Ohio Seeks 2016 Sales Tax Holiday

Update, 4.28.2016: The Ohio House has approved SB 264 and the Ohio Department of Taxation has published 2016 sales tax holiday FAQs.

Do sales tax holidays make good cents?

Proponents of sales tax holidays argue that they do, that they increase sales and help make essentials like clothing and school supplies more affordable (if only for a time). They stimulate the economy. They boost Main Street businesses beleaguered by online competitors.

Opponents disagree, saying that they shift sales rather than increase them. They only provide savings for people who don’t really need them—those who have the flexibility and discretionary income to shop on the state’s schedule. They rob states of badly needed sales tax revenue.

Less discussed but quite real are the hassles associated with compliance. Point of sale systems must be altered so sales tax isn’t applied to qualifying items. Retailers who sell to multiple states must account for more than a dozen different sales tax holidays, each with its own start and end date and quirks (items less than $100 qualify; items $75 or less qualifying, etc.).

Some states, like Alabama and Virginia, are unquestionably pro sales tax holiday: their tax-free periods are established by law and have no end date. Others, like Massachusetts and Ohio, are more equivocal. Massachusetts’ tax-free periods are debated each year and typically enacted, if enacted, at the last minute.

Ohio 2015

Ohio provided its first sales tax holiday last year. It was popular. And according to a study released by the University of Ohio Economics Center (Economic Analysis on the Effects of Back-to-School Sales Tax Holiday in Ohio), it was fruitful. The study presented the following sales tax holiday highlights:

• Consumers saved approximately $3.3 million in sales taxes
• Retail sales overall increased by 6.48% in August 2015
• The three day tax-free period generated a gross increase in sales tax collections of about 9%
• Ohio lost about $3.3 million in sales tax on exempted goods but brought in $8 million more in sales tax revenue from non-exempt goods purchased during the holiday (a net increase of $5.7 million)
• Counties that border neighboring states had a higher increase in tax collections compared with non-border counties (meaning the holiday attracted out-of-state consumers)
• There was not a drop in sales prior to or after the tax-free period (sales increased, they didn’t shift)

Let’s do it again

In light of all the positive feedback, Ohio lawmakers are pushing for a repeat in 2016. Senate Bill 264, which would create a sales tax holiday August 5-7, 2016, was approved last week in a 31-1 vote. It is now awaiting consideration in the House.

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