Sales tax holidays not as good as advertised - News, Weather & Sports

Study: Tax holidays not as good as advertised

Studies have found some stores raise prices on tax-exempt items intended to save shoppers money. (Source: CNN) Studies have found some stores raise prices on tax-exempt items intended to save shoppers money. (Source: CNN)
Sales tax holidays in the U.S. (Source: Tax Foundation) Sales tax holidays in the U.S. (Source: Tax Foundation)

(RNN) - Sales tax holidays do more to hurt buyers, retailers and the state despite their promotion as an economic boost, according to a new Tax Foundation study.

The foundation's report called the events "politically expedient but poor tax policy." It included research that found stores raised prices to offset lost revenue. It also determined the holidays did not significantly benefit the targeted customer base: low-income families.

The majority of the 17 states that have tax holidays in 2013 are in the Southeast. Sixteen of those states offer clothing tax-free with a price cap of usually $100. Eleven states offer tax holidays on school supplies, and other items can include computers or Energy Star appliances.

The government also loses revenue because people who would normally buy certain items during another time of year wait until the holiday. Lawmakers also have to change the tax code, an especially complicated and time-consuming process since many states decide year to year whether to have the holidays.

"If we allow lawmakers to tinker with the tax code for everything they support at the expense of those they do not, we'll end up with what we have now, which is an absurdly complicated tax code," former South Carolina Gov. Mark Sanford said in 2008 after vetoing a tax holiday for guns.

New York's offer of tax-free shopping on clothes in 1997 sparked the current trend because of the intention to keep people from traveling to neighboring states with lower sales tax rates.

However, shoppers would do well to compare prices of items before, during and after a sales tax holiday.

A WBTV report in 2009 found several stores raised prices on clothing before the tax holiday began.

The Tax Foundation used the phrase "time discrimination" to point out another negative effect. The holiday could fall in between paychecks for some people, preventing them from shopping during that small window of time.

The holiday places a burden on vendors by forcing them to change operating procedures for only a few days. Meanwhile, they have to prepare for an increased volume of shoppers.

In some cases, items designated as tax-free are selective and create conflict.

Louisiana offered hurricane survival materials tax-free and included candles even though the state's hurricane preparedness guide tells people not to light candles because of potential gas leaks.

South Carolina's tax holiday for guns in 2008 did not apply to gun safety gear like vests and locks.

Some shoppers may find specific name brands of items are tax-free, whereas other brands of a similar item are not.

"Political gimmicks like sales tax holidays distract policymakers and taxpayers from genuine, permanent tax relief," said Tax Foundation Vice President Joseph Henchman. "If a state has to offer a holiday from its tax system, it's a sign that there's a problem with the system itself. If politicians want to save money for consumers, then they should cut the sales tax rate year-round."

Copyright 2013 Raycom News Network. All rights reserved.

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