Shop Talk

Retailers, consumers and prices

Sales tax holidays to the rescue?

January 27, 2009

What’s one way to get reluctant shoppers back into the stores? Give them a sales tax holiday — or two or three.

That’s what the National Retail Federation is urging the government to consider as part of the economic stimulus plan being debated in Washington.ECONOMY-DOLLAR/PIZZA

“We think what this can do is to help consumers psychologically get back into the stores,” said Rachelle Bernstein, NRF vice president and tax counsel, on a call with reporters. “We are hopeful that with a national sales tax holiday, which will get a lot of attention, that it might be something to help make the consumer feel good again.” 

The NRF outlined its sales tax idea in December in a letter sent to the incoming Obama administration. The trade group proposed that tax holidays be held on a national level in March, July and October 2009, each lasting 10 days. By temporarily lifting the sales tax for the three 10-day periods, the NRF said consumers could save nearly $20 billion. 

The NRF returned to touting the idea on Tuesday, the same day it forecast that retail sales will fall 0.5 percent this year–the first decline predicted since it began issuing such forecasts in 1995. The NRF said a large part of the forecast hinges on the government taking swift action to implement a stimulus plan.

In order to garner support among U.S. states for so many tax holidays, the trade group is suggesting the federal government reimburse lost revenue to the 45 states that charge sales taxes.

While state sales tax rates range from 2.9 percent to 7.25 percent, providing consumers a break from paying that tax seems to entice them to spend more than usual.

“Sales tax holidays really bring a great boost to spending during the holiday period,” Bernstein said. ”Some retailers report to us that they may see a spike in spending as high as 35 to 45 percent over what it would otherwise be during a holiday period.”



Sales tax continues to be a hot topic in a cool economy. We hear about some jurisdictions wanting to increase sales tax in order to generate badly needed revenues. Yet others talk about reduced taxes (or sales tax holidays) to spur sales… Regardless of the strategy – the sales tax structure needs to be simplified for small-to-medium businesses.


The whole idea is ridiculous. All it would do is postpone purchases of big ticket items to the period of the holiday. Who would buy a car or big screen TV in the weeks leading up to the holiday? Only someone who doesn’t care about the marginal difference in price and would be buying anyway. Would areas that have a sales tax greater than the 7.25% be reimbursed for the difference, or would they lose out, areas that are already fiscally at risk, such as the county in CA in which I live. And not even just big ticket items would be affected. Smart consumers would to their back-to-school shopping in July only, and Christmas shopping in October only. And the retailers would be impacted by having to staff up for these short periods of time, with the additional personnel and administrative costs for the extra hires. Not a good use of federal tax money, and with out the federal reimbursement, it would be horrible for the affected states. Bad, bad idea, go away.

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