It’s The Most Wonderful Time of The Year
2023 has been a summer of discontent for millions of parents across America. Record-high temperatures have kept kids indoors. They’ve closed parks and camps. And they’ve left armies of sweaty little malcontents barking like circus seals for ice cream and shade. The only good news is that schools start earlier than they did a generation ago, meaning now the kids can whine to their teachers instead of Mom and Dad.
Now is also the time of year for states across the country to roll out back-to-school sales tax holidays. Generally, this means that for a single weekend, they’ll waive sales tax on specified back-to-school items. In Ohio, for example, last weekend, there was no tax on items of clothing priced at $75 or less, items of school supplies priced at $20 or less, and items of school instructional materials priced at $20 or less. (Woe to the overachiever needing to pick up a $130 TI-84 Plus graphing calculator for AP Calculus!)
Barron’s estimates the average family will fill their shopping carts with $890 of back-to-school stuff. Multiply that by a 7% sales tax, and you’ve got $62 tax savings. (Of course, your mileage will vary according to where you live.) That’s nothing for the average family to sneeze at. But it won’t make anyone rich, either. And taxpayers only get the full benefit if someone in the family (cough cough, mom) is organized enough to cram all that shopping into the single appropriate weekend. At least the rules extend to national retailers, meaning you can take advantage of the same break if you order from Amazon.
Some states offer different sales tax holidays to encourage residents to buy different items. Alabama and Texas have served up holidays to buy emergency power generators and disaster preparedness supplies. Florida, Maryland, Missouri, and Texas have waived taxes on Energy Star appliances. Massachusetts offered a one-weekend general amnesty on all tangible property up to $2,500, except for vehicles, food, alcohol, gas, certain utilities, tobacco, and marijuana. And Tennessee offered a year-long holiday for gun safes and safety devices, with no maximum price.
What do sales tax holidays say about tax policy? Nothing good. Think of a word that starts with “g” and rhymes with “mimic.” The nonpartisan Tax Foundation dismisses them as political stunts “that distract from genuine, permanent tax relief” and adds that “If a state must offer a ‘holiday’ from its tax system, it is an implicit recognition that the tax system is uncompetitive.” Calling a sales tax break a “holiday” is kind of like calling Arbor Day a holiday. It’s just . . . meh.
The irony here is that today’s point-of-sale technology would make it child’s play to adjust sales tax rates for all sorts of items all year long. We’re all used to seven different tax brackets climbing from 10% to 37% on income. States could do the same thing for sales taxes. For example, the dentist buying a $100,000 new Mercedes could pay twice the percentage as the college kid buying a used Toyota. Now, you may think that extending progressive rates to sales taxes is an awful idea. You may even be right! But at least it would be easy to implement, even at a national level.
Planning to take advantage of sales tax holidays is elementary. Just show up at Target with your shopping list on the right morning, before the other parents clean out the store, and you’re done. Planning to save on income tax is harder. Fortunately, you don’t have to do it yourself. We got gold stars and smiley faces on all our tax homework. So call us for some real savings—then enjoy the AC once you get your little darlings out of the house!