Sales tax holidays: A lot of hype for a little saving

A woman shops at a Miami Target store during a sales tax holiday in 2001.

Even though they are bad for state budgets and aren't necessarily good bargains, Americans love sales-tax holidays. Retailers like them too, because the tax holidays motivate consumers.

“It can be a pretty significant increase in traffic in the store and sales,” says Jim Sluzewski, a spokesman for Macy’s.

So why are tax holidays so popular?

“There’s absolutely a psychological impact here that is bigger than the money,” says Craig Shearman, spokesman for the National Retail Federation.

He says consumers generally hold out for sales offering at least 25 percent off.

“If retailers were to offer 5 or 10 percent off, consumers would laugh at them,” says Shearman. “But when shoppers can save that same 5 or 10 percent by virtue of not paying tax, it goes way beyond the amount of money involved.”

While consumers save money at the cash register, it’s really the states that pay.

“The first time I heard about a state tax holiday, I laughed until I cried,” says Verenda Smith, deputy director at the Federation for Tax Administrators, an association of state tax agencies.

There are 27 tax holidays this year.

“They’re expensive. They tend to distort the economy a little bit. But people love ‘em,” says Smith.

If tax holidays disappeared, would retailers lose much business?

Joy Hyrons, who handles accounting for Miller’s School Supplies in central Florida, says not necessarily.

“Well, to be honest with you, it probably wouldn’t make a whole lot of difference because the people have to purchase these items anyway,” says Hyrons.


About the author

Jeff Tyler is a reporter for Marketplace’s Los Angeles bureau, where he reports on issues related to immigration and Latin America.

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