Tax holiday at back-to-school time?
Mary
Jo Pitzl
The Arizona Republic
Feb. 8, 2006 04:51 PM
Hoping to ease families'
back-to-school bills and provide a bump to the economy, lawmakers are
considering a sales-tax holiday on clothing, school supplies and computers.
It's easy to find evidence of the positive family benefit in the 11 other states
that have sponsored similar holidays in recent years. But an economic stimulus?
That's hard to pin down.
"For eight years I've been getting this question, and for eight years I don't
know the answer," said Ryan Burruss, communications associate for the Federation
of Tax Administrators, an advocacy group for state revenue agencies. "Maybe."
Ever since New York state in 1997 started the idea of waiving the sales tax on
school items, tax holidays have been a winner with the public.
"We know they provide relief to the taxpayers," said Thomas Bergin, director of
public information for the New York State Department of Taxation and Finance.
"It's a little harder to predict the economic impact, but the retailers promote
it heavily."
In Arizona, the idea is being pushed in separate bills by Democratic Gov. Janet
Napolitano and state Sen. Dean Martin, a Phoenix Republican.
The bipartisan interest in the tax holiday shows the appeal of giving
families a break just as the school season begins.
Both Napolitano's and Martin's plans call for the tax holiday during the first
week of August. Although technically written to only exempt the 5.6 percent
state sales tax, the tax holiday would effectively lift other local taxes,
affording savings that could climb to 8 or 9 percent.
Both plans would exempt clothing, school supplies and computers, up to certain
dollar limits, from the sales tax.
Martin has ushered Senate Bill 1152 to the brink of a vote in the state Senate,
where it has been hung up on questions of how to ensure that the sales-tax break
goes only to schoolchildren and their families. Some lawmakers are worried that
the general public may also take advantage of the tax break, biding their time
until the holiday to, for example, buy a new computer.
Martin described the quandary as a "Gordian knot" that may hamstring the effort.
That is because narrow definitions of who qualifies for the tax exemption would
put unwelcome work on retailers, making them de-facto sales-tax police. But a
broad definition could extend the tax break to people who aren't going back to
school.
Retailers in other states say
the tax break is interpreted broadly without fussing over whether the purchase
is for back to school. And that frees up some money that shoppers plow into
other purchases.
"They'll save the money on sales tax, and they'll go spend the money on dinner,"
said Chuck Courtney, president and chief executive officer of the Texas
Retailers Association.
Texas has staged a three-day tax holiday the first weekend in August since 1999.
In New Mexico, which started its tax holiday last year, retailers from the big
chain stores to the mom-and-pop operations were pleased with the first year,
said Dominic Silva, vice president of government affairs for the New Mexico
Retail Association.
Retailers had the option of not participating, but Silva said he was not aware
of any that opted against taking part.
Although he didn't have figures, Silva said sales trends suggest that the New
Mexico economy took in more money thanks to the tax break. Sales did not drop
prior to the holiday, and they didn't fall off much after it ended, suggesting
consumers weren't hoarding their dollars for the three-day tax holiday, he said.
But the period did bring a spike in sales, and retailers felt they were able to
retain some sales that earlier had been lost to people driving to Texas to stock
up for back to school.
"What we were losing were people going down there (Texas) to buy clothes, and
then they'd buy other things," Silva said.
Arizona retailers are generally supportive of the idea, as long as it's kept
simple, said Michelle Ahlmer, executive director of the Arizona Retailers
Association.
That means shopkeepers should be able to press one button to exempt certain
items from the sales tax, much as grocers do to exempt food from the sales tax.
Larry
Forester, team leader of the Target store at Seventh Avenue and Camelback Road
in Phoenix, said it would be fairly simple to program out the sales tax from the
store's electronic cash registers.
And, he speculated, the idea might result in a slight uptick in sales. Certain
back-to-school supplies have to be bought anyway, he reasoned, but discretionary
items like clothing might boost sales a bit.
"I think they should give us a week tax-free on everything, and I'd buy a car"
Forester joked.
Napolitano's plan, announced in her State of the State speech last month,
envisions a three-day tax holiday. She estimates it would cost the state $25
million in forgone taxes, which would be backfilled by money from a state
surplus that is approaching $1 billion.
Martin does not yet have a cost estimate on his seven-day holiday but suspects
it would be similar to the governor's price tag. That is because the governor
would pay local governments back for their lost sales tax, whereas Martin would
require cities to absorb the cost of lost tax revenue unless they took specific
steps to collect the tax, a move certain to be unpopular with voters.
The idea of tax savings, whether over a three- or seven-day period, appeals to
parents such as Laveen resident Maria Birnbaum. She homeschools her sons and
said the savings would help with costs from curriculum to workbooks to pencils.
"A computer, a new one, that would be awesome," she said, noting the provision
to exempt computer sales up to $1,000. "And the software, too."
Reach the reporter at maryjo.pitzl@arizonrepublic .com or at (602) 444-8963.