The two-day break on sales tax for back-to-school shoppers that starts Friday could cost state and local governments as much as $89 million.
The tax holiday, designed to help Georgia retailers compete with those in neighboring states that offer breaks for clothes, computers and school supplies, is popular with shoppers. Retailers say the savings entice consumers to spend more on taxed items than they otherwise might.
But economists question its worth, and the state — which last year brought back the tax break after a two-year hiatus — may not continue the practice.
Tightening other tax breaks makes the holiday revenue neutral, but that may not be enough to warrant its continuation, said House Majority Leader Larry O’Neal (R-Bonaire).
“I’m not absolutely convinced we’re getting the bang for our buck,” he said. “I don’t have data that convinces me yet.”
This year’s tax holiday starts at 12:01 a.m. Friday and ends at midnight Saturday. A shopper who spends $634.78 on school shopping — the national average, according to the National Retail Federation — would save $44.44 in an area where sales tax is 7 percent.
The holiday, which was earlier in previous years, was moved to this weekend so retailers would have fall clothes in stock, O’Neal said.
Georgia’s holiday will have to be extended by the Legislature this winter to continue, and the debate could be intense.
“Consumers simply shift the purchases they otherwise would have made anyway from nearby weeks,” said Robert Buschman, a senior research associate in Georgia State’s fiscal research center, and the person who prepared the fiscal note for the state. “It costs a lot of money statewide for very little, if any, benefit. I wouldn’t say it’s worth it.”
The tax holiday favors shoppers who are able to concentrate their spending in one period, Buschman said. And if the justification is that it saves shoppers money, he said, that is contradicted by the argument that shoppers wind up spending more than they otherwise might.
Still, the tax break is popular politically, and popular with shoppers who see the savings during one shopping spree.
“It’s a good incentive, especially for laptops,” said Berrin Thomas, a Roswell resident. “That’s a big savings right there.”
Thomas has already finished most of the shopping for his 11-year-old son and his 4-year-old daughter, but the thought of saving money on a computer for himself was appealing. Still, he said, he would also check prices on websites like Amazon.com, where he never has to pay sales tax.
Thomas said he tends to be careful when he walks in to a store — he only buys what he comes in for — but he could see how others might spend more than they intended.
Chaz Delgado, a Lithonia resident who is going to Syracuse University in the fall, said he sees that all the time at his job at Chick-fil-A. Customers come in with a coupon for a free chicken sandwich, but they also buy fries or a drink.
Delgado, who works at Perimeter Mall, said last year’s tax holiday was like Black Friday. He also said he will likely use the tax break for a new computer, but thinks the state could use the lost revenue to improve roads, or for other infrastructure.
“In the long-run, it’s probably better not to have a tax-free weekend,” he said.
Retailers disagree. The event nature of the tax holiday means people are spending more on gas or food while they’re out, said Rick McAllister, president of the Georgia Retail Association. Sales of nontaxable items increase, he said, and cash-strapped families can save money.
“Why would you be opposed to a weekend of tax relief for every citizen in Georgia?” he said. “This is one of the most popular things a legislature can do.”
Katrice Brewster, store manager at Intimacy at Phipps Plaza, said the the tax-free weekend brings more business to the store. Intimacy isn’t doing anything in particular to bring in shoppers, but stores like JCPenney do special marketing for the tax holiday, said Al Capers, store leader at the Northlake Mall location.
“Of course it benefits stores and generates more sales,” he said. “It stimulates the economy; it’s a win-win for everyone.”
North Carolina is eliminating the tax holiday next year, but Georgia reinstated it to compete with its neighboring states, O’Neal said. Without it, shoppers in Columbus or Augusta might go to Alabama or South Carolina to do their back-to-school shopping, depriving Georgia businesses of the revenue.
“The thing that swayed me most is the genuine competition between states,” O’Neal said. “If other states have this and we don’t, consumers are going to go where they can get the best deal. We restarted it because just about every border state has a tax holiday.”
By the time people pay for gas to cross a state border, they may have wiped out their savings, countered Cara Griffith, editor in chief of State Tax Publications. Additionally, Griffith said, the amount of revenue that leaves the state is less than the total loss Georgia takes when it has its own holiday.
Liz Malm, an economist for the Tax Foundation, said she can’t blame people for taking advantage of the savings, but that the positive impact for Georgia is minimal.
“It looks good, it looks like they’re cutting taxes. But it’s a short-term gimmick,” she said. “They don’t have the economic benefits people say they do.”
The sales tax holiday is expected to cost the state between $38.7 and $52.5 million, according to the Department of Revenue. The additional cost to local governments is between $27.1 and $36.8 million. It’s difficult to make up that much money in additional purchases, but O’Neal said the state eliminated other tax benefits, like some conservation credits, or a tax break for movie studio equipment, to make sure the state isn’t hurt by the lost revenue.
“We took painful, meticulous time to evaluate the fiscal impact,” he said. “These numbers were not just pulled out of a hat and relied on.”
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