A provision in the House revenue package that would establish a sales-tax holiday in North Carolina may be mostly a ploy to make a sales-tax increase more palatable to low-income consumers and retailers, but that doesn’t mean it’s a bad idea.
Six other states, including South Carolina, have enacted some form of sales-tax holiday during which they waive the tax on certain categories of goods. It started in New York as a way to give back-to-school shoppers a price break on clothes, accessories and classroom supplies. Now, some states have upped the ante considerably by extending the holiday to a two-week tax sabbatical and including pricey computers on the waiver list.
North Carolina’s version would be more moderate: A weekend of tax relief in August that would exclude clothes, shoes, accessories, books and school supplies so long as individual items cost less than $100. But it also would waive the sales tax for up to $3,500 of computer equipment.
Tax holidays, not surprisingly, find strong advocates in merchants associations, which like them because they can turbocharge retail sales, often as stores are pushing back-to-school merchandise. For consumers, the holidays provide at least a smidgen of tax relief for individual shoppers trying to outfit their children for a new term. Of course, since the holiday isn’t limited to parents of schoolchildren, the well-heeled looking to save a few bucks on wardrobe or office items also benefit – and those who can spend more also save more. When you’re talking a 6 or 7 percent discount on a $3,000 computer, those savings aren’t insignificant. But it stretches credibility to suggest, as the electronics industry has, that the tax break will make a significant dent in the “digital divide” by enabling many families of modest means to buy computers. If all computers cost $3,000, that might be true. With many available for less than a third of that, however, the sales-tax is less likely to be a make-or-break factor in purchases.
The longterm effect of tax holidays is also unclear. South Carolina merchants said the first three-day tax holiday there, in 2000, boosted sales by at least $250 million. Studies elsewhere, however, have indicated that tax holidays tend to influence the timing of purchases more than giving a clearcut boost to bottom-line sales.
One thing is certain, however: States that have a sales-tax holiday lure shoppers from neighboring states that don’t – which is reason enough for North Carolina to give the provision serious consideration. With South Carolina’s tax holiday already drawing shoppers across the border, and Georgia and Virginia lawmakers actively pushing tax holidays, North Carolina merchants will find themselves losing an increasing amount of business to other states for a few days every year.
A tax holiday doesn’t negate the regressive nature of a sales tax increase. But it can help North Carolina merchants be more competitive. Without a tax holiday, they’re likely to face a major tax headache for at least one weekend a year.
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