Ohio’s sales tax holiday approaches just in time for back-to-school shopping

Written on Aug 03, 2017

Ohio’s popular practice of giving shoppers a break on sales tax collections for a single weekend a year has become the new norm.

Aug. 4 – 6, back-to-school shoppers will not pay the state’s 5.75% sales tax on items of clothing priced at $75 or less. They also will not pay the tax on school supplies and instructional materials worth up to $20 each.

This weekend will mark the third annual sales-tax holiday. It has proven so popular that Ohio’s new state budget already assumes a modest revenue loss from it next year, even though lawmakers have yet to formally authorize it.

A study by the University of Cincinnati Economics Center, commissioned by the retailers council, estimated Ohio consumers saved $3.3 million on $46.75 million in purchases in 2015, the first year of the holiday. Overall retail sales climbed nearly 6.5% that weekend.

There was a gross hike of 9% in sales tax collections that weekend thanks to purchases of additional items not subject to the tax break. Counties on borders with other states saw a net increase of nearly 15.5% that weekend.

All of this resulted in a net gain in revenue to the state and counties, as the university’s review found no evidence consumers had simply shifted purchases they would have made anyway to coincide with the sales tax holiday.

But the university’s similar study for the 2016 holiday did not yield such great results.

Total sales during that weekend fell to $34 million from a year earlier. Consumers saved $1 million less. Unlike 2015, the study showed no sign that the weekend had triggered sales of nonexempt items.

A legislative analysis suggests this year’s three-day holiday could cost the state $14.7 million. It will also cost counties, transit authorities, and public libraries — which have their own piggyback sales taxes or get a slice of the state’s revenues — a total of $4.2 million.

Despite their popularity, are such holidays sound tax policy?

“Sales tax holidays have enjoyed political success, but recently policymakers are re-evaluating them,” reads a recent report by the Tax Foundation. “Rather than providing a valuable tax cut or a boost to the economy, sales tax holidays impose serious costs on consumers and businesses without providing offsetting benefits."

The foundation sees sales tax holidays as “political gimmicks” that distract from true tax reform. Sixteen states will have sales tax holidays this year, down from 17 last year and a peak of 19 in 2010.

By comparison, Ohio’s holiday is relatively tame. Some states include breaks for bigger-ticket items such as computers and software, generators, firearms and hunting supplies, energy efficient appliances and calculators.

Some of these states are in southern hurricane-prone regions and use the holidays to boost emergency preparedness.

Ohio’s dollar caps per item are lower than in most states with tax holidays. Louisiana, for instance, has a cap of $2,500 for its two-day holiday that will overlap with Ohio’s.

“Sales tax holidays introduce unjustifiable government distortions into the economy without providing any significant boost to the economy,” the Tax Foundation’s report reads. “They represent a real cost for businesses without providing substantial benefits. They are also an inefficient means of helping low-income consumers and an ineffective means of providing savings to consumers.”

State Sen. Kevin Bacon (R., Columbus), sponsor of Senate Bill 9 that created the latest holiday, said there has occasionally been discussion about broadening the scope of purchases exempted.

A legislative cost analysis of the law suggests some Ohioans who might normally make such purchases in a neighboring state may instead make them here. On the other hand, some stores on Ohio’s side of state border areas might see sales increase as residents of other states take advantage of the Ohio break.

None of the states bordering Ohio will offer a tax sales holiday this year, according to the Tax Foundation.

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