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

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. 

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The Sales Tax Guy
http://salestaxguy.blogspot.com

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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Avoiding a Regressive Tax

While I was writing the food article a few days ago, I got to thinking about a common complaint about sales and use taxes. The problem is that these kinds of taxes tend to be regressive. The burden of the tax seems to fall more on the poor than on the rich. The idea springs from the fact that certain things are bought by everyone, rich and poor and therefore the poor spend more on these items as a percentage of their income than the rich. Therefore, sales and use taxes take up a larger percentage of their income than that of rich folks.

You could argue this issue, but I'd rather not because it'll get in the way of the point I'm trying to make.

In order to minimize the regressiveness of sales and use taxes, states implement various exemptions on things that are pretty much basic necessities. So you'll see tax exemptions for the following items:

Prescription drugs (almost universally exempt)

Food (offered in many states)

Residential utilities (gas and electricity for homes - available in most states)

Clothing (in a few states, mostly in the Northeast, plus sales tax holidays in other states)

Repair labor on motor vehicles (I've only seen this in one state, but it's not a bad idea)

And a service that is rarely taxed is hair care. You almost never see the services of a barber or hair stylist listed as taxable.

In addition, the perusal of just about any state's mix of exemptions and taxable services will find that the taxes are imposed much more often on businesses than individuals. A cynical person might think that this is merely a way of making voters happy. A more idealistic person would probably believe that this is another effort at making the state's taxes less regressive.

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The Sales Tax Guy
http://salestaxguy.blogspot.com

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.

Get these articles in your inbox - subscribe at http://salestaxguy.blogspot.com

Here's information on our upcoming seminars and webinars.
http://www.salestax-usetax.com/

Picture note: the image above is hosted on Flickr. If you'd like to see more, click on the photo.

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Second Amendment Sales Tax Holidays

I thought of this story after writing yesterday's post.

When I first read about Second Amendment sales tax holidays, it was South Carolina's. I happened to be doing a series of seminars in Tennessee that week and mentioned it in my class in Chattanooga.

(For those of you who don't know your Bill of Rights, Second Amendment sales tax holidays allow the purchase of firearms without sales tax). Read on to see why I think they exist.

South Carolina (and Louisiana) both have, in the past, scheduled them for the weekend after Thanksgiving.

Tony was in the class in Tennessee and when I mentioned the holiday, his eyes got really wide and he started squirming around in his seat.

I said, "Tony, you're thinking about taking a little road trip to South Carolina to buy yourself some guns, aren't you?"

"Heck yeah! I can save myself a ton of sales tax!"

"Now Tony, you do realize that, while you can buy those guns without tax in South Carolina, when you bring them back here to Tennessee, you're going to have to pay 9% use tax, right?" It was a sales tax seminar, so I made this a teaching experience for Tony.

His response, "Yeah. Right."

So much for even making them feel guilty!

OK, why do states have a Second Amendment sales tax holiday?

I have a couple of theories (and they are just theories):

1. As with any other sales tax holiday, it's an opportunity for South Carolina to suck business into the state for their retailers. The politicians know that the customers won't pay use tax when they return home to their own state - and they don't care.

2. It's a Second Amendment holiday, and it gives the politicians a chance to curry favor with the real men in their districts. Just kidding, if you were about to take offense.

3. These are held on the weekend after Thanksgiving. Which is often the opening of deer hunting season.

4. It's the weekend after Thanksgiving. Tony's family wants to go shopping. He might be able to justify this road trip to South Carolina by suggesting it be a shopping trip for Mom and Sis and Junior too. So, while he and Junior are shopping for guns, Mom and Sis are spending money, and paying lots of South Carolina sales tax on their purchases at the malls. Maybe South Carolina figures that they'll lose some sales tax on the gun sales, but they'll make it up on all of the other shopping that will be brought into the state that weekend. Nah, I can't believe politicians would be that devious.

As I finish this up, it occurs to me that this would be an ideal post for just before Thanksgiving. And here I am, two weeks late. But, I can see an "oldie, but goodie" post in my future for next November.

I hope you all had a good Thanksgiving and I wish you a Merry Christmas.

See you next week.

Sales Tax Guy

See disclaimer and research the issues thoroughly before making decisions

Here's information on our upcoming seminars and webinars

Sales Tax Holidays

Sales tax holidays are events, usually over a weekend, but sometimes longer, when some items are exempt from tax. They are usually in August (back-to-school time) and include most clothing. These August holidays often include back-to-school supplies and computers too.

There are also holidays for guns in a couple of states (SC and LA last I looked) - they're called "Second Amendment" holidays.

And there are Energy Star holidays when you can buy energy-saving appliances tax free, and hurricane sales tax holidays. One state has a sales tax holiday on just about everything!

Sales tax holidays seem to be a regional kind of thing. They're mostly in the east and southeast with only one that I can think of in the midwest, and a couple in the west.

States are getting nervous about them. Sales tax holidays are a major crunch on state budgets. And, in these times of falling sales tax revenues, they are not looked upon too kindly by your friendly elected representatives. They like to brag about the holidays, but they hate to give up the money.

And I personally wonder if they work? They're often lauded as increasing sales, but are sales increased over the entire season, or does the holiday just force more sales into a few days, forcing retailers to stock up, pay overtime, reprogram their systems, etc?

Sometimes they snag business from other states, with shoppers coming from neighboring jurisdictions for the deals. But since those shoppers have to pay use tax* when they return home, what's the point? Oh, yeah (finger snaps). The politicians who complain about out of state vendors not charging tax on shipments into their state are perfectly happy to more-or-less do the same thing to the other states. Either that, or your legislators just don't know about use tax issues (which is more likely).

You can't miss sales tax holidays. If you live in a state with a sales tax holiday and you watch the news at all, you'll know when they come up. These are just the kinds of things that reporters will cover. And they can understand it. Sort of.

*yeah, right

Sales Tax Guy

See disclaimer and research the issues thoroughly before making decisions

Here's information on our upcoming seminars and webinars

Link: Sales tax holidays are gimmicks

Tax Foundation slams sales tax holidays as gimmicks.

Hurricane Sales Tax Holidays

I've noticed that a few states have passed "hurricane" sales tax holidays. The idea is to allow and encourage residents to stock up on this kind of stuff before the need actually arrives. This seems like an eminently acceptable idea and, for what it's worth, the Sales Tax Guy encourages it. So call your governor and tell him or her that the Sales Tax Guy thinks this is an A plus idea.

Based on a quick survey, it looks like the current list is Virginia, Louisiana and Florida.

Sales Tax Guy