Like Santa Claus in the song, many parents are busily making a list and checking it twice. Malls and merchants are scheduling special sales and some even plan to extend hours. The reason? It’s again time for Tennessee’s sales tax holiday, an event which happily coincides with back-to-school shopping and provides in some instances substantial savings for many families. This week’s Friday-Sunday event is certainly welcome in tough economic times, though there is legitimate debate about its long-term value.
To be sure, parents who shop during the weekend – the tax-free period starts Friday at 12:01 a.m. and concludes at 11:59 p.m. Sunday – can save a considerable sum on clothing, school supplies and computers, the staples of back-to-school shopping lists, The sales tax exemption, in fact, is not limited to back-to-school shoppers. It is available to anyone in Tennessee who buys qualified goods – clothing and school supplies that cost $100 or less per item and computers that cost $1,500 or less – during the holiday.
Shoppers can save nearly $10 for every $100 spent. That’s because Tennessee, which does not have an income tax, is heavily dependent on sales taxes to fund government operations. Consequently, the combined state and local levy can reach almost 10 percent in some locales. The weekend holiday temporarily lifts that heavy surcharge.
The sale tax holiday certainly has an appeal. The average family, according to the National Retail Foundation, will spend nearly $600 on back-to-school purchases this year. Many Tennessee families, then, could save nearly $60. The holiday also is a boon for businesses, many still struggling to improve their bottom lines in a somewhat flat retail climate.
There are nagging problems with a sales tax holiday, though. The state will lose some revenue – $8 million-$10 million by some accounts – though local governments, though, won’t suffer. The state will cover their losses arising from the holiday. There’s also an substantive equity issue.
True, shoppers who take advantage of the reasonable and highly publicized price limits on items during the tax holiday will save money. That’s certainly helpful to the many families of modest means struggling to properly clothe and equip children for the upcoming school year. What would be more helpful, though, is a fairer tax system that provides long-term relief for hard-working families of limited means that currently must spend a disproportionate share of their annual income on sales taxes rather than on necessities.
A weekend tax hiatus, to be sure, is better than nothing,. But legislators should do more. They should approve broad-based, significant tax reform. Year-round – not temporary – relief from sales taxes would be far more meaningful to state residents than the temporary reprieve the holiday provides.