As we go to press, the annual retail sales tax holiday is right around the corner. It’s an important date to have on your calendar, whether because you’d hate to miss it or you’d hate to get caught in it. The lines and crowds are always long; for many retailers it’s becoming as big as the day after Thanksgiving and other Christmas shopping days in terms of volume. People from surrounding states also join in on the savings, traveling from Louisiana, Oklahoma, New Mexico, and elsewhere. Mexican citizens also cross the border to shop for tax-exempt items.
Since instituted by the Texas Legislature in 1999, the weekend has served as a way to make sending children back to school more affordable for Texas families. A long list of items may be bought without paying sales taxes, leading to savings of about $8 on every $100 in purchases.
On August 6-8, everything from kids’ clothes and shoes to adult uniforms and work clothes are exempt from taxes. Boots, belts, socks, sweaters, swimsuits, ties, pajamas, baby clothes, caps, diapers, and many other products are exempt.
Texans are expected to save some $46.1 million in state sales taxes this year. That means spending more than $575 million on the non-taxed products. Although much of this volume represents sales that would have happened anyway, another portion is a true increase. As customers are lured into stores by the promise of discounts, they often end up purchasing other items. In addition, there is some evidence that people react differently to the idea of “tax free” than they do to routine discounts. In fact, I doubt if any of us would rush out to take advantage of a store that advertised¯THREE DAYS ONLY!!! 8.25% OFF SELECTED ITEMS!! There is just something magical about the idea of not paying taxes. Of course, merchants get into the spirit and offer discounts as well, but there is no doubt it is the tax break that brings ’em in. The bottom line is that retailers are gearing up for a big weekend.
Since the holiday’s inception, some $193.5 million have been saved ($152.7 in state taxes and another $40.8 in local taxes). The savings are concentrated in young families, with older Texans generally not partaking of the tax exemptions to the same degree. One positive property of any sales tax rebate or exemption is that it favors lower-income residents, who typically pay a larger portion of their income in the form of such taxes than do those with larger financial resources.
Even so, there is some debate as to whether a tax break that is so specific in nature is as desirable as a more broad-based lessening of the burdens paid by all citizens. My opinion is that it’s a good thing to make it financially easier for people to prepare children for a new school year. Additional dollars left in family budgets is a positive for the economy. As an economic purist, I would have to say that such targeted programs are not the most efficient way to allocate resources in an economy, but I think most of us would agree that this particular departure from optimal taxation theory is not such a bad thing. Besides, while it may be mediocre economics, it’s great politics.
The sales tax holiday weekend is only going to get bigger. Other school needs, such as supplies and backpacks, may be added in the future. Another potential change is increasing the number of days involved from three to five. This could lead to an additional $25 million in savings according to the State Comptroller’s office. It would also help relieve some of the strain on retailers, although I haven’t heard many of them complaining. So, go ahead!! Enjoy it!!! It’s a rare day when taxes take a holiday.