A new study released Tuesday argues sales-tax holidays such as Texas’ upcoming back-to-school break cost states revenue but provide few consumer benefits.
The Tax Foundation, an independent think tank, called sales-tax holidays “political gimmicks” that shift shopping patterns without generating economic growth or increasing consumer purchases. It argued that such policies largely benefit retailers that capitalize on the buzz about a relatively small discount.
The study noted that sales-tax holidays boost foot traffic, prompting some retailers to raise prices to guard against running of inventory. Those increases could offset consumer savings from the tax break, it argued.
The findings come as retailers scramble to entice more customers to shop in store as rising e-commerce sales squeeze profit margins. The National Retail Federation and many state retail associations have long supported sales-tax holidays as shopping incentives that save consumers money.
Texas offers three sales-tax holidays annually. The back-to-school break, scheduled for Aug. 11-13, exempts from sales taxes most clothing and footwear items, school supplies and backpacks less than $100.
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The state offered discounts on disaster-preparedness items and energy-efficient appliances last April and May, respectively.
The Tax Foundation study noted that Texas is one of 16 states that have such holidays on the books, down from 17 last year and 18 in 2015. It’s one of only seven that exempt school supplies.
Several states have eliminated sales tax holidays in recent years. North Carolina, for example, held its last one in 2013 after passing legislation arguing that such breaks cost the state more than $16 million a year.
In Texas, sales tax revenue is on the rise, but in Houston, a prolonged slump in collections only recently showed signs of easing after months of declines.
The city’s monthly sales tax revenue rose about 4.8 percent in May to $50.7 million, data released by the Texas comptroller’s office show.