent tax

edmund dantesFeb 25, 2015

emsig, let's say I win a $500,000 claim for lost income, a case that my lawyer
took for a 40% contingent fee. when he takes his $200,000 cut, I should pay
the state a $12,000 sales tax? that strikes me as naked greed by the state.
and when I file my income tax return, neither of those costs will be
deductible. if my federal/state tax rate 35%, I'll owe $175,000 in income
taxes. so of the $500,000 in recovered actual damages, i'll be allowed to keep

i don't think that's the right result. i think it's a tough sell to the
ordinary taxpayer, who won't think a damage award should be a taxable moment.
nor should the receipt of medical services be a sales tax "opportunity."

under your theory, should sales tax apply to the payment of college tuition?
now there's an idea sure to be popular.

vivian darkbloomFeb 26, 2015


Yes, I understand all that. But, most existing VAT systems do either exempt or
subject to a lower rate those items that are deemed "essential" or even
desirable. To mention a few---food, drugs, books in many European schemes.
I'm not defending that, I'm just pointing out that even under that "essential"
reasoning, exempting clothing doesn't make sense because a very small
percentage of those purchases are actually necessary. Some states (CT and NY)
seem to understand that due to their limited exemptions, but as Brunori points
out, those exemptions are a farce.

Michael KarlinFeb 26, 2015

Try this:
Economy consists of
$1 billion of services rendered
$1 billion of sales
Government requires $100 million to operate - let's say to put police on the
streets and maintain the roads. Everyone, sellers of goods and services
providers (and their customers) all benefit.

So what is the rationale that says we have a 10% sales tax on sales of tangible
goods and a 0% tax on sales of services? Why not have a 5% tax on both?

Also, in the modern world, more and more transactions that used to be sales of
goods have become the provision of services? How even, in many cases, to tell
them apart? Why would you pay sales tax on an artificial heart but not on the
services of the surgeon? Or more frivolously, you play a multiplayer game on
line - it's a service in a way that a few years before you would have bought a
shrink wrapped game from Radio Shack (RIP). What changed to justify paying no
sales tax on the former but having to pay sales tax on the latter?

I don't understand the greed argument. The sales tax on the lawyer's services
would be neither greedy nor naked. (I do agree that the costs of winning a
lawsuit should be deductible if the proceeds of the suit are taxable.) Why is
paying tax on one kind of economic transaction in which consideration passes
from a purchaser to a supplier changes based on whether what the supplier
provides goods or services? It will be easy to come up with numerous examples
of sales of goods where having to pay tax will tug at our heartstrings - but we
shouldn't make tax policy based on anecdotes and emotion.

emsig beobachterFeb 26, 2015


In the case of contingency legal awards I suggest that net proceeds should be
taxed, not the gross proceeds. For example, if someone wins a $1,000,000
verdict the the law firm's fee is often one-third -- $333,333.33. The law firm
will charge the client for ancillary costs -- copying, cost of getting
witnesses, etc. If these costs were $50,000 (another SWAG), than the tax should
be imposed on $283,333.33 [$333,333.33 less $50,000].If the plaintiff loses the
case, may be liable for the costs of bringing the case to trial. In my world,
taxes should not be imposed on the $50,000 in costs because I would
characterize this as a business to business transaction.


As a purist, I don't believe the tax system should be used to decide what is
essential or desirable. If food is a necessity, increase SNAP allowances but
collect the tax. I know David (our beloved blogger),Edmund, probably you, and I
can afford to pay the tax on clothing and on food regardless of their degree of
necessity. There is no reason for the state to give us a tax break just because
some families have low incomes.

Providing lower income families with higher earned income credits or other
transfers and requiring them to pay full sales taxes, just like everyone else
is both more efficient than whole or partial exemptions from tax; and, increase
self esteem of lower income families. If they "skin in the game" (tax payments)
they may participate more in public life (vote) and realize that public
services cost money. Economists in the 1930's and 1940's believed all should
pay some taxes for those reasons.


Spoken like a true economist. Now you know why economists are rarely elected to
public office.

edmund dantesFeb 27, 2015

Well, at least we can all agree with Mr. Brunori that clothes should be

vivian darkbloomMar 5, 2015

To demonstrate some of the absurd consequences of applying different VAT rates
to "preferred" goods, the EU has recently ruled that, while paper books can
enjoy a reduced VAT rate, books delivered electronically may not! Ostensibly,
the distinction was that the former is a "good" (nice pun) and the latter a

Apparently, the different rates reflect an EU policy preference for decimated

vivian darkbloomMar 5, 2015

Here's the source.

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