Tuesday, August 02, 2011

Editorial: What's the point of a sales tax holiday?

Beaver House
Warning - I have absolutely no real facts to back me up, merely surmises, my own experiences and assumptions.  But I'll bet I'm right.  This is just pretty much a rave-out.

Seems to me that most retailers really don't get much benefit from sales tax holidays.  They have to stock up for that one particular weekend in August.  They have to reprogram their POS systems. They probably have to staff up as well.  They may even pay their staff overtime if they happen to be paying attention to wage and hour laws (which is a big "if").  They'll get in arguments with customers about whether or not this particular school supply qualifies for the exemption.  Is it a purse?  Or is it a school bag?  And then they see a slide in their sales for the non-holiday weeks surrounding that one particular weekend in August.

In other words, do retailers see any long term, increase in profits?  I'll betcha they don't. 

But there are two situations where holidays can benefit retailers.

1.  If they're on the border with another state that doesn't have a sales tax holiday, then they can steal business from that other state.  I wonder though, if the retailers would be so enthusiastic if they had to enclose a flyer with each purchase advising the customer that when they return back to their state, they will owe use  tax on their purchase to their state.  In other words, legally, it's pointless to go to another state to take advantage of a sales tax holiday and then use those clothes in your state.  You know, use tax?

I always find it funny that politicians know that they're stealing business from the other state, even use that as a justification for the holiday, but still whine about losing tax revenue from Amazon's failure to collect taxes.  Isn't this kind of the same thing?  They're creating a system where the buyers are failing to pay the required use taxes in their home states.

2.  I can see, from a marketing perspective, that having a sales tax holiday is a great way to build enthusiasm, a festive atmosphere and maybe a buying frenzy.  But can't the retailers just buy some balloons and have a "storewide sale?"  Essentially, by making it a sales tax holiday, ALL of the taxpayers in the state are paying the marketing costs of the retailers.  Doesn't seem fair.

There is one group that definitely and always benefits from a sales tax holiday - politicians.  An example:

I live in Illinois, who, up until last year, never had a sales tax holiday (at least in my memory).  Then, in the midst of a massive and spectacular budget crisis (I've heard we are now the most broke state in the Union), we have a sales tax holiday.  Which is just going to mean a bigger budget crisis.  Why did we have one?  Well, let's just say that our beloved governor was running for reelection and it was a tight race.  Need I say more?

I guess I will.  Politicians love to pat themselves on the back about sales tax holidays.  But the holidays cost the state tax revenue, probably don't help the retailers, and steal business from other states without really benefiting the customers, who then owe use taxes in their states.  

Cynical?  Yep.  Correct?  I'll betcha.  What do I think of politicians?  Not much.

Enjoy your sales tax holiday, if you live in or near one of these states

The Sales Tax Guy

See the disclaimer - this is for education only.  Research these issues thoroughly before making decisions.  Remember: there are details we haven't discussed, and every state is different.  Here's more information

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States Sales Tax said...
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