Wednesday, August 8, 2012
After an absence of several years, Georgia’s back-to-school tax holiday returns this Friday and Saturday.
The state last held a four-day tax holiday in 2009, ending an eight-year tradition that exempts certain items from the state sales taxes of 7 percent.
The holiday returns this year when “…certain items of tangible personal property sold during a period to commence at 12:01 a.m. on Aug. 10, 2012, and conclude at 12:00 midnight on Aug. 11, 2012” can be purchased tax-free, according to the Georgia Department of Revenue.
Exempted items include clothing and footwear with a price of $100 or less per item, the single purchase of a computer and related accessories with a price of $1,000 or less and general school supplies that have a sale price of no more than $20 per item. There is no limit on the total amount purchased.
Whether or not the tax-free holidays help or hurt local economies is open to debate. Opponents claim the lost revenue is not worth the relief provided residents and that consumers wait until the tax-free days to make essential purchases. Supporters vow the increased volume of sales during the holiday of items tax-free and otherwise boost overall tax collections.
“You may notice it in the month to the tune of a 5 percent to 8 percent decrease, but on the annual basis that would be less than 1 percent,” Catoosa Chief Financial Officer Carl Henson said.
A special council created in 2010 to study tax reform reported this regarding the back-to-school tax holiday:
“Using both political and economic criteria, the evaluation of the sales tax holiday in Georgia suggests that the policy has partially accomplished policymakers’ expectations: It does save taxpayers money but does not promote additional retail sales. The evaluation also suggests that, as expected by some policymakers, the sales tax holiday in Georgia is revenue-neutral to local governments.”
Another study, commissioned by the Georgia Retail Association in January of this year, found that sales tax holidays provide an overall boost to revenue at the local, state and federal level. It states:
“A back-to-school sales tax holiday, similar to the one that Georgia last provided in 2009, has the potential to increase economic activity significantly by at least $475.8 million in the state of Georgia. This increase would be on normally taxable merchandise, some of which would remain taxable and some of which would be exempt from tax during the sales tax holiday. A holiday also would generate an increase of $39.9 million in state and local taxes plus $44.3 million in federal taxes. This would result in a net increase in state and local taxes of $5 million.”
The study, prepared by the Washington Economics Group, “follows standard economic theory and is based on the premise that consumers react positively to lower prices, and that the enthusiasm that sales tax holidays generate through advertising provides a further boost to sales.”
The retail association also notes that retailers often offer additional discounts across the board to attract shoppers into their stores during the tax holiday.
More customers translate into increased sales. And while that might lead to lower collections on back-to-school items, overall sales — and tax revenue — can increase due to taxable item sales.
As the retail association report states:
“This methodology is in contrast to static fiscal impact methods, which assume that consumers do not react to lower prices and that the only effect is a loss of sales tax revenue by assuming that the level of sales remains fixed. For example, in August 2010, static fiscal impact models completed for Florida’s sales tax holiday predicted a loss of $44 million in sales taxes; nevertheless, a follow-up study found that gross sales of goods in the categories that were included in the tax holiday actually increased by $390 million, and of that increase, $115 million were taxable.”