Jul 29, 2009

Tax Holidays Still Worth CelebratingBy SmartMoney.com

Even as states scramble to get their budgets in order, many still plan to offer summer sales-tax holidays. All 15 states that held summer tax holidays in 2008 will suspend their sales taxes for at least a day this year.

In fact, several states have expanded their holidays. West Virginia doubled the price threshold for its fall holiday on Energy Star products to $5,000, and New Mexico expanded its August coverage on computers and computer accessories to per-item maximums of $1,000 and $500, respectively. (Last year, New Mexico waived the tax only on a single purchase of a computer and accessories worth up to $1,000.) Mississippi will offer a tax holiday for the first time on July 31 and Aug. 1, when the state waives its 7% tax on clothing and footwear worth $100 or less.

Washington, D.C., is the exception. The capital repealed its 2009 summer holiday (a tradition since 2004), which would have waived the 5.75% tax on clothing, footwear and school supplies worth $100 or less. The district cited budgetary concerns and a projected loss of $640,000 in tax revenue over the week-long holiday.

Participating states are betting the sales-tax holidays will generate an economic boost powerful enough to offset the loss in tax revenue, says Richard Ebeling, an economics professor at Northwood University in Midland, Mich. “In the long run, this acts to stabilize the local business economy,” he says. Troubled retailers draw in foot traffic and sales, and consumers catch a break on necessary school supplies. Some states may even see some tax revenue, if the break encourages consumers to add a few items to their shopping lists not covered by the holiday.

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