The Institute on Taxation and Economic Policy (ITEP) made a lot of noise(and news, news, news) about sales tax holidays during the recent back to school season. Seventeen states offer sales tax holidays. The rules vary widely, but in most cases they mean consumers don't have to pay sales taxes on back to school supplies, clothes, etc. for a few days. This past August for the first time, Arkansas offered a sales tax holiday of its own. While the sales tax revenue figures are still coming in, it's now clear that holiday cost the state about $2.1 million in lost revenues and an additional $710,000 loss in revenues for cities and counties that collect their own local sales taxes.
Naïve state officials hoped to see an increase in sales tax revenue based on the assumption that consumers would go out and purchase more taxable items. Indeed, sales tax holiday proponents often argue that sales tax holidays actually generate new sales tax revenue, as in this report from the Florida Retail Association.
But so far the Arkansas revenue figures aren't showing much offsetting revenue generated. The Deputy Director of the Department of Finance and Administration, Tim Leathers has admitted they "couldn't detect any increase in consumers spending more money while they were in there buying school supplies." Revenue officials have yet to tally September's sales tax revenues to see if there were shifts in consumption by month, but either way it seems that the sales tax holiday didn't provide a real and needed boost for state coffers.
John Shelnutt, an economist with the Department of Finance and Administration said, "If it did shift consumption from month to month, we'll have to see…. Even then, it's not a clear story. We were below forecast for the first two months of the fiscal year, which begins July 1."
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