Attention shoppers: no tax today

A growing number of states are suspending taxes for back-to-school gear, giving a boost to low-income families.

When Sarah Quick returns to her music studies at Bethune-Cookman College in Daytona Beach later this month, she will fill her dorm room with a new set of clothes and educational supplies bought during the traditional back-to-school shopping trip with her mom, Bess.

Sarah, from Coral Springs, Fla., admits that she hates shopping and would have rather stayed at home to practice the piano. But having saved some $100, thanks to the state's sales-tax holiday, her mother was far more enthusiastic. "It's a wonderful thing," she says. "We always wait for the holiday to buy the things we need every year."

Florida is one of 11 states, plus the District of Columbia, to offer residents a temporary sales-tax holiday on certain goods this summer. Two more states - Maryland and Tennessee - have passed legislation to join the jamboree next year.

Politicians figure that what they lose in tax revenue they make up in goodwill: Low-income families can save, and retailers enthuse because it drives bargain-hungry customers into their stores.

"We've got at least 15 stores selling children's apparel, and they take advantage of the timing to have sales of their own going on at the same time," says Larry Beermann, general manager of the 160-store Mall at Wellington Green in south Florida. "The mall is very busy right now."

Most of the participating states host their tax-free events during August to coincide with back-to-school shopping. Georgia and Florida offered their savings in July.

Beyond school supplies

It is not only parents of school-age children who benefit. In Florida, for example, the state's 6 percent sales tax was lifted on all books, clothing, and footwear priced $50 or less. And the tax exemption for school supplies under $10 also includes items for home and office such as pens, paper, notebooks, and computer disks.

Massachusetts, which claims to rely on sales-tax revenue less than any other state, is waiving its 5 percent levy on all personal retail items under $2,500 on Aug. 13 and 14. And Connecticut's 6 percent exemption from Aug. 21 to 27 covers all clothing under $300 - enough for even the most expensive of school uniforms.

The Federation of Tax Administrators in Washington, D.C., has monitored the growing national popularity of sales-tax holidays since New York became the first to give its citizens a financial break in 1997. State legislatures, the FTA says, seem immune to the skepticism of those who argue that sacrificing millions of dollars in tax revenue each year is not sound economic policy.

"States tend to follow one another," says Ronald Alt, the FTA's senior research associate. "Policymakers look at it as a good opportunity to give people a break buying their school goods, and there's definitely some incentive in that it gets people to spend."

A bigger factor is probably the state of the economy as a whole. In the leaner years right after 9/11, both Florida and New York dropped the holiday while money was tight. Now, with soaring property taxes channeling extra dollars into many state budgets, legislators see little harm in a comparatively small sales-tax sacrifice. Massachusetts, Mississippi, and New Mexico have all decided to try it in the past two years.

"Now that states have got more money in the bank, they're much more open to the option," says FTA spokesman Ryan Burress.

Even so, no state has yet taken the step of making the holiday a permanent feature, preferring to decide on an annual basis whether to approve it.

Not all joining in

Others have rejected the idea completely. Oklahoma lawmakers decided last month to block a sales-tax holiday proposal for the sixth year in a row. The proposal's supporters say that its rejection could prove costly for retailers near the border with Texas, which will this month offer savings for a seventh straight year.

Some experts see few benefits in the tax holiday. David Denslow, a professor of economics at the University of Florida's Warrington College of Business in Gainesville, thinks it is a mostly symbolic gesture.

"In Florida, it's not a huge measure financially and has to be viewed against a state budget of about $65 billion," he says. "It's a popular measure tied to the school year. But we would be way ahead by not having the tax holiday and putting the money into the education budget instead."

For shoppers like the Quicks, however, there is no downside. Bess expects to use future holidays to realize significant further savings on Sarah's college equipment, and she can also cash in while buying clothes for herself.

"They should definitely make this a permanent thing," she says. "Everybody can take advantage."

Who's offering tax holidays in 2005

Aug. 21-27
Clothing less than $300

District of Columbia
Aug. 6-14
Clothing less than $100

July 23-31
Clothing less than $50
School supplies less than $10

July 28-31
Clothing less than $100
School supplies less than $20
Computer equipment less than $1,500

Aug. 5-6
Clothing less than $100

Aug. 13-14
All retail items less than $2,500

Aug. 5-7
Clothing less than $100
School supplies less than $50
Computer equipment less than $3,050

New Mexico
Aug. 5-7
Clothing less than $100
School supplies less than $15
Computer equipment less than $1,000

New York
Aug. 30-Sept. 5
All clothing less than $110

North Carolina
Aug. 5-7
Clothing less than $100
Sports equipment less than $50
Computer equipment less than $3,500

South Carolina
Aug. 5-7
All clothing, school supplies, and computer equipment

Aug. 5-7
Clothing less than $100

Source: Federation of Tax Administrators

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