Stateline Story

State Sales Tax Holidays Escape Budget Axe

One of the few things capable of stopping a sales tax holiday is a massive state budget deficit. But don't count on it.

Since New York became the first state to hold such an event in 1997, nearly a dozen states have held sales tax holidays, eliminating sales taxes on clothes and back-to-school supplies for a few days a year.

This year, nine states Connecticut, Georgia, Iowa, New York, North Carolina, Pennsylvania, South Carolina, Texas and West Virginia are pushing ahead with their sales tax holidays despite deep cuts in many state government programs, according to the Federation of Tax Administrators .

Three of them Georgia, North Carolina and West Virginia are holding sales tax holidays for the first time.

Analysts say they may be the one acceptable tax break during tight fiscal times.

"Taxpayers like them and legislators like them and those are the two people you can't stop when they get on the same page," said Ryan Burruss, spokesman for the FTA, a D.C.-based organization representing state tax officials.

In addition, they aren't very expensive, at least as far as government programs go.

"In the big scheme of things, they are not too much of a hit for the states," he said.

Nonetheless, two states Florida and Maryland decided that even that small hit was a bit too large for their wallets.

"We couldn't afford it," said Maryland Sen. Barbara Hoffman, chair of the state Senate's Budget and Taxation committee. "We were in a budget crunch and that's millions of dollars of revenue lost."

Hoffman said even the tax holiday's backers didn't put up much of a fight.

"Not a big push. It's common sense," said Hoffman.

Most state sales tax holidays are held in August, during the back to school shopping season. They generally last a few days and eliminate sales taxes on clothing and school supplies up to a couple hundred dollars.

Some states, such as Georgia, North Carolina, South Carolina and West Virginia, also extend the sales tax exemptions to computer purchases. Pennsylvania devotes its entire sales tax holiday to computers.

In 1997, New York became the first state to hold a sales tax holiday. It proved to be so popular that the state soon enacted a permanent sales tax exemption on shoes and clothes under $110 per item.

Forty-five states levy sales taxes, which account for roughly one-third of total state revenue. But while cutting those taxes for a weekend may be good politics, critics say that doesn't make them good policy.

"I think these things are ridiculous," said David Brunori, contributing editor for State Tax Notes and professor of public policy at George Washington University. "They are shrouded in this, 'Well, we're going to take care of working families' and 'Who doesn't love children' and all that stuff. But there's no meat on those bones."

So if sales tax holidays don't benefit consumers, then whom do they benefit?

"The bottom line is, the only people who really make out are the retailers," he said.