Sales Tax Holiday: Great for Customers or Pain in the Ass for Retailers?

For many back-to-school shoppers and big-box stores, this weekend’s sales tax holiday is the best thing since … well, last year’s tax holiday. But for smaller retailers and tax policy wonks, the whole idea is turning into one king-sized smoke and mirrors pain in the butt.

Take Joe Alves, for instance, who owns Natick Appliance. He worries that the gimmick isn’t working anymore to stimulate sales and thinks it may actually curb business, as customers are staying away in preparation for the big two-day event. “It does put a burden on us,” he has said.

Economists and tax policy experts agree. Sales tax holidays do not significantly increase consumer purchasing, according to the Tax Foundation, a non-partisan tax research group in Washington, D.C.. Instead, the highly-publicized events just mean customers hold off buying stuff until they can save a few bucks.

Massachusetts, which borders sales tax-free New Hampshire, held its first tax holiday in 2004. We’ve had one every year since, except for 2009, when lawmakers passed on the idea. This year, shoppers can save the 6.25 percent sales tax on a variety of items, but there are restrictions. To save, the item must cost less than $2,500, and motor vehicles, boats, food, tobacco, and utility services are not included in the deal.

Governor Deval Patrick agreed to the tax holiday as part of an economic development bill that he signed earlier this week. Massachusetts joins 17 other states with tax holidays this year, all of which impose similar, if not more stringent, restrictions. In Alabama, which held a tax holiday in July, the tax break only applied to hurricane and disaster preparedness supplies.

The tax holiday is normally viewed as a boon for retailers, but even industry advocates are conceding that this year’s tax holiday may be the toughest yet for store owners. “When it started, it might have been enough on its own to create a buzz,” vice-president of the Retailers Association of Massachusetts Bill Rennie has said, but now “it’s not enough for the retailer to just say there’s a sales tax holiday going on. They have to do their own promotions.”

Even huge stores with tons of back-to-school items that traditionally fare well on a tax holiday, such as Best Buy, are extending their hours and letting managers promote the event without the time-consuming hassle of getting corporate approval. They’ll do anything to draw in customers, it seems.

While store owners, such as Alves, feel that the tax holiday may not be worth it for his business, critics say that there are even larger problems with the concept.

“Political gimmicks like sales tax holidays distract policymakers and taxpayers from genuine, permanent tax relief,” according to the Tax Foundation. “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.”

An interesting idea, for sure. I’ll mull it over while I’m shopping for new furniture this weekend.