Why do states hold back-to-school sales tax holidays?
Last Friday, Virginia kicked off a three-day back-to-school sales tax holiday. So Amy Louis took her son shopping.
“That is exactly what drew me out. This is our first year of elementary school, and we want to take advantage of all the school supplies we need: notebooks, crayons, glue, lots and lots of tissues and baby wipes.”
Fifteen states — including Virginia, Tennessee, Texas and Arkansas — hold back-to-school sales tax holidays. For a few days, they allow shoppers to you buy things like pencils, backpacks and calculators without paying sales tax. Items like hurricane and emergency supplies may also be on the list.
States have been doing this for decades for two main reasons:
One — boost the economy.
State officials say if you give people a temporary tax break, they’ll spend more at local retailers, and not just on school supplies.
“They think that even if you’re buying these discounted products that maybe you’ll end up buying other things as well,” said Janelle Cammenga, a policy analyst at the Tax Foundation. But studies done in states with sales tax holidays have found this isn’t the case, she said.
“What actually happens is that people are just buying what they’re going to buy anyway,” she said. “They just shift when they shop. So there is no actual economic increase.”
There’s just a tax loss.
Case in point: Amy Louis. Even though she saved about $30 in sales tax, she said she stuck to her shopping list.
“We didn’t really buy anything that wasn’t required,” Louis said.
The other reason states give for holding back-to-school tax holidays: They make it cheaper for families to buy school supplies. And that’s true. In Virginia, people are saving between 5.3% and 7% in sales taxes.
But Annette Nellen, a tax professor at San Jose State University in California, said states should think about which families really need the help.
“Who is it that is struggling to buy any of these items? I’m guessing if it’s a wealthy family, they’re probably not even thinking about the costs of these school supplies,” Nellen said. “And now you’re giving them a tax break they don’t need.”
She said states forgo millions of dollars in tax revenue during these sales tax holidays, and they could give that kind of money directly to the families that need it instead.
Aubrey Layne, the secretary of finance for the commonwealth of Virginia, agreed that this isn’t the most targeted way to help low-income residents. And as far as economic stimulus?
“We have no real good data that shows that this has increased sales at all. It’s probably just a transfer of sales from another period,” Layne said.
But Virginia has had a sales tax holiday for almost 15 years, Layne said. It’s a tradition. And people have come to expect it.
“Anytime you take anything away, particularly seen as a benefit, it’s difficult for politicians to do that,” Layne said. “So I don’t see it being abated any anytime soon here in the commonwealth.”
That’s especially true, he said, because it costs Virginia only about $7 million a year in tax revenue. The commonwealth brings in about $21 billion in total.
Christian Buckler contributed to this report.
Stories You Might Like
There’s a lot happening in the world. Through it all, Marketplace is here for you.
You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible.
Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.
