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Tax free time is upon us

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But is it bonanza or baloney? Study questions whether it really helps

By Carol A. Clark

Coming this weekend to a retailer near you is the annual Gross Receipts Tax Holiday.

The back-to-school tax free event is worth between 5 percent and 8.5625 percent in savings and is limited to clothing costing less than $100, school supplies that cost less than $15, computers selling for less than $1,000 and other computer equipment with price tags of less than $500.

The tax holiday begins at 12:01 a.m. Friday and concludes at midnight Sunday and the New Mexico Taxation and Revenue Department calls it “nothing short of a bonanza” for parents with school-age children.

However, reviews are mixed as to whether this sales tax holiday has any real value.

Locally, CB Fox and Radio Shack are among retailers that embrace the practice. Aspen Copies & Office Supplies does not. Owners Dawn and James Cline opened their business in 1996 and have never participated in the annual event.

“It’s almost like it’s a gimmick to get people to go out and spend money,” James Cline said. “We don’t think it’s a big deal and since we’re not open on Saturday or Sunday anyway, we don’t participate.”

The tax holiday weekend is typically a busy one for CB Fox Department Store, David Volk said.

“I think a lot of people wait to purchase back-to-school items until this weekend,” he said, adding that as furniture department manager he’s seen students buy mattresses for their dorm rooms but otherwise furniture isn’t on the list of tax free items.

Owner Dave Fox said his store, which carries clothes, shoes and other back-to-school items has participated since the tax-free event went into effect in 2005.

“We’re delighted to participate and help people save all the money they possibly can with this sales tax holiday,” Fox said.

Radio Shack owner Bill Cabral also participates every year.

“It’s just free tax – it’s not a big thing to us and it helps the students who usually buy computer accessories and calculators from us,” he said.

The Tax Foundation,  a nonpartisan research group, questions sales tax holidays. Its new study finds that temporary, targeted periods of sales tax exemption are nothing more than political gimmicks that do little to help consumers. The holiday distorts consumer choices while favoring certain industries over others, increases tax code complexity and distracts from real, permanent tax relief, according to the study.

Sales tax holidays enjoy broad political support, with backers arguing that holidays are a highly visible form of tax cut and provide benefits to low-income consumers.

Politicians and other supporters routinely claim that sales tax holidays improve sales for retailers, create jobs and promote economic growth.

The Tax Foundation study also finds that despite their political popularity, sales tax holidays are based on poor tax policy and distract policymakers and taxpayers from real, permanent and economically beneficial tax reform.

Sales tax holidays introduce unjustifiable government distortions into the economy without providing any significant boost to the economy, according to the study, and represents a real cost for businesses without providing substantial benefits.

New York State sparked the sales tax holiday trend in 1997 as a way to discourage border shopping.

This year, 18 states will conduct sales tax holidays.

For a list of tax free items, visit www.tax.newmexico.gov/Individuals/Pages/Tax-Holiday.aspx.