Is Sales Tax Holiday Just a Gimmick?

Today, the latest edition of what has become a South Carolina tradition goes into effect with the sales tax holiday weekend.

Started in 2000, the sales tax holiday was meant to spur consumer spending and in turn, economic growth. But at least one organization, the non-partisan Tax Foundation, argues that sales tax holidays are little more than gimmicks, and their effect on local economies is negligible and, in some cases, counterproductive.

All told, 17 states, most of which are in the Southeast, have sales tax holidays. The Tax Foundation argues that the holidays “create complexities for tax code compliance, efficient labor allocation, and inventory management.”

Further, the Foundation said that retailers often raise prices, which limits consumer savings and that the event is little more than free advertising for what is, at best, a six percent savings. In addition, the Foundation, in a recently published report, said that the holidays “create complexities for tax code compliance, efficient labor allocation, and inventory management.”

“Political gimmicks like sales tax holidays distract policymakers and taxpayers from genuine, permanent tax relief.” said Tax Foundation Vice President for Legal & State Projects Joseph Henchman. “If a state has to offer a ‘holiday’ from its tax system, it’s a sign that there’s a problem with the system itself. If politicians want to save money for consumers, then they should cut the sales tax rate year-round.”

As mentioned, the Palmetto State has a history of sales tax holidays. In addition to the existing plan, South Carolina held sales tax holidays for firearm purchases from 2008-2010. The firearms holiday came despite the veto of then-Governor Mark Sanford. 

The Tax Foundation states that one of the ways the holidays hurt the system is by complicating an already cumbersome tax code with special exemptions to the holiday, seemingly chosen at random by legislators.

Gubernatorial candidate Sen. Vincent Sheheen (D-Kershaw) makes a similar point in his case to “repeal or revise three-fourths of…existing loopholes.”

A list of what’s exempt during the holiday can be found here.

Sheheen cites a study in his book that suggested the elimination of the roughly 80 exemptions would allow South Carolina to “collect more than $600 million in unrealized revenue.”

Sheheen explained that the exemptions actually outweigh the amount collected in sales tax. He referenced a 2012 study by the State Budget and Control Board’s Board of Economic Advisors, which noted that the state exempted $3.1 billion in sales taxes to special interests while collecting about $2.7 billion.

Sheheen has argued for a complete tax overhaul. It’s a point on which he and Gov. Nikki Haley—who he’s likely to face in the general election—would seem to agree, at least in broad terms.

At a press conference earlier this week, Haley told Patch, “We need tax reform.”

But the governor also said that her focus is more on the income tax than the sales tax. “I’ve said for a long time my focus is on the income tax. I would love to see us reduce and eliminate it. Our border states of Georgia and North Carolina are on and that’s where my focus will be.”

Keep up with all of Patch's coverage of South Carolina politics by following us on Facebook HERE and Twitter HERE.