Consumers like tax holiday, but benefit may be to stores

Associated Press • Apr 27, 2007 at 11:45 AM

NASHVILLE - Shoppers: Whip out your wallets.

This weekend brings the first of the year's two sales tax holidays on clothing, school supplies and computers. But don't expect to come out ahead because of it.

The idea of not paying sales tax is popular with consumers, but it is not clear how much it really benefits them, said William Fox, director of the University of Tennessee's Center for Business and Economic Research.

There has not been much research on the subject, but what little there is suggests that stores promote the sales tax holidays in lieu of offering their own sales. Consumers end up spending about the same amount, but the stores make money, he said.

Even the savings to the stores could be offset somewhat by the cost of reprogramming cash registers to recognize which items are tax exempt: clothing and individual school supplies that cost less than $100 and personal computers that cost less than $1,500.

Still, a sales tax holiday is probably as good a mechanism as any for providing tax relief short of a permanent tax rate cut, Fox said.

"Without a state income tax," he said, "you don't have a lot of ways to give money back."

This month's tax holiday is a one-time addition to an annual sales tax holiday scheduled the first weekend of August. The April holiday is expected to save consumers about $11 million.

That's lost revenue for the state, but Department of Revenue spokeswoman Sophie Moery said officials are not concerned.

"It's been built into the budget," she said. "We wouldn't be having an additional sales tax holiday if we had a deficit." Since the state budget year began in July, Tennessee has collected $185 million more than originally projected.

During last August's sales tax holiday, the first since the idea was adopted by the legislature in 2005, shoppers avoided paying about $15 million. That was about $4 million more than had been projected.

According to the Federation of Tax Administrators, Tennessee is one of 10 states to offer a tax holiday. The District of Columbia has one as well.

This weekend's exemption applies to state and local taxes. Tennessee's sales tax is 7 percent and local governments are allowed to levy up to 2.75 percent more.

The sales tax holiday began at 12:01 a.m. on Friday and ends at 11:59 p.m. on Sunday. Consumers and retailers confused about whether a product is exempt can call a hot line that will be manned over the weekend.

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