TAX EDUC HOLIDAYS

Even though the coronavirus may make “back to school” a misnomer, many states are going ahead with summer sales tax “holidays” that give shoppers a break on back-to-school items.

This year, 16 states, including Texas, are temporarily exempting clothing, shoes, notebooks and other school supplies from sales taxes.

Texas offers a three-day holiday from Aug. 7-9. Exempted items include most clothing, footwear, school supplies and backpacks, according to the Texas Comptroller’s office. More information is online at comptroller.texas.gov/taxes/publications/98-490.

You can buy qualifying items online tax free when either the item is both delivered, and paid for, by the customer during the exemption, or the customer orders and pays for the item, and the seller accepts the order during the exemption period for immediate shipment, according to the Texas Comptroller.

At least one state, Tennessee, added an extra tax holiday weekend in August, focused on restaurant spending. “This year, we noted that consumers who have been cooped up at home might enjoy a sales tax holiday for purchases in restaurants, either dine in or take out,” State Rep. Susan Lynn, chair of the Tennessee House Finance, Ways and Means Committee, said in an email.

In many states, details around returning to school are still up in the air. But a survey by the National Retail Federation, a trade group, found that families are expecting to spend a record $790, on average, on back-to-school items this year, particularly on technology. Nearly two-thirds of families with children in kindergarten through 12th grade said they expected to buy computers and other electronics, up from about half last year, because of the potential for digital at-home classes.

“There’s a lot of uncertainty around the school year,” said Katherine Cullen, the senior director of industry and consumer insights at the retail federation. “Customers are budgeting for all possible scenarios.”

As details become clearer, she said, families may adjust their spending. Children need new clothes as they grow regardless of whether they learn at home or in school, but items like backpacks or lunchboxes may not be necessary for remote lessons.

While popular with both politicians and shoppers, sales tax holidays are generally frowned upon by tax policy experts, who say they offer modest benefits to most consumers while starving states of revenue for needed services. Some research suggests that the holidays shift the timing of purchases rather than spur new spending.

This year, state sales tax revenues appear to be in free fall, according to an analysis by the Tax Policy Center, a joint initiative of two nonprofit think tanks, the Urban Institute and the Brookings Institution. Because of stay-at-home orders and business closings in the pandemic, along with tax payment extensions, state sales tax revenue in May fell $6 billion overall, or 21%, from a year earlier, the center calculated. In some states, the decline was more than 30%.

The declines are “unprecedented,” the report noted, and because of the pandemic, sales tax revenues are unlikely to rebound to normal anytime soon.

“At a time of public health and revenue crisis,” Lucy Dadayan, senior research associate at the Tax Policy Center, said in an email, “sales tax holidays will help some consumers to save very little but at a cost to governments.”

Because lost revenue from the tax holidays is typically a small proportion of state budgets, elected officials may see the promotions as an easy way to gain public favor without doing too much fiscal damage, said David Brunori, a specialist in state and local taxation at tax and auditing consultant RSM and a research professor at George Washington University Law School.

This year, he said, the thinking among state legislators may be that people have been suffering with virus-related shutdowns, civil unrest and now heat waves, so why not offer a bit of relief. “They’re ‘feel good’ measures,” he said.

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