Sales tax holidays for back to school offer slim savings
Some experts call events ‘gimmicks’ that primarily benefit politicians who push the ‘holidays’
If you missed out on the blitz of deals offered early this week by many online retailers, don’t despair: There may be additional savings on the horizon, as more than a dozen states gear up for their annual summer sales tax “holidays.”
This year, 16 states are offering back-toschool promotions, exempting many items — including clothing, shoes, notebooks and other supplies — from state sales taxes. The National Retail Federation estimates that families of school-age children will spend an average of $687 on back-toschool shopping.
First to offer the promotion is Alabama, with a three-day holiday that started Friday.
The other states offering back-to-school tax-free weekends or weeks in July or August are Arkansas, Connecticut, Florida, Iowa, Maryland, Massachusetts, Mississippi, Missouri, New Mexico, Ohio, Oklahoma, South Carolina, Tennessee, Texas and Virginia. Links to each program can be found on the website of the Federation of Tax Administrators, a group that serves state tax agencies.
Some states, including Missouri, Florida and Tennessee, exempt a broad range of items, including computers. Others offer a leaner menu: Iowa and Oklahoma simply exempt clothing.
A few states also offer sales tax holidays with other themes, like hurricane or hunting season.
Though generally welcomed by consumers, tax holidays are disparaged by some tax experts, who see them as gimmicks that distract from a broader debate
about how to make state tax policies more equitable.
Elected officials, however, like to be seen as helping their constituents. “The largest beneficiaries of sales tax holidays are politicians,” said Richard Auxier, a researcher with the Tax Policy Center.
Big retailers are also generally fans because the promotions provide free advertising, Auxier said. “The state is effectively saying, ‘Go out and shop now!’ ” he said.
But the tax holidays put a damper on state revenue and don’t necessarily deliver the business results they promise, said Dylan Grundman, a senior policy analyst at the Institute on Taxation and Economic Policy.
“People shift purchases, but don’t increase their overall spending,” Grundman said. “So the boost to business doesn’t really materialize.”
Still, the tax holidays have endured, although the number of states holding them has fluctuated, depending in part on a state’s economy and political situation. Last August, Wisconsin held its first sales tax holiday after Gov. Scott Walker, a Republican who was up for reelection, signed legislation enacting the five-day event. He was defeated in November by Tony Evers, a Democrat.
This year, Wisconsin has no plans to repeat it, said Patty Mayers, communications director for the state’s Department of Revenue. “That was a one-time occurrence.”
Massachusetts, on the other hand, voted last year to make its holiday permanent after years of on-again, off-again events. Previously, the holiday had to be authorized by the state legislature each year.
Shoppers’ savings ranges from 4 percent to 7 percent depending on the state; that can rise to 8 percent or 9 percent if local sales taxes are exempted, which is the case in many states. Five states don’t have state sales taxes, and some states allow cities and towns to opt out of the holiday.
Someone buying a $30 backpack in a state with a tax rate of 7 percent would save $2.10. Despite the modest savings, people reliably turn out to shop, perhaps because they just like the idea of not paying taxes.
“People who won’t walk across the street to save $5 on a pair of pants will take a day off from work to take advantage of a sales-tax holiday,” said Verenda Smith, a spokeswoman for the Federation of Tax Administrators.
Here are some questions and answers about sales tax holidays:
Is there a limit on the amount that can be purchased tax-free?
That varies by state. Most cap the cost of eligible items. Maryland, for instance, exempts apparel and footwear up to $100 per item, as well as the first $40 of a backpack or book bag purchase.
South Carolina’s holiday covers eligible merchandise of “any dollar amount,” according to the state’s website.
Do sales tax holidays apply to online purchases?
Generally, yes, Grundman said. Massachusetts, for instance, exempts items bought online during the holiday period, even if they are delivered after it concludes. Florida’s holiday exemption applies to online, mail-order and catalog purchases.