Why Today’s Sales Tax Holiday Might be a Big ‘Gimmick’

  • Joe Wertz

tomhe / flickr

It’s shopping holiday time once again, and retailers throughout Oklahoma are eagerly awaiting back-to-school customers hungry for “tax-free” savings on clothing and shoes.

Customers are excited, too. From the Associated Press:

Tasha Willson said Thursday her family always waits until the long shopping weekend to buy new clothes and shoes for their three children, ages 13, 10 and 5. The reason, she said, is simple.

“Saves money. Three children. You’ve got to save money somewhere,” she said.

Willson won’t pay sales taxes on those purchases, but that doesn’t mean they’re “tax-free.”

Nationally, the number of states with sales tax holidays peaked at 19 in 2010, according to the Tax Foundation; Oklahoma and 16 other states currently have them.

From midnight Friday, Aug. 3 until midnight on Sunday, Aug. 5, Oklahoma retailers may not charge sales tax on clothing and shoes priced at less than $100.

But these purchases aren’t really tax-free.

The State of Oklahoma and all the cities and counties need those sales tax revenues. So, instead of collecting sales taxes on those three days worth of purchases, they get a reimbursement from the state tax commission, which doles out replacement revenue using a formula based on August sales tax numbers from the previous year.

Last fiscal year, the Tax Commission issued about $6,969,436 in sales tax holiday reimbursements to the state and its cities and counties, data show.

Here’s the breakdown:

2012 Sales Tax Holiday Local Reimbursements

Source: Oklahoma Tax Commission

Retailers say the holiday increases traffic and encourages more shopping at local stores:

We’re expecting a busy weekend,” Shawnee Mall general manager Scott Kingrey tells the Shawnee NewsStar. “We hope it will affect us very well.”

But research by the Tax Foundation says there’s no proof that sales tax holidays encourage economic growth. “They simply shift the timing of purchases,” the nonpartisan tax research organization’s Joseph Henchman writes.

The Institute on Taxation and Economic Policy agrees, calling them a “boondoggle,” and both organizations say sales tax holidays complicate collection and compliance. And, they say, claims that sales tax holidays offer relief to low-income shoppers are often exaggerated.

Sales tax holidays, like Oklahoma’s, are “political gimmicks” meant to “distract policymakers and taxpayers from genuine, permanent tax relief,” Henchman writes:

If a state must offer a “holiday” from its tax system, it is a sign that the state’s tax system is uncompetitive. If policymakers want to save money for consumers, then they should cut the sales tax rate year-round.