Notes on the ‘no sales-tax’ weekend

The upcoming weekend of August 3-4 will be Arkansas’ third “no sales tax” weekend on back-to-school clothing, equipment, supplies and instructional materials.

Looking back, one has to wonder why it took the Arkansas Legislature and Gov. Mike Beebe (and his predecessor Mike Huckabee) so long to get the holiday passed in the first place.

Both administrations tried. It was finally approved in 2011.

It all came down to adapting a model from surrounding states to Arkansas’ often confusing sales tax code. And some hard negotiating with Arkansas retailers, who were perhaps more on board than the Legislature realized.

Act 757 of 2011 created the holiday, but only after several surrounding states – Missouri especially comes to mind – had created such an event. Arkansans were shown the example of how much this “tax-less” holiday could save families of school children by our friends in the “Show Me State.”

The Arkansas sales tax holiday for 2013 will begin Saturday (Aug. 3) at 12:01 a.m., and will continue through Sunday (Aug. 4) at 11:59 p.m.

State and local sales tax will not be collected during this 48-hour period on the sale of:
• Clothing and footwear if the sales price is less than one hundred dollars ($100) per item;
• Clothing accessories and equipment if the sales price is less than fifty dollars ($50) per item;
• School supplies;
• School art supplies; and
• School instructional materials.

All retailers are required to participate and may not charge tax on items that are legally tax-exempt during the Sales Tax Holiday.

Already in 2013, on the eve of this third such “no sales tax” holiday there are some critics.

The Arkansas Times, a Little Rock-based newspaper, for instance, has opposed this legislation mainly for the fact that absence of a sales tax may or may not produce a lower price than a smart buyer could find elsewhere. The Times says, “ … the promise of economic stimulus is meritless. Retail demand is finite. Time-shifting it from one day to another does not make people buy more socks.”

This year, the National Tax Foundation, also chimes in on why there are pitfalls with this trend in Southern States to declare “no tax” holidays. Sales tax holidays do not promote economic growth or significantly increase consumer purchases; the evidence shows a simple shifting of the timing of purchases, according to the Foundation. Some retailers raise prices during the holiday, may, actually reduce consumer savings.

Sales tax holidays also create complexities for tax code compliance, efficient labor allocation, and inventory management. Political gimmicks like sales tax holidays distract policymakers and taxpayers from genuine, permanent tax relief.

The Arkansas ‘“tax free” model was purposely drafted by a close-knit coalition of legislators (a bi-partisan group) so all kinds of families, especially those in low and middle incomes could get some kind of relief from the vast expanse of money needed to cloth and equip kids to go back to school.

There was some hesitation prior to 2011 that the “sales tax holiday” would be a drain on the state treasury. There was also concern there would be abuse. Act 757 has, apparently, cleared those hurdles.

Following are some info on the back-to-school tax programs around the country. Some of these may be of interest to Arkansas lawmakers.

There are 17 states offering sales tax holidays – where state sales tax charges are temporarily dropped on back-to-school items such as clothing, footwear, classroom supplies, computers and certain other products.

Massachusetts was the only state that discontinued its sales tax holiday in 2013.

Also, New York State does not offer a specific sales tax holiday, but items of clothing and footwear sold for less than $110 are exempt from the state's sales and use tax throughout the year.

Sales tax holidays timed for back-to-school shopping begin as early as July 26 and many take place in early August. Some limit the exemption to clothes and shoes, and others extend exemptions to a wide range of personal items. All place dollar limits on the amount exempt from sales tax, from as little as $15 for school supplies in Florida to as much as $3,500 for computers in Missouri and North Carolina.

Southern state examples on these “back to school no tax days” are:
• Alabama: On Aug. 2-4, the following are exempt: clothing (not accessories or protective or recreational equipment) with a sales price of $100 or less per item; single purchases, with a sales price of $750 or less, of computers, computer software, school computer equipment; noncommercial purchases of school supplies, school art supplies and school instructional materials with a sales price of $50 or less per item; and noncommercial book purchases with a sales price of $30 or less per book.

• Florida: On Aug. 2-4, the following are exempt: clothing with a sales price of $75 or less per item and school supplies with a sales price of $15 or less per item; and personal computers and related accessories with a sales price of $750 or less purchased for noncommercial use. The holiday exemption does not apply to sales of such items made within a theme park, entertainment complex, public lodging establishment or airport.

• Georgia: On Aug. 9-10, the following are exempt: clothing and footwear with a sales price of $100 or less per article or pair, excluding accessories; single purchases for noncommercial use of $1,000 or less of personal computers and related accessories; and general school supplies priced at up to $20 per item.

• Louisiana: On Aug. 2-3, the first $2,500 of the sales price of noncommercial purchases (not leases) of items of tangible personal property (not vehicles or meals). Although the holiday exemption does not apply to local taxes, St. Charles Parish will waive its local sales tax during the same weekend as the state holiday.

• Mississippi: On July 26-27, clothing or footwear (not accessories, rentals, skis, swim fins or skates) with a sales price under $100 per item are exempt.

• Missouri: On August 2-4 the following items are exempt: noncommercial purchases of clothing (but not accessories) with a taxable value of $100 or less per item; school supplies up to $50 per purchase; computer software with a taxable value of $350 or less; and computers and computer peripherals up to $3,500.

• Oklahoma: On Aug. 2-4, items of clothing and footwear with a sales price of less than $100 are exempt. The holiday does not apply to the rental of clothing or footwear, the sale of special clothing or footwear primarily designed for athletic or protective use, or the sale of accessories.

• South Carolina: On Aug, 2-4, clothing (but not rentals), clothing accessories, footwear, school supplies, computers, printers, printer supplies, computer software, bath wash clothes, bed linens, pillows, bath towels, shower curtains and bath rugs are exempt.

• Tennessee: On Aug. 2-4, clothing (but not accessories), school supplies and school art supplies with a sales price of $100 or less per item; and computers with a sales price of $1,500 or less per item are exempt.

• Texas: On Aug. 9-11, clothing and footwear and school backpacks with a sales price of less than $100 per item are exempt. The exemption does not include accessories, athletic or protective clothing or rentals.

Many of these states offer a three-day window, not a two-day window as Arkansas offers. Maybe that’s a tax-cut for the public that needs to be looked at in 2015?