Tax Holidays Mean Back-to-School Savings, For Now

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NEW YORK (MainStreet) – Depending on what state you live in, you might be wise to put off your back-to-school shopping for another week.

Several states are holding special tax holidays during the first weekend of August, giving tax exemptions to select back-to-school items like clothing, footwear and some school supplies. But while the savings may be attractive this may be the last year to take advantage of them.

In New Mexico, for instance, from Aug. 5-7 there will be no state sales tax charged on clothing, footwear and school supplies that cost less than $100 per item, computers that cost less than $1,000, and computer peripherals that cost less than $500. Athletic and protective clothing is excluded, and stores don’t have to participate in the event, so some may collect those sales taxes anyway.

New Mexico is one of 11 states holding a tax holiday that weekend, according to CCH, a provider of tax and accounting information. Each state’s holiday is a little different, with some strictly limiting it to clothing and others expanding it to school supplies and computers, with various dollar amount limits. And that’s not the only weekend when American shoppers can get a break on taxes—a total of 17 states will be holding a tax holiday this summer.

Mississippi is holding its holiday today and Saturday, applying its tax-free offer to clothing and footwear under $100 per item.

Such tax holidays are obviously good news for consumers who are starting their back-to-school shopping as the big sales get into full swing. And while stores could always raise prices or go easy on the markdowns to match the amount cut in taxes (as some airlines did when the FAA ceased collecting taxes this weekend), it’s more likely that retailers will put their best foot forward to attract a greater share of the consumers eager to take advantage of the offer.

However, what’s good for consumers isn’t necessarily good for the state, and some are questioning whether the reduction in tax revenue is really made up for by the supposed increase in economic activity.

“The holiday is going to bring more people into the stores on that weekend,” says Carol Kokinis-Graves, CCH’s senior state tax analyst. “But does that mean that consumers just did their shopping that weekend instead of another weekend?”

That seems particularly likely when it comes to a tax holiday that’s specific to back-to-school shopping. After all, everyone with children is going to do their back-to-school shopping at some point this summer, so it seems that the tax holiday affects the timing of their shopping more than how much they’ll actually spend.

That is perhaps the reason behind some cash-strapped state governments’ decisions to discontinuing their tax holidays for back-to-school shoppers. Just one state, Arkansas, enacted a new tax holiday this year, while three states, Illinois, Georgia and Vermont, have all discontinued theirs in the past two years. And as more state governments struggle to raise revenue to pay the bills, they might choose to follow suit.

In other words, if your state is offering a tax holiday this summer, we recommend finding out exactly what items qualify and taking full advantage. You may not be able to do so next year.

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