More sales tax holidays - back to school in Oklahoma

I found a press release on the Oklahoma Senate website touting a great savings opportunity - a sales tax holiday this weekend (August 6 - 8) on clothes and shoes valued at less than $100 per item. It is touted as a back to school program, but is not limited to purchases for school children.

Per one FAQ from the Oklahoma Tax Commission, accessories and athletic clothing are not covered by the holiday. Yet, another FAQ lists athletic uniforms as an example of exempt clothing. That FAQ also lists wedding apparel, costumes and diapers (adult and children) as examples of exempt clothing! The exemption covers both the state and local sales tax. (For more information, see 8/3/10 press release from Senate and FAQs from the Oklahoma Tax Commission).

Per the Senate press release:
“Every year, more and more people have taken advantage of this great program not only helping their pocketbooks, but giving the state a much-needed economic boost,” said Barrington, R-Lawton. “We’re just now beginning to see signs that our state may be recovering from the nationwide economic crisis. Many are still out of work or struggling to make ends meet, and this will provide them an opportunity to provide clothing for their children.”

According to a nice tool at the Oklahoma Tax Commission, which gives you the sales tax rate by zip code or city name, the combined state and local sales tax rate in Oklahoma City, for example, is 8.375% (that's fairly high).

I think that if we didn't hear statements like the one in the press release and applied our own critical thinking to such ideas as a sales tax holiday, citizens would demand better of their elected officials. Here are some of the problems with a sales tax holiday:

• It provides a benefit to many taxpayers who don't need it leaving fewer funds to provide benefits to those who need assistance. The people described in the Senate press release as out-of-work and struggling to make ends meet, likely need more than an 8.375% break to get clothes and shoes for their kids. They may not be able to take advantage of the holiday because they can't afford the price even without the sales tax. Meanwhile, people who can easily afford expensive clothes and shoes will get a tax savings as long as each item is under $100. That tax savings should instead be used to benefit those who need it. The state could provide discount coupons or free items to those in need.
• If relief is needed from a high rate, why not improve the system by broadening the base and lowering the rate. There may be exemptions for some consumption (such as for food, personal services, utilities and digital items) that can be eliminated to allow for a lower rate. Relief from added regressivity can be provided through a refundable income tax credit.
• It provides an incentive where one is likely not needed. How many people are buying clothes and shoes they don't need just because they can save the 8.375% sales tax? If you and your kids need clothes and shoes, you'll likely buy them anyway. So the incentive is encouraging a lot of behavior that would have occurred anyway, with a revenue loss to the state.
• Special exemptions are often confusing. As noted above, even the state provided FAQs explaining the holiday seem to be in conflict regarding athletic clothing. (I think it might be saying that a football uniform is tax-free, but not the helmet - which seems odd, I think the government and its citizens would benefit from making helmets more affordable!)
• It creates complexity for businesses in tracking and documenting the eligible sales.

Despite the flaws of sales tax holidays, various forms exist in over 15 states. The Federation of Tax Administrators (FTA), maintains a list of them - here.

In my list of "tax oddities," sales tax holidays fit right in - here.