Along with paying school registration fees, Alabama’s families are busy buying school supplies for their children’s return to school next month.
While some schools will open for students the first week of August, if you can wait and shop the weekend of Friday, August 7th through Sunday, August 9th, you can buy most school supply-related items, including some clothing, without paying sales tax….IF your locality is participating.
The Alabama Retail Association has a page on their site devoted to the sales tax holiday to help retailers and shoppers figure out what is and isn’t subject to sales tax.
And here’s a post from the Alabama Department of Revenue’s Facebook page (who knew they had a Facebook page?)
Here’s the quick reference sheet published by the Alabama Department of Revenue listing which purchases are and are not exempt.
According to the Tax Foundation web site, Alabama has the fourth highest combined state and local sales tax rates in the country at 8.93%. Tennessee (9.46%), Arkansas (9.27%), and Louisiana (9.01%) hold the first, second and third places, respectively.
Here’s a cool interactive infographic depicting which states offer a sales tax holiday on what types of products and when. Here’s a chart of all states that offer sales tax holidays for back-to-school purchases.
Are Sales Tax Holidays Good for Retailers and Consumers?
Research is mixed as to whether offering a break from sales taxes has any impact on sales or family budgets, but one thing we know for certain is that it reduces the amount of sales taxes paid into the Education Trust Fund (ETF), which is ultimately distributed to K-12 and higher education (and other related agencies and activities).
No figures are readily available to determine what kind of impact sales tax holidays have on overall ETF sales tax receipts.
According to the Alabama Legislative Guides to Taxes, since FY05, the highest amount of sales tax revenue was $1.7 billion in both FY07 and FY08. ETF sales tax revenues dropped to $1.46 billion in FY09, recovering to $1.56 billion in FY10 and FY11 and stabilizing around $1.6 billion each year since then. Since FY11, in any given year, sales tax revenue makes up about 27% to 28% of total ETF receipts.
Earlier this year, Politifact Georgia checked a retailer’s claim that sales tax holidays were good for families and retailers and concluded that most families are going to buy what they’re going to buy regardless of whether a tax holiday is offered. Consumers might buy those items during the tax holiday, but there is usually an offsetting period of lower sales to account for all of the activity over one weekend.
And this policy brief from the Tax Foundation states:
Sales tax holidays do not promote economic growth or significantly increase consumer purchases; the evidence shows that they simply shift the timing of purchases. Some retailers raise prices during the holiday, reducing consumer savings.
Further, the Tax Foundation adds:
Political gimmicks like sales tax holidays distract policymakers and taxpayers from genuine, permanent tax relief. If a state must offer a “holiday” from its tax system, it is a sign that the state’s tax system is uncompetitive. If policymakers want to save money for consumers, then they should cut the sales tax rate year-round.
With Alabama legislators looking at ways to grow revenue for the General Fund, all taxes will likely come under the microscope.