Tennesseans like sales tax holiday yet use it less

Friday, August 5, 2011, Vol. 35, No. 31

NASHVILLE (AP) - Tennesseans taking advantage of the state's sixth annual sales tax holiday this weekend say it provides needed relief in a tough economy, but state figures show that shoppers aren't using it as much as they first did.

From Friday through Sunday, there will be no sales tax applied to purchases like clothing, school and art supplies and computers. There is a maximum price of $100 per item to be exempt. Computers are exempt up to $1,500.

"I think it's a good idea, especially the way the economy is right now," said Lee Cheese, who plans to shop for her 4-year-old grandson. "No children need to go back to school not properly clothed or not have the supplies that they need."

Gov. Bill Haslam said the tax-free period was "designed with Tennessee families in mind, providing savings for families, especially as students begin to prepare for the upcoming school year."

States started adopting the sales tax holidays in the l ate 1990s, and by 2001 a dozen states held them. The list shrank to eight the next year as states grappled with an economic downturn after the Sept. 11 attacks.

Currently, 19 states and the District of Columbia hold tax holidays, according to the Federation of Tax Administrators.

The Washington-based National Retail Federation, one of the staunchest supporters of the holidays, said they spur a 10 percent bump in sales, but it has no data to back it up.

In Tennessee, a 7 percent sales tax is levied, while local governments can charge up to 2.75 percent more, according to the state Revenue Department.

The sales tax holiday gives cities and counties a "hold harmless" provision, meaning the state reimburses the local governments for any forgone taxes during the tax-free weekend.

Tennessee's first sales tax holiday in August 2006 was also the most popular one, costing the state $13.7 million in forgone sales taxes and reimbursements to local governme n ts. That total steadily decreased in the following years, reaching just $7.6 million in 2009, a 46 percent drop from the peak.

Tennessee Revenue Commissioner Richard Roberts said taxpayers that took advantage of the state's sales tax holiday last year saved nearly $8.6 million, a decline of about 38 percent from the first year.

"We are hopeful that all Tennessee shoppers will take advantage of the tax relief provided by the 2011 sales tax holiday," Roberts said.

One reason the sales tax holiday is not as popular as it once was may be due to more groups sponsoring their own back-to-school events that actually end up competing with the tax-free period. For instance, this year Cornerstone Church in Madison is giving away 2,500 backpacks filled with school supplies following two sermons geared toward youth on Saturday and Sunday.

"With the economic downturn, so many families need help with school supplies," said Eric Moore, one of the church's pastors. "W e 're going to supply as much as we can."

Others say they just don't want to deal with the long lines at the stores. Angela Jackson said she waited until one sales tax holiday to purchase a laptop, but the amount of money she saved wasn't worth the hassle.

"I just think it's more trouble than it's worth," said Jackson, adding that she will probably take her 7-year-old daughter shopping during a time when it's less crowded.

The state used to hold a second sales tax holiday in the spring, but it was dropped after the 2008 event due to budget pressures.

Republican lawmakers in 2007 proposed creating a sales tax holiday on groceries for the last six weeks of the year, but later abandoned that idea in favor of lowering the state tax on food items from 6 percent to 5.5 percent.