Missouri, Oklahoma and 15 other states that declare sales-tax-free shopping weekends to lure shoppers to stores generally lose money on the deal, according to a new report from the Tax Foundation.
Most states that offer sales tax holidays for a week or weekend offer the deals now, just before schools start, because back-to-school sales nationally are the second largest retailing event of the year, topped only by the Christmas selling season, according to The National Retail Foundation.
But Kansas and 32 other states that shun so-called sales tax holidays lose money too, said Scott Drenkard, an economist at the foundation, a nonpartisan policy research organization.
Many shoppers living near sales tax holiday states simply head across the state line to buy tax free, leaving their home state high and revenue dry.
“The cross border effect is real, especially is smaller states that are close together,” Drenkard said.
U.S. Census figures show nearly seven Kansans in 10, or slightly less than 2 million residents, live within an hour’s drive of a state border. Even so, there are no direct indications of how many of those hop the border for back-to-school bargains, said Steve Stotts, taxation director at the Kansas Department of Revenue.
“Our sales tax collections have been running about $180 million a month in August, going back for years,” Stotts said.
Kansas sales tax receipts last year generally ranged between $161 million and $183 million monthly, except in January, when peak holiday shopping lifted the total to $197 million.
States that shoppers head for in search of bargains lose money. Oklahoma, which has held tax holidays since 2007, typically loses between $6.4 million and $6.9 million in sales tax revenue a year on the events, said Paula Ross, the Oklahoma Tax Commission’s communications director. However, that also counts money that Oklahomans and visitors from other bordering states such as Texas might spend, she said.
Actual losses may be larger, “because that is just the money we appropriate to replace funds for programs funded with sales tax revenues,” Ross said.
Missouri’s sales tax holidays potentially draw shoppers across state lines from both Illinois and Kansas, but revenue officials don’t know what blips that might create in its tax revenue streams.
“That’s something we’ve never been able to track,” said Ted Farnen, the Missouri Department of Revenue’s communications director.
And the holidays often are not very good bargains for consumers, said Joe Henchman, a Tax Foundation policy analyst who earlier this week issued a new report criticizing such holidays.
• Holidays don’t promote as much economic growth or consumer spending as backers often claim. Consumers generally are going to buy back-to-school gear, efficient appliances and other things the holidays promote anyway.
• Consumers’ actual savings are paltry, usually somewhere between 4 percent and 7 percent. The savings are smaller when sellers mark-up prices may be 1 or 2 percent before the tax-free sale, which happens.
• Tax-free holidays camouflage potentially deeper problems with a state’s tax policies. If a state needs to declare a holiday from its tax system, that’s a sign the system is uncompetitive, Henchman said.
“If policy makers want to save money for consumers, then they should cut sales taxes year around,” Henchman said.
Sales tax holidays have one advantage over other tax relief proposals, the report continued. Politicians love them.
There are good reasons for that, said state Rep. Virgil Peck (R-Tyro).
“We need to stand up for Kansas and against bleeding money into Missouri and Oklahoma,” Peck said.
He represents a southeastern Kansas district that touches Oklahoma and is just more than an hour’s drive from a regional shopping hub in Joplin, Mo. He has introduced, co-sponsored or supported more bills than he said he can remember in unsuccessful attempts to convince fellow lawmakers to allow the holidays in Kansas too.
“It isn’t just tax money we’re losing,” Peck said. “People from here, who make a one hour, 15 minute drive to Joplin, make a day of it. That’s money for meals, maybe a tank of gas, and things they buy that aren’t tax free, which is all money that could have been spent in Kansas.”
Two of Kansas’ most vocal business lobbies so far are declining to weigh in on whether to bring the holidays to Kansas.
“On the whole, sales tax holidays aren’t something we’d advocate, even though some of our members would like them, to be more competitive,” said Dan Murray, head of the Kansas chapter of the National Federation of Independent Business, which lobbies for small business owners.
Many of those business owners face bigger challenges than sales taxes in a still-sluggish Kansas economy, Murray said.
“Our larger problem is a lack of sales,” he said.
The Kansas Chamber of Commerce, the state’s largest general advocate for business interests in the state, hasn’t taken any formal position on whether to back sales-tax holidays, said Kent Eckles, the group’s government affairs vice president.
“Our bigger problem is our level of sales tax in Kansas, which is 12th highest in the nation by some reports,” Eckles said. “I personally would like to see us close some of the large loopholes that are written into the sales tax and then bring the whole thing down.”
But not too steeply, Eckles said.
“We need sales taxes in order to continue reducing income taxes, which is more important for creating growth in Kansas,” he said. “Income taxes are the ones everyone really hates.”
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