Two-and-a-half months from now, Evelyn Robinson is praying she’ll be less confused and more prepared for Ohio’s first Sales Tax Holiday.
“Hopefully, it’s not a headache,” said the owner of School Matters, a shop that sells school uniforms and apparel in Toledo.
It may have slipped the notice of some consumers, but in December the Ohio legislature approved a sales tax holiday aimed at boosting back-to-school shopping. The holiday will commence at 12:01 a.m. Friday, Aug. 7 and run through 11:59 p.m. Sunday, Aug. 9.
During those three days, clothing, school supplies, and instructional materials at or below a specific price limit will be exempt from state and county sales and use taxes.
The price limits are $75 for clothing, $20 for school supply items, and $20 for instructional materials.
Merchants will have to adjust their cash registers to remove the tax, and clerks will be expected to know which items qualify for tax-exempt status.
“Clothing” has been defined as “all human wearing apparel suitable for general use,” “school supplies” are items commonly used by a student in a course of study, and “instructional materials” are written materials commonly used by students as a reference to learn a subject.
Lucas County has a combined state and county sales tax rate of 7.25 percent. Wood County has a rate of 6.75 percent.
That means a consumer buying a piece of clothing priced at $75 will save $5.44 in tax in Lucas County or and $5.06 in Wood County. If they buy a school-supply item or instruction booklet for $20, they will save $1.45 and $1.35, respectively.
“It’s not a lot. But every $6 or so helps out,” Ms. Robinson said.
A 2013 report by the Economics Center at the University of Cincinnati estimated Ohio families would save $78 million during a three-day sales tax holiday, with the average family saving about $38.
Figures were based on a National Retail Federation’s estimate that the average family spent $688.82 on school shopping in 2012.
But that analysis, paid for by the Ohio Council of Retail Merchants, assumed that tax savings would be applied to the total purchase of all back-to-school supplies. The Ohio tax holiday as enacted is far more restrictive in its limits with the $75 and $20 thresholds.
The Ohio Legislative Services Commission has estimated that the three-day holiday will cost the state’s general fund just $13.5 million in lost revenue, and that will mean a loss of $3.7 million to local governments — numbers far below the $78 million in savings projected by the University of Cincinnati report.
Initially, the state tax holiday was projected to cost the state $38 million in revenue because when the holiday was proposed by State Sen. Kevin Bacon (R., Columbus), it was to have higher limits on clothing, plus a $750 limit on computers and tablets and a $750 limit on computer accessories.
But when the legislation was reconciled with a similar House bill, the clothing limit was reduced and the provisions regarding computers and accessories were eliminated.
Jeff Rexhausen, a senior research associate at the Economics Center who worked on the 2013 report, said some families may still save up to $38 — depending on how much they spend overall — but the savings will vary depending on the purchases.
Sales tax holidays began in New York in 1996. Several states followed, but the number has varied annually with some declaring tax holidays and others dropping them.
This year tax holidays will occur in 16 states. Michigan legislators proposed a tax holiday for 2015, but the measure was not approved.
Brian Dicken, who is the vice president of public affairs at the Toledo Regional Chamber of Commerce, said Ohio’s tax holiday is a test to see if the practice should continue.
“There’s going to be a lot of evaluation coming out of that weekend to see how it worked,” Mr. Dicken said.
He said the tax holiday was designed to spur back-to-school sales and give consumers a tax break on those items.
“Does saving taxes on one item make a lot of difference? Probably not. But if you do a lot of spending per child that savings could add up,” he said.
The chamber has met with its retail members to prepare them for August, and Mr. Dicken said members with stores in states with tax holidays like the practice.
“What they have seen is … a significant increase in sales in that time. So certainly retailers would consider it a win and consumers are saving between 7 and 8 per cent in taxes,” he said.
Stephen Schatz, the director of government relations and public affairs for the retail federation, said his organization believes sales tax holidays are good for consumers, retailers, and the community.
“From our perspective these are really a win-win-win,” Mr. Schatz said.
Consumers, he said, save a few dollars on purchases they would have made anyway, local retailers catch a break from consumers who are more likely to spend in a store rather than online, and consumers are more likely to spend their savings in the community.
However, Carl Davis, a senior analyst at the Institute on Taxation and Economic Policy, a nonprofit nonpartisan Washington think tank, said that while tax holidays help retailers, they don’t accomplish much else.
“I think the major takeaway with sales tax holidays is they’re high profile and they get a lot of favorable attention for politicians, because people notice these sale tax holidays,” Mr. Davis said. “But at the end of the day, they’re not going to do a whole lot of good. They’re a distraction, mainly.”
Sales taxes are “regressive taxes,” Mr. Davis said. A regressive tax is one that is applied uniformly, and therefore takes a larger percentage from lower income people than from higher income people.
“A three-day holiday doesn’t amount to much,” he said. “And the lower income families that would benefit most by from a tax holiday, they don’t always have the time to take a break to shop during these holidays.”
He said there is some question whether retailers might be tempted to take advantage of the holiday by raising prices or forgoing usual discounts.
“There was a study done in Florida that looked at prices and found the sales tax holiday was such a popular event that retailers didn’t have to offer quite as good of [discounts] that weekend,” Mr. Davis said. “They found that you are not guaranteed that the best sales are happening that weekend and that some of the savings might be pocketed by the retailers.”
Florida has held sales tax holidays, but a holiday for 2015 has not been approved.
Critics also note that sales tax holidays are not cost-free.
Besides the lost $17.2 million for revenue for the state’s general fund and local governments, Mr. Davis said retailers will have to spend money to reprogram point-of-sale cash registers and train employees to know what items qualify for tax relief.
Most of Lucas County’s revenue comes from sales tax. The tax holiday will affect that revenue stream slightly. But Lucas County Commissioner Pete Gerken said officials have discussed the tax holiday and decided it won’t hurt the county’s budget.
“It’s a short window of time, and the sales taxes have been pretty strong already this year,” Mr. Gerken said. “If it’s a chance for people to get a break and merchants to get some increased business, then I’m for it. But until I see the numbers roll in, I can’t say how it’s going to affect us. So let’s give it a try.”
Contact Jon Chavez at: jchavez@theblade.com or 419-724-6128.
First Published May 24, 2015, 4:00 a.m.
