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Saving on Sales Tax Once a Year – Versus All Year

If you loathe crowds, you might want to stay away from malls and other large retail outlets this weekend.

If you dislike crowds and also object to state government handing out politically tinged, special-interest tax favors, there’s even more reason to take a break from our consumer culture for the weekend.

Indeed, let the spectacle begin: When the clock ticks past midnight tonight, South Carolina’s 13th annual back-to-school sales tax holiday begins.

Tax-free shopping ends at midnight Sunday.

In mainstream media coverage of tax-free weekend, certain themes have developed around the event that go like this:

The back-to-school sales tax holiday saves consumers money, boosts retail sales and stimulates economic activity.

The S.C. Department of Revenue, where frequently asked questions about tax-free weekend tend to go, helps perpetuate these ideas.

“While providing taxpayers with an exemption on the 6% statewide sales tax as well as any applicable local taxes, the tax-free weekend also benefits in-state businesses by urging taxpayers to do their back-to-school shopping in South Carolina,” says a Department of Revenue news release.

The bottom-line reality of tax-free weekend, however, is that it’s not such a clear-cut win for taxpayers, businesses and the state’s economy as a whole, according to knowledgeable observers across the political spectrum.

In academia, for example, Marianne Bickle, Department of Retailing chairwoman at the University of South Carolina, told The Nerve for a story on last year’s sales tax holiday that she thinks the event is a wash for the state treasury.

In the political aisles, meanwhile, the Tax Foundation on the right called this week for replacing sales tax holidays (some 17 states have them) with permanent tax relief.

“Research has shown that the vast majority of consumer purchases during sales tax holidays are merely timed to coincide with the holiday period, rather than being stimulated by it, said the foundation, a nonprofit, nonpartisan research group in Washington, D.C.

“Thus, such programs have little or no effect on overall economic activity.”

And from the left, the Center on Budget and Policy Priorities, also a nonprofit, nonpartisan research organization in the nation’s capital, had this to say in a November 2001 study on the idea of a national sales tax holiday:

“States that have implemented sales tax holidays have reported increases in sales during the holiday period. There is reason to suspect, however, that these increases in sales have not translated into overall improvements in state economies.

“Much of the reported increases can be attributed to consumers shifting the timing of their purchases from the weeks before or after the holiday ‘window’ to within it.”

As a practical matter, consider this basic proposition:

Would you rather have one weekend to shop tax free – or a lower sales tax all year long, and one that applies uniformly, rather than being Swiss-cheesed, as South Carolina’s is, with 78 categories of exemptions?

The carve-outs exclude everything from vacation timeshare leases to “materials necessary to assemble missiles used by the U.S. armed forces.”

A little math helps put things into perspective.

The National Retail Federation conducts an annual survey on average per-person, back-to-school spending by people with children in grades K-12.

This year, the federation says, that amount is $688 and change.

So, if one multiplies $688 by the average combined state and local sales tax in South Carolina – 7.12 percent, according to the Tax Foundation – it produces a savings of almost $49 for the typical parent on tax-free weekend.

That’s a tank of gas, right? Or maybe a decent dinner out for the family.

But what if, instead of tax-free weekend, the state sales tax was broadened to apply to more items and lowered by, say, 1 percent.

Doesn’t sound like much, perhaps, but ponder all the ways it would save.

Take cell phone bills. If they average $100 a month, that’s $12 a year right there.

How about that $50 dinner out? At once a week, that’s another $26 saved per year.

Go down the list: spirits, shoes and clothing, electronics, DVDs, and on and on.

Suffice it to say, a 1 percent cut in the state sales tax would yield a lot more savings for taxpayers than a once-a-year break from the levy for a single weekend.

Take it from another, homegrown group of experts – the S.C. Taxation Realignment Commission.

Known as TRAC, it was a panel created by the General Assembly to study and recommend reforms to the state tax code.

In its December 2010 final report, the commission noted that South Carolina’s state sales tax, 6 percent, is among the highest in the country. The Tax Foundation says it’s the 16th highest.

Yet, TRAC’s report said, “Incredible as it may seem, South Carolina now exempts more sales tax than it collects ($2.7 billion in exemptions vs. $2.19 billion in collections (General Fund portion)).”

The Legislature adds new exceptions now and then, as well.

Case in point: Boeing got a pass on state sales tax for the multibillion-dollar, multinational defense and aerospace corporation’s 787 Dreamliner assembly plant in North Charleston.

The TRAC panel recommended eliminating most of the exemptions and lowering the state rate by 1 percent.

But the Legislature gave that suggestion, like the rest of TRAC’s counsel, no audience, consigning it to a dusty State House shelf.

During this year's legislative session, the House Republican Caucus did introduce a bill that would have gone a long way toward implementing the commission’s sales tax plan. But by the time the bill emerged from the House, it had been watered down to the point of only reducing the state sales tax by a tiny fraction of a percent.

And the Senate never acted on the measure, H. 4995, sponsored by Rep. Tommy Stringer, R-Greenville.

There’s a good explanation for such reticence among legislators to act on sales tax reform.

“That’s called political realities,” says Rep. Chip Limehouse, R-Charleston and author of the legislation that implemented the state’s first back-to-school sales tax holiday in 2000.

Limehouse says he proposed the idea to enhance education, which “is in the best interests of all the citizens of South Carolina.”

Asked about TRAC, Limehouse said, “I’d say many of their recommendations need to be heeded. The trouble is, every one (sales tax exemption) you take on, you take on a new constituency; and they tend to come out of the woodwork, and it tends to quash the legislation.”

“So the political reality is, reform’s going to be difficult,” Limehouse adds.

Well there you have it: Politicians in the Legislature, under pressure from special-interest groups with lobbyists, have given their ilk all kinds of permanent vacations from the state sales tax.

Those same politicians, meanwhile, have given regular old South Carolinians a “holiday” from the state sales tax – for one weekend.

Ready to roll out and do that shopping?

Reach Ward at (803) 254-4411 or eric@thenerve.org.

Taxes Lobbying Legislation K-12 Incentives General Assembly Budget

Center on Budget and Policy Priorities Rep. Tommy Stringer S.C. Department of Revenue Rep. Chip Limehouse Tax Foundation