Sales Tax Holidays for School Supplies May Deliver Less Than Promised

As summer vacation nears an end, some states are holding the annual back-to-school ritual known as the sales tax holiday. But some tax experts said shoppers should be realistic about how much they will be saving.

The number of states offering the holidays, during which state (and often local) sales taxes are waived, has waxed and waned over the years. But more than a third of states that charge sales taxes currently hold some sort of summertime tax-free promotion, often focused on categories like clothing and classroom supplies. The holidays typically allow the savings for both in-store and online purchases.

Some states also hold sales tax holidays with other themes, like hurricane preparedness or hunting, whether in tandem with the back-to-school events or on separate dates, according to the Federation of Tax Administrators.

The tax-free holidays are crowd pleasers, since shoppers relish the idea of avoiding sales taxes on their purchases. Families with children in elementary through high school plan to spend an average of $685 on back-to-school items this year, according to the National Retail Federation.

Some policy analysts, however, dismiss tax holidays as a gimmick that distracts from the establishment of more equitable sales tax policies. Tax holidays mostly benefit big retailers and politicians, who like to appear to be giving voters a break, said Scott Drenkard, director of state projects at the Tax Foundation, a research group focusing on tax policy, and co-author of a recent report skeptical of tax holidays.

“They are political catnip,” Drenkard said of the tax holidays.

But the hype, he said, is out of proportion to the savings offered to shoppers — typically a modest 4.5 percent to 7 percent. (Savings can be higher in states that include local sales taxes in addition to statewide sales taxes in their tax-free holidays.)

Plus, he added, the influx of shoppers over a designated week or weekend means that the laws of supply and demand can kick in to make prices higher than they would otherwise be, minimizing the benefit to consumers of tax-free purchases.

“I won’t deny that they’re popular,” Drenkard said of the tax-free holidays. But, he said, “consumers should be looking out for whether prices are actually good deals at that time.”

In some states, as well, local communities may opt out of the state tax holiday, so shoppers may still have to pay local sales taxes.

Octavio Blanco, a money writer with Consumer Reports, suggested that shoppers may want to buy some back-to-school items to take advantage of tax holidays, then wait to buy the rest in September, after school is in session for a while, when stores may cut prices to move inventory.

Also, Blanco said, promotion of the tax-free events may give the impression that all merchandise is included. But the details often reveal that many items are excluded or that the dollar amount of items eligible for tax-free status is limited.

In Connecticut, for instance, most individual items priced under $100 are exempt from sales tax during its tax-free week. The full sales tax is charged on items priced at $100 or more.

“Know the parameters,” Blanco said.

Here are some questions and answers about back-to-school savings:

A: States with back-to-school tax holidays in 2018 are Alabama, Arkansas, Connecticut, Florida, Iowa, Massachusetts, Maryland, Mississippi, Missouri, New Mexico, Ohio, Oklahoma, South Carolina, Tennessee, Texas, Virginia and Wisconsin. Most were scheduled for late July or the first week of August.

Massachusetts didn’t hold a tax holiday the past two years, but is scheduled to hold one Aug. 11-12, pending the governor’s expected approval.

Other states with upcoming holidays include Connecticut (Aug. 19-25), Maryland (Aug. 12-18) and Texas (Aug. 10-12).

A: Rules for computers and electronics vary by state. Some states waive taxes on them, but typically cap the total price eligible for the savings.

Spending on electronics as part of back-to-school shopping has decreased slightly in recent years, the National Retail Federation said. Laptops, tablets and smartphones are now seen as part of everyday household life and aren’t necessarily something that families wait to purchase at the start of the school year, a federation study found.

A: Parents who had to pay for summer day camps or child care for their children so they could work while school was out, should make a point of organizing their receipts in case they are eligible to claim the child and dependent care credit at income tax filing time, Blanco said.

The tax credit, depending on your income, is worth as much as 35 percent of eligible expenses of up to $3,000 for one child, or up to $6,000 for two or more children, according to TurboTax. That translates to a credit on your tax return of up to $1,050 for one child, and up to $2,100 for two or more. But take note: Overnight camps don’t qualify.