Georgia sales tax holiday good for shoppers, bad tax policy

Georgia's sales tax holiday is a popular event, but it is not the norm nationwide. This year, 17 states (mostly concentrated in the southern region) are conducting sales tax holidays, a slight drop from the peak of 19 states in 2010.

The event enjoys strong political support, but two researchers, Scott Drenkard and Joseph Henchman, say it is bad tax policy.

Their report, Don't Buy Tax-Free Weekends, was released today by Georgia Public Policy Foundation.

Drenkard and Henchman note that tax holiday supporters have said the holidays improve retail sales and promote economic growth. Supporters argue that shoppers will buy more of the tax-exempt goods than they would have without the holiday and that consumers will impulse buy the non-exempt goods thereby paying taxes that never would have been collected.

But in 1997, when the New York Department of Taxation and Finance studied its clothing sales tax holiday, they found that while sales of exempt goods rose during the holiday, overall retails sales for the year did not grow.

In fact, shoppers waited until the sales tax holiday to buy exempted goods which slowed down sales in the weeks before and after the holiday. New York is one of the states that no longer holds a sales tax holiday.