Tax Breaks a Prelude to School Bells

With the dog days of summer fast approaching, the start of school is just around the corner, and two states have already begun tax-free holidays designed to help families stock up on clothing and school supplies at a slightly lower cost.

Over the next several weeks, 10 states in all will exempt certain items that kids need for school from state sales tax for a period ranging from a single day to a week and a half.

Florida kicked off the 2005 season of back-to-school sales tax holidays July 23 with the nation’s longest sales-tax holiday – nine days. Georgia’s sales tax exemption period runs July 28-31. The other eight states (Connecticut, Iowa, Massachusetts, Missouri, New Mexico, North Carolina, South Carolina and Texas) hold their sales tax holidays in August, according to the Federation of Tax Administrators.

Next year two more states will join the pack. Lawmakers in Maryland and Tennessee this year passed legislation creating tax-free back-to-school holidays in 2006.

Arturo Perez, a fiscal analyst for the National Conference of State Legislatures, said that even though the tax-free periods cost states little, states are more likely to offer them during times of economic prosperity.

“States really didn’t have the luxury over the last few years to institute any new sales tax holidays,” Perez said.

In 1997, New York became the first state to offer a limited sales tax exemption prior to the start of the school year.

The idea of a tax holiday, which state legislators tout as a boost both to working families and local retail sales, proved popular with the public and on both sides of the aisle in statehouses. A handful of states followed in New York’s footsteps.

But some states strapped for cash during the recent economic downturn suspended the tax holiday, and only recently have brought it back as revenues began to rebound. Florida reinstituted its sales tax holiday in 2004, and forfeited an estimated $35.5 million in revenue as a result, according to NCSL estimates.

Some states lost interest in the tax holidays during the fiscal crisis that began in 2001 because states were eager to collect any revenue they could, said Ryan Burruss, a spokesman for the Federation of Tax Administrators.

“When there’s no justification for any kind of revenue cutback, they’re not going to have it … Now that there’s money in the bank, they’re more open to the option,” Burruss said.