State's Sales Tax Holiday Not a Boom for Retailers

Aug 2, 2013

Credit Courtesy noise64, Flickr via Creative Commons

There's little doubt shoppers are looking forward to Tennessee's annual sales tax holiday this weekend, but a prominent state economist says the economic benefit is minimal.

"[Consumers] are buying what they would have bought anyway," said Bill Fox, director of the Tennessee Center for Business and Economic Research. "They’re just changing when they make the purchase. And that doesn’t have much of an economic impact.”

Sales tax holidays in the back-to-school season are politically palatable and popular with shoppers. Seventeen states, plus Puerto Rico, offer some kind of tax-free period during the course of a year. Some states offer them twice annually. Virginia and Louisiana offer three. But Fox said available economic research shows the holidays are not a big driver for consumer spending.

"Most of the benefit accrues to the retailer," Fox said. "That is, they might raise their price a little bit to offset the fact that you get a tax holiday, or they might have otherwise given a back-to-school sale. So the beneficiary is the business."

And even then, Fox said, the average retailer might see little difference when tallying up sales results at the end of the year. As for the state, Fox estimated Tennessee may lose $15 to $20 million on sales tax breaks this weekend. But he says that's a small amount compared to the billions in revenue the state collects in a fiscal year.