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Throngs of bargain hunters descended Friday upon malls and retail shops around Greater Nashville, celebrating the state’s 11th annual sales tax holiday at the height of back-to-school shopping season.
The purpose of tax-free weekend is to drive sales for retailers and give shoppers a break on yearly purchases of new school clothes, supplies and other items. That spending is projected to increase by nearly 10 percent this year to $673 for families with kids ranging in grade from kindergarten to high school, according to the National Retail Federation. College students are expected to spend an average of $888, down from $899 in 2015.
During the three-day event — which began this year at 12:01 a.m. Friday and ends at 11:59 p.m. on Sunday — Tennessee shoppers don’t have to pay sales tax on clothing and school supplies under $100 and computers and tablets under $1,500. Items including jewelry, handbags, wallets, watches, sports equipment and cellphones are still taxable. The holiday applies to in-store and online shopping.
Tennesseans in recent years have jumped to take advantage of the deals. Last year alone, Volunteer State shoppers avoided roughly $9 million in sales taxes during the three-day holiday, according to Justin Moorhead, legislative liaison with the Tennessee Department of Revenue. That translates to around $95 million in spending on qualifying purchases.
But does the sales tax holiday boost the economy?
Not according to a report issued last year by the research group Tax Foundation, which argues sales tax holidays don’t increase consumer spending, they just shift the timing of purchases. Some retailers even raise prices during the three-day event so it doesn’t result in actual consumer savings, the report’s authors write.
“Sales tax holidays have enjoyed political success, but recently, policymakers are re-evaluating them,” the report reads. “Rather than providing a valuable tax cut or a boost to the economy, sales tax holidays impose serious costs on consumers and businesses without providing offsetting benefits,” the report says.
Coming to similar conclusions, some states have eliminated their sales tax holidays in recent years. North Carolina, for instance, repealed its holiday in 2013 and estimated it would save $16.3 million the next year.
Tennessee is one of 17 states, primarily located in the Southeast, to hold a sales tax holiday in 2016, down from a peak of 19 states in 2010, according to the Tax Foundation.
Michigan and Ohio were the first states to enact sales tax holidays on automobile purchases in 1980. New York popularized the modern trend by offering its first tax-free weekend on clothing purchases in 1997 to discourage “border shopping” — where consumers travel to nearby states for discounts.
This year, all 17 states with holidays will suspend sales taxes on clothing, 11 states will have school supply sales tax holidays, six states will offer computer sales tax holidays and five states will have sales tax holidays for Energy Star products, according to the Tax Foundation.
Moorhead said the $9 million Tennesseans did not pay in sales tax last year is consistent with the holidays over the past several years. But the figure could fluctuate in 2016 because the sales tax holiday is one weekend earlier this year. Official totals for 2016 won’t be released until mid-September.
The state accounts for the sales tax holiday in its annual budget.
Local retailers had mixed reviews during last year’s tax-free weekend, when some store owners said traffic was down because the holiday fell after many students had already returned to school.
For that reason, the state moved its tax holiday to the last weekend in July this year rather than the first weekend in August.
Proponents of sales tax holidays, including Jim Brown, state director of the National Federation of Independent Business, say the holiday can boost small stores and businesses.
“It’s been a lackluster summer for a lot of small businesses,” Brown said in a statement. “The sales-tax holiday should help people get fired up and in the mood to spend.”
Leah Bentley, owner of Snap Tweens, said the Green Hills store experienced “consistent and strong sales over the tax-free holiday” in past years. She said the store has end-of-season specials up to 75 percent off before the inventory transitions to fall collections next week.
“Despite the varying dates that public and private schools commence, most Nashvillians seem to be back in town and gearing up for the weeks ahead,” Bentley said.
The Staples store at 100 Powell Place had a steady stream of customers Friday morning, including several families stocking up on paper, pencils, rulers and backpacks. Nashville resident Dawn Lee checked supplies off a long list, just days before her children return to school and one leaves for the University of Notre Dame.
Lee, who shopped with her daughter Diane Lee, said they usually wait to go back-to-school shopping until tax-free weekend.
“We always have someone to buy a computer for so we do that,” Lee said.
At a nearby Wal-Mart store, one family walked out carrying six bags of items for their two children returning to school. Chris Cast said he usually waits to buy his children’s school supplies until the sales tax holiday.
Wal-Mart spokeswoman Molly Blakeman said sales tax holidays are peak shopping weekends in states that offer them.
“We know it’s going to be very busy and it’s an exciting time for our customers and our stores,” Blakeman said.
She predicted apparel and school supplies branded with Batman, Teenage Mutant Ninja Turtles, Ghostbusters and Finding Dory will be big sales drivers for back-to-school spending.
Josh Rhoten, general manager of Best Buy at Nashville West, said tax-free weekend drives additional traffic to the store, particularly with parents shopping for their children. He said laptops and tablets are popular purchases during the three-day event.
“We have our staff on point and prepared to help parents and students help make the best decisions on what’s right for them,” Rhoten said.
By the numbers: Sales tax holidays
$673: Average amount families with K-12 kids will spend on back-to-school shopping
$888: Average amount college students will spend on back-to-school shopping
$9 million: Total sales tax Tennesseans did not pay during the 2015 sales tax holiday
17: Number of states with sales tax holidays in 2016
1997: The year New York popularized the modern sales tax holiday trend
Sources: National Retail Federation and Tax Foundation
Reach Lizzy Alfs at 615-726-5948 and on Twitter @lizzyalfs.