State Tax Holiday

This week North Carolina kicks off its state tax free holiday as do may other states. Sales tax is some of the most important tax levied by states. This provides temporary sales tax for consumers for purchasing a array items from clothes, computers, and back to school items. Carolina's law reads:

G.S. 105-164.13C provides an exemption for certain items of tangible personal property sold between 12:01 A.M. on the first Friday in August and 11:59 P.M. the following Sunday. For 2009, the dates are Friday, August 7th through Sunday, August 9th. Clothing, footwear, and school supplies of $100 or less per item; school instructional materials of $300 or less per item; sports and recreation equipment of $50 or less per item, computers of $3,500 or less per item; and computer supplies of $250 or less per item will be exempt.

So is a tax holiday really good thing for the state government or individuals? Here are some of the pros and cons.

Cons: (From the Institute on Taxation and Economic Policy)

Sales tax exemptions create administrative difficulties for state governments, and for the retailers who must collect the tax. For examples, exempting groceries requires a sheaf of government regulations to police the border between nontaxable groceries and taxable snack food. A temporary exemption for clothing (or for any other back-to-school item) requires retailers and tax administrators to wade through a similar quantity of red tape for an exemption that lasts only a few days. Last year's tax-free weekend cost the state(North Carolina)nearly $12 million in lost revenues.

The benefits of sales tax holidays are not limited to state residents, but also extend to consumers visiting from other states. For states struggling with continuing budget deficits, sales tax holidays offer less “bang for the buck” than more targeted tax breaks.

Retailers know that many consumers will shift their spending toward sales tax holidays to take advantage of the temporary tax exemption. Unscrupulous retailers can take advantage of this shift in consumer behavior by increasing their prices (or failing to reduce them by the full amount of the sales tax break) during the tax holiday.

Perhaps most important for cash-strapped lawmakers, sales tax holidays are costly. Revenue lost through sales tax holidays will ultimately have to be made up somewhere else, either through painful spending cuts or increasing other taxes.

Pros:

Helps out struggling families that need a boost during these hard economic times for purchasing items such as school supplies and other items of need. The National Retail Federation's annual report says parents will spend close to 8 percent less this year to get their children ready to return to school.

The tax savings combined with all the sale prices that retailers typically offer during the weekend make the dollar go further.

The benefit to cash-strapped shoppers outweighs any inconvenience to merchants and state and local administration work.

Overall: I think that it would be nice to spread a little tax relief, cough, cough... throughout the year instead of a 3day weekend, but then the lawmakers wouldn't be able to take credit for helping the people of their state out. I am guessing for some families this cannot come fast enough. Even though I do not agree fully with it, I hope it can help out some families/individuals that really need the help this year, as it has been a rough one economically.

What do you think? Are these a good idea or should they just give the tax relief spread throughout the year? Leave a comment.