Sales tax holidays are a tricky proposition.
Opponents say the practice — in which sales tax charges are temporarily dropped on back-to-school items and other qualifying products — cause states to lose tax revenue. Backers say they not only help consumers and retailers, but also lure out-of-state shoppers or, conversely, keep residents in border towns from visiting a neighboring state to make purchases.
In a few days, residents of Missouri, Iowa and Ohio get the chance to do back-to-school shopping without paying any state sales tax and, in many cases, no local sales taxes.
Illinois residents won’t have that option.
Illinois had a summer sales tax holiday in 2010. But it hasn’t had one since and isn’t among the nearly 20 states offering them this season.
The average family with children in kindergarten through 12th grade is expected to spend $630 on back-to-school shopping, according to the National Retail Federation. If all of that spending occurred during a sales tax holiday, a family living in a state with, say, a 6 percent sales tax would save $38.
“The General Assembly would have to pass legislation to put a back-to-school sales tax holiday in place,” Terry Horstman, spokesperson for the Illinois Department of Revenue, said. In most states, the holiday must be approved annually, and practices can vary state to state on whether just state or state and local taxes are suspended.
Rob Karr, chief executive of the Illinois Retail Merchants Association, said the state’s consumers “did take advantage” of the 2010 holiday, as retailers “reported sales upticks,” he said.
Also, sans a sales tax holiday, Illinois retailers “definitely lose to Iowa and Missouri, but particularly Missouri” as its holiday includes big-ticket computers, Karr said.
One study found that the effect of a sales tax holiday on a state’s tax revenue is likely to be largely neutral.
“The loss of revenue on exempted items is made up from consumers buying slightly more of taxable items and/or pulling in consumers from border states without such holidays,” said Julie Heath, director of the Economics Center at the University of Cincinnati. In 2013, the center published a report titled “Economic Analysis of the Potential Effects of a Sales Tax Holiday in Ohio.” Its findings are based in part on an analysis of a sales tax holiday in Florida in 2010.
“It primarily serves to transfer the timing of purchases from the month before or after to the exempt month,” she said.
The center estimated that overall retail sales in Ohio would rise by nearly 5 percent over a three-day sales tax holiday. But to the extent that shoppers shift their buying from one month to another solely to take advantage of savings on back-to-school items, the increase in sales would be offset by a decrease in the period when the purchases would have otherwise been made.
As Missouri and Iowa illustrate, rules vary on what products qualify for states’ sales tax holidays.
Iowa’s sales tax holiday is for “select clothing and footwear.” That doesn’t include, for example, swim fins or inline skates.
Ohio is having its first back-to-school sales tax holiday on certain purchases both online and in bricks-and-mortar stores Aug. 7-9.
Exempt from sales taxes in Ohio will be clothing priced at $75 an item or less, and school supplies priced at $20 an item or less. No limit has been placed on the amount of the total purchase. For example, the purchase of two shirts, two pairs of pants, a pair of shoes and a jacket — with each item costing $50 — would be tax-exempt, according to the Ohio Department of Taxation’s website.
Ohio’s broad definition of “human-wearing” clothing that qualifies for the sales tax holiday includes not only shirts, pants and sneakers, but also children’s and adult diapers, garters and garter belts, and wedding apparel.
The Buckeye State, however, will put its foot down when it comes to ballet and tap shoes, cleated athletic shoes and baseball gloves, among other things. They remain taxable.
Texas has had a sales tax holiday since 1999. Shoppers can save money on certain items, including clothing, footwear and school supplies, priced under $100. Texas estimates that shoppers will save about $8 on every $100 they spend during the weekend.
“As the father of three young children, I know back-to-school expenses can really put a strain on family budgets,” Texas Comptroller Glenn Hegar said in a statement. “This is an opportunity for families to save some money.”
He estimates shoppers will save an estimated $87 million in sales taxes during the holiday.
Looking at it another way, Texas will lose $87 million in taxes, points out Carol Kokinis-Graves, a senior writer analyst at tax software provider Wolters Kluwer in Riverwoods. “Apparently, the Texas legislature decided that Texas could stand to lose that amount or make up for it in some other way,” she said.
Washington, D.C., once repealed its sales tax holiday. “Merchants who have participated in the sales tax holidays previously need to be sure that their point-of-sale equipment is programmed to collect the tax and that they not advertise a tax sale holiday to customers,” the district’s Office of Tax & Revenue said on its website.
Sonya Daniels, manager of the state and local tax practice at accounting firm CBIZ MHM in Memphis, said she has handled sales taxes for the retail industry.
“It is a chore to be sure the tax is turned off on the items that meet that criteria for the time period covered by the holiday and then turned back on once the holiday ends,” she said.
But overall consumers and merchants appreciate sales tax holidays, she said.
“Most would say Illinois is missing out on some great opportunities for their retail businesses and to some degree for their state by not having one and seeing what it could bring in,” Daniels said. “Also, keep in mind most states vote on these on a year-to-year basis, so having one this year doesn’t mean they have to have it the following year.”
Twitter @beckyyerak
