Lawmakers, retailers and families love them.
Tax policy experts, however, don’t.
Sales tax holidays in both Tennessee and Virginia return the first weekend of August, and are aimed primarily at helping families save money on back-to-school purchases.
Former Tennessee Gov. Phil Bredesen, a Democrat, hailed the state’s first sales tax holiday in August 2006 with a statewide swing that included a stop at the Johnson City Kmart.
A group of Northeast Tennessee Republican lawmakers also showed up at Bredesen’s event and asked to be included in the governor’s photo opportunities with local media.
“We voted for [the sales tax holiday],” then-state Rep. Jason Mumpower, a Bristol Republican, told Bredesen’s press secretary.
Since then, the Tennessee Department of Revenue estimates Tennesseans have enjoyed $8 million to $10 million in tax savings each holiday.
Prior to the sales tax holiday, a personalized news release is issued by your local Tennessee state representative encouraging people to save up to 10 percent on their purchases.
“I hope this holiday allows the people of our community to keep a bit more hard-earned money in their pockets,” state Rep. Mike Harrison, R-Rogersville, said in his release. “I am an advocate of lower taxes across the board and will continue that fight in Nashville to help put even more money back in your bank account over the coming months.”
Virginia’s government also touts its version of the sales tax holiday that began in 2007.
“After four straight years of revenue surpluses, it is evident that Virginia’s economy continues to strengthen,” Virginia GOP Gov. Bob McDonnell said in a prepared release. “I hope Virginians will go out and take advantage of this holiday by spending their back-to-school dollars at Virginia retailers. Not only will this continue to benefit our state’s economy and employers, it will save Virginians some money at the same time.”
In Tennessee, sales tax-free items include clothing with a price of $100 or less per item, school and school art supplies with a price of $100 or less per item and computers with a price of $1,500 or less.
Under Tennessee law, there is no requirement that purchases be made only for students. If an item is tax-exempt, anyone may make the purchase tax-free, as long as the purchase is not for business use.
The holiday also includes purchases of qualified items sold via mail, telephone, email or Internet if the customer orders and pays for the item and the retailer accepts the order during the holiday for immediate shipment, even if delivery is made after the exemption period.
In contrast, Virginia has three sales tax holidays: for school supplies, for severe weather preparedness and for energy-efficient products. Virginia’s sales tax rate is generally 5 percent of the price.
The upcoming sales tax holiday also covers school supplies priced at $20 or less and clothing items less than $100. Computers, however, do not qualify as “school supplies” under Virginia law.
Virginia’s severe weather sales tax holiday, which happens at the end of May, covers generators costing $1,000 or less, and other supplies costing $60 or less.
The state’s energy efficiency sales tax holiday, slated to happen Oct. 11-14, covers purchases of certain Energy Star and WaterSense qualified products costing $2,500 or less. The exempt Energy Star items include dishwashers, clothes washers, refrigerators, air conditioners, ceiling fans, compact fluorescent light bulbs, and programmable thermostats that carry the Energy Star designation.
But while more than a dozen states hold sales tax holidays, the Washington, D.C.-based Tax Foundation (TF) finds their savings to be misleading.
TF says sales tax holiday savings are paltry compared to sales that typically offer greater discounts.
“Political gimmicks like sales tax holidays distract policymakers and taxpayers from genuine, permanent tax relief,” TF economist Mark Robyn said in a statement. “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.”
Still, back-to-school shopping is the second-busiest season for retailers behind Christmas, according to bankrate.com.
But the Washington, D.C.-based National Retail Federation (NRF), which represents retailers, indicated in a survey released this month that the effect of sales tax holidays may be lessened this year.
NRF said a combination of pent-up demand and a growing population of school children put 2012 back-to-school spending in the history books, and left parents this year with an array of school supplies that still work plus a significantly shorter shopping list.
According to NRF, families with school-age children will spend this year an average of $634.78 on apparel, shoes, supplies and electronics, down from $688.62 last year. Total spending on back-to-school is expected to reach $26.7 billion.
“The good news is that consumers are spending, but they are doing so with cost and practicality in mind. Having splurged on their growing children’s needs last year, parents will ask their kids to reuse what they can for the upcoming school season.” NRF President and CEO Matthew Shay said, in a prepared release. “As they continue to grapple with the impact of increased payroll taxes, Americans will look to cut corners where they can, but will buy what their kids need. It’s important to note, however, that spending levels are still well above where they were a few years ago.”
NRF said the biggest portion of back-to-school shoppers’ budgets will go toward new apparel and accessories: 95.3 percent of those with school-age children will spend an average of $230.85 on fall sweaters, denim and other pieces of attire. Additionally, families will spend $114.39 on shoes and $90.49 on school supplies.
Fewer families with children in grades K-12 will purchase electronics (55.7 percent), and those who are going to invest in a new tablet or smart phone are going to spend slightly less than last year — $199.05 vs. $217.88 in 2012 — according to NRF.