Sales tax holidays no benefit say some parents; not so good for the economy either

What started as a feel-good attempt to give families a break and stimulate the economy has turned out to be not so popular with the savvy parents of school-age children and not all that good a way to help the economy either.

The season of “sales tax holidays” has arrived with stores in Tennessee giving consumers a break from paying sales taxes on Aug. 2-4 and in Mississippi on July 26-27. The timing is set to help parents pay for back-to-school supplies by eliminating sales taxes on everything from clothes to shoes to electronics.

But some parents say tax free weekend is not worth the effort.

“It’s a zoo. It’s crazy that weekend. I would be out that weekend only if I needed to make a major purchase like a computer. But even then, if you needed a computer, you could always buy that online if you wanted to save the sales tax,” said Debbie Penney, 49, of Cordova, mother of three children including a 12-year-old son and an 8-year-old daughter. ”There are plenty of sales prior to, and even after, the tax free weekend you can take advantage of.”

The timing is not so good either because in Tennessee the tax-free weekend comes the weekend right before the start of school for many students including those in the new Shelby County School District, which has an opening day of Aug. 5.

For parents who have a lot to buy and lots of children, waiting until just days before the start of school is not practical. Savvy shoppers recognize the sales tax holidays as a gimmick that does not save them money.

“I would go that weekend only if I had to buy electronics, but not for general school supplies. Usually, I find them on clearance at Wal-Mart or Walgreens right after the school year ends and get things for the following year,” said Anji Bishop, 31, of Millington, mother of three boys and two girls, ages 5 to 12. “It is not worth it trying to save just 10 cents on the dollar.  … I just feel that you can buy items like this cheaper at other times of the year.”  

Seventeen states this year are conducing some form of a tax free holidays, reports the Federation of Tax Administrators. Some states set them at the same time every year while others approve them every year depending on the political winds at the time. Tennessee’s tax free holiday weekend, which was first conducted in 2006, is set by state law the first weekend in August.

During the recession of 2007 to 2009, some states suspended them due to the cost to state government.  And the costs are significant in lost revenue to state government. Estimates are that in 2012 the state of Tennessee did not collect between $9 and $10 million on the sales tax weekend. Tennessee continued the sales tax holidays even when total sales tax revenues for the state slumped during the recession

The cost to state government is sometimes minimized by the fact that stores often work employees more hours that weekend to accommodate the crowds, which means more state income tax, but in Tennessee that is no benefit due to the lack of a state income tax. Other factors that mitigate the cost to state government happen when the tax free holidays attract shoppers from other states who then buy items that are subject to sales tax.

“Retailers tend to like them. Some customers like them too, but there are studies to show that retailers will jack up the prices so the customers do not get much of a benefit at all,” said Ronald Alt, senior manager for economic and tax policy at the Federation of Tax Administrators. “Customers are not getting much of deal because normally the stores would have sales to bring in people doing the shopping for back to school.”

Alt said most states that participate view them as a way to boost the local economy rather than a way to help consumers. A 2012 study by the Tax Foundation, a non-partisan tax research group, determined that despite their political popularity, sales tax holidays are not a good idea.

 “Sales tax holidays introduce unjustifiable government distortions into the economy without providing any significant boost to the economy. They represent a real cost for businesses without providing substantial benefits. They are also an inefficient means of helping low-income consumers and an ineffective means of providing savings to consumers,” the study determined.

The study found that sales tax holidays only shift the timing of purchases instead of increasing them, distort the economic climate by choosing to make only some items tax free, mislead consumers about savings and also make it difficult on retailers who have to suspend the collection of taxes for a few days.

The retailers, however, like them as they are often used to lure people into stores at a time when consumers are in a mood to spend. At least one retailer defended them as good for consumers. Ursula Roman, marketing director for Fred’s Super Dollar, which has 17 stores in the Mid-South, said she cannot comment on the policies at other stores, but Fred’s does not suspend its specials on the tax free weekends.

“We want people to come into the store that weekend for sure. The tax free is just another added benefit for customers. We run our regular ad circular specials that weekend,” Roman said. “In fact, if customers could combine our ad specials with the tax free and even get more savings.”

One strategy to save on sales tax without buying on the sales tax holidays is to shop consignment sales. Tennessee law allows organizations to conduct two consignment sales per year and not charge the customers sales tax, said Barbara Sampson, assistant commissioner for the Tennessee Department of Revenue.

Another idea is to buy online, where sales tax is not collected in Tennessee if a consumer is buying from a store outside the state or a store that has not agreed to voluntarily collect sales tax. But Sampson said consumers are obligated to pay a use tax even though most consumers do not bother with it.

All agree that stores will be crowded as they always are that weekend. Michael Holland, 41, of Memphis, father of a 2-year-old daughter going to pre-school said he will shop on the sales tax holiday only for a big ticket item.

“It would make sense for me with a computer or maybe some of the more expensive clothing items, but not for the regular everyday items. You could find better sales another time of the year, and on that weekend those kinds of sales are hard to find,” Holland said. “It may be kind of a gimmick, but sales tax is high around here so on a big ticket item is where it makes sense.”