August 14, 2007
States win points with sales-tax holidays
By Pamela M. Prah, Staff Writer
Sources: Federation of Tax Administrators,
State Departments of Revenue
August means the ka-ching of cash registers ringing up back-to-school items, and while shoppers are expected to shell out $18 billion on school clothes and supplies this year, more than a dozen states won't get a cut.
Connecticut, Florida and Texas are among 15 states giving families a break from paying sales tax on certain school-related items this month under temporary "state-tax holiday" programs.
The programs vary widely. Shoppers in Louisiana and Massachusetts had two days this month to make purchases up to $2,500 and not pay the 4 percent and 6 percent state sales tax respectively. Florida shoppers had 10 days to get a 6 percent tax break on clothing with a sales price of $50 or less and school supplies with a sales price of $10 or less.
Some states like Georgia and Virginia have added energy-efficiency products to the mix, while Florida in June shelved the state sales tax for hurricane supplies and equipment.
Sales tax holidays are popular among shoppers and politicians. "It's a way to give tax relief in a highly visible way," said Harley Duncan, executive director of the Federation of Tax Administrators. He said the number of states offering the holidays has slowly increased over the years because they are so popular.
Many tax experts, however, say the programs don't make good tax policy. "Sales-tax holidays are political gimmicks," economist Curtis Dubay of the Tax Foundation said. "They are a cheap way for politicians to score points with working families."
Sales-tax holidays also can be a bureaucratic nightmare for small businesses. A Wal-Mart likely will have no problem complying, but a mom-and-pop operation with 10,000 items on the shelf will have to figure out which items are exempt.
The programs siphon a modest amount of money from state coffers. Florida's sales-tax holiday last year cost the state about $32 million; Georgia lost $11 million; Massachusetts, $16 million; and Tennessee, $22 million, according to the National Association of State Budget Officers.
New Hampshire, one of five states without a state sales tax, has kicked off campaigns for the past three years to lure Massachusetts residents to shop there instead. "I want to remind shoppers they don't have to schedule their shopping around the schedule of state government in Massachusetts because every day in New Hampshire is a tax-free holiday," Gov. John Lynch (D) said in a statement.
The other states without state sales taxes are Alaska, Delaware, Montana and Oregon.
Dubay of the Tax Foundation said a better idea than a temporary sales-tax holiday is for states to broaden the sales-tax base and lower the rate.
The bigger dent to state coffers is online shopping, which many consumers consider to be tax-free. The National Retail Federation said 20 percent of parents will head to the computer, not the mall, to buy school merchandise this year, up from 15 percent last year.
The amount of tax revenue state and local governments stand to lose to e-commerce by 2008 ranges from $21.5 billion to $33.7 billion, according to Sujit M. CanagaRetna, a state tax expert for the Council of State Governments.