Published 5:47 pm, Tuesday, July 25, 2017
Photo: Edward A. Ornelas /San Antonio Express-News
A new report challenges annual state sales tax holidays — like the one planned next month in Texas — saying they fail to actually boost sales and, instead, hurt state revenue.
The Tax Foundation report, released Tuesday, argues that sales tax holidays simply encourage customers to shift their spending — not increase it — to one hectic weekend sandwiched between slower shopping weeks. The holidays don’t promote economic growth and states would be better off decreasing the tax rate on a year-round basis, the report argues.
However, George Kelemen, president and CEO of the Texas Retailers Association, disagrees. The trade group said sales tax holidays lead to greater overall sales that make up for the tax revenue lost by the state.
“There’s a trickle down effect, you know. Somebody goes into a store to buy back to school supplies, for instance, that they’re getting sales tax free,” Kelemen said. “They may buy some other stuff, that may be on sale, but isn’t sales tax free, and it leads to other sales.”
Kelemen said his organization would like to see technology items like laptops and tablets added to the list of tax-exempt items for the back to school weekend, which occurs in August. Currently, the state exempts school supplies such as pencils and binders, and clothing items and backpacks that cost less than $100 from sales tax during the holiday, according to the state comptroller website.
“That would be the only change or tweak that we would advocate and have advocated for in the recent past,” Kelemen said.
Texas has a statewide sales tax of 6.25 percent, and local governments can add another 2 percent to that, according to the state comptroller website. Both taxes are excluded for certain items as part of the sales tax holidays.
The study also argues that some retailers absorb some of the economic benefit that is directed at consumers by raising prices, citing a 2001 study that showed retailers in Florida collected 20 percent of the economic benefit of the tax holiday by raising prices. Kelemen said he has not heard this issue ever raised in Texas.
Texas was one of the early adopters of the sales tax holiday idea, becoming the fifth state to try it in 1999. That grew to 19 states with the special exemptions in 2010, but there are only 16 now, according to the Tax Foundation.
Kevin Lyons, press secretary for the Texas Comptroller of Public Accounts, said the state has never done an economic impact study of the sales tax holidays. He said Texans have saved more than $1 billion in sales taxes since 1999 with just the back to school tax holiday and are estimated to save an additional $87 million this year.
In addition to the back to school weekend, Texas has two other tax holidays: one in April focused on storm preparedness items, including generators, and one in May on energy efficient household appliances.
One benefit of the tax holidays, luring in customers across state lines, has diminished as more states have adopted the practice, according to the Tax Foundation report. All four states that border Texas have similar tax holidays.
The annual back-to-school sales tax holiday runs Aug. 11 through the 13 in Texas. A list of items exempted from sales tax can be found at comptroller.texas.gov.