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August 2, 2013

Corsets and Clerical Vestments, But Not Cleats

Attention, Virginia shoppers: this weekend, you can stock up on all your back to school needs tax free. That’s right. Today through Sunday Virginia retailers will not collect the sales tax on:

  • Certain school supplies valued at $20 or less per item
  • Certain clothing and footwear selling for $100 or less per item

But make sure you read the fine print on this deal, because you might be surprised at what it costs, who it helps and what is – and isn’t – on the list.

Enacted back in 2006, the back to school sales tax holiday aims to help families afford the stuff kids need to head back to the classroom in the fall. But whether it’s achieving that goal efficiently is a whole other story.

Turns out, the back to school sales tax holiday costs Virginia over $4 million each year in uncollected sales tax (the very source of revenue that helps fund the schools kids go to), according to a study undertaken by the Joint Legislative Audit and Review Commission (JLARC). While that may not seem like a lot of money, it’s more than the state spends to fund free clinics.

Plus, while we know the sales tax holiday costs the state over $4 million per year, we don’t know how much it really benefits Virginia families. Does the sales tax holiday actually help families afford back to school items?

What’s more, sales tax holidays are not well targeted. Anyone purchasing exempt goods during the weekend gets the tax break, regardless of income level or the reason for the purchase. And because the tax holiday is only allowed during the 3-day window, wealthier families are better able to take advantage of the savings. This is because they are more likely to have the financial flexibility to shift the timing of their purchases, whereas lower-income families may be living paycheck to paycheck.

In addition, there’s no evidence that sales tax holidays actually boost retail sales or strengthen the economy.  In fact, sales tax holidays often simply shift the timing of planned purchases.

But that’s not all: the list of items exempt from the sales tax in Virginia raises real questions about the goal of the tax holiday in the first place. While the state does not give the tax break on school supplies that are related to computers like storage disks and printer ink, and athletic gear like soccer cleats or goggles for swimming, it specifically includes things like corsets, wedding veils, and clerical vestments.

Corsets, wedding veils and clerical vestments for back to school?

Helping families afford the supplies kids need to be successful in school is an important goal, but an inefficient, poorly targeted and outdated approach that drains resources from the funds that support schools is not the right way to go about it.

If Virginia really wanted to help make back to school supplies more affordable for low-income families it could get more bang for the buck from enacting real tax reform, including tax credits for low-income working people like the Earned Income Tax Credit.

–Sara Okos, Policy Director

The Commonwealth Institute

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