South Carolina’s sales tax holiday, which continues today and Sunday, takes on a different dynamic amid the coronavirus. The ongoing pandemic has reduced consumer spending and left many businesses struggling.
Schools will operate beginning in August in anything but normal mode. The supply lists that students need for a return to school will be different with classes for many beginning in an online format. But back-to-school requirements remain.
Merchants are in need of all the boosts they can get after mandatory shutdowns and slow reopenings. The sales tax holiday is a chance for consumers to save and local merchants to profit.
But first, we want to tell you there are arguments against tax holidays, which this year are being scheduled in 16 states. Fourteen of the holidays are in August and, in light of the coronavirus crisis, Tennessee has established a second holiday targeted at restaurants.
Janelle Cammenga, policy analyst at the nonpartisan Tax Foundation, is out with a new report: Sales Tax Holidays: Politically Expedient but Poor Tax Policy 2020.
Sales tax holidays do not promote economic growth or significantly increase consumer purchases; the evidence (including a 2017 study by Federal Reserve researchers) shows that they simply shift the timing of purchases.
Sales tax holidays are not an effective solution to the current economic crisis, as the drop in consumption is caused by a public health crisis, not a drop in consumers’ desire to spend.
Sales tax holidays create complexities for tax code compliance, efficient labor allocation and inventory management.
Most sales tax holidays involve politicians picking products and industries to favor with exemptions, arbitrarily discriminating among products and across time.
While sales taxes are somewhat regressive, this does not make tax holidays an effective tool for providing relief to low-income individuals.
Political gimmicks like sales tax holidays distract policymakers and taxpayers from genuine, permanent tax relief.
Give the Tax Foundation credit for consistency in arguing that reform of the tax system is needed. Let’s even agree that tax holidays are not a substitute for reform. But let’s don’t go so far as to agree that if states can afford sales tax holidays, they can afford a more permanent form of tax relief. That depends on the extent of relief.
While many South Carolinians will go along with the idea of tax reform, a majority is not likely to echo the sentiment about the tax-free weekend. Taxes will not be imposed on clothing, shoes, school supplies, book bags, computers, printers, bedspreads and linens, and more.
Shoppers will save up to 8.5%, depending on local taxes. The state sales tax rate is 6%. Last year, South Carolina shoppers bought more than $21.7 million in tax-free items during the sales tax holiday.
“In these difficult times, Tax Free Weekend is a great way for South Carolina shoppers to save money, and even more, it’s a time to support our South Carolina businesses,” said S.C. Department of Revenue Director Hartley Powell. “Don’t forget, online purchases of eligible items are tax-free too, so check out your favorite local retailer’s website.”
Items that won’t be exempt from sales tax during the weekend include jewelry, cosmetics, eye wear, furniture, cellular phones and items placed on layaway.
Our position is to expand, not do away with, the tax-free holidays. The list of what is and is not free of taxation is confounding and should be altered to include nearly all purchases. The state’s leaders promote the holiday as a major boost to business and big bonus for consumers during what has become the third busiest shopping period of the year, surpassed only by the weekends after Thanksgiving and before Christmas.
If the holiday is good for the economy, and it surely will be this year, let’s bring more businesses in on the benefits.
— The Times and Democrat of Orangeburg