Q&A of the Day – Do Florida's sales tax holidays really save you money

Q&A of the Day – Do Florida’s sales tax holidays really save you money

Each day I’ll feature a listener question that’s been submitted by one of these methods. 

Email: brianmudd@iheartmedia.com

Twitter: @brianmuddradio

Facebook: Brian Mudd https://www.facebook.com/brian.mudd1

Today’s entry... 

I think it is a waste of time. Only benefits the vendors with some increased sales, not the consumers. People flock to the stores to buy crap, with a 7% sales tax reduction, less motivation from vendors to keep prices lower during this time. So the vendors just end up picking up the extra 7% profit.  

Bottom Line: I’m on record as saying sales tax holidays are poor policy. If we want to provide preparedness, nominally reducing the tax rate on those items year-round would be easier for retailers to manage. Provide benefit to people when they can afford the items, rather than encouraging people to spend money they may not have to attempt to take advantage of the sales tax holiday, etc. But just because I believe that’s better policy doesn’t mean that the existing policy doesn’t work. I go where the facts take me, so let’s dive in.

The most comprehensive research I’ve seen on this topic was done by the Tax Foundation in 2017. Among their findings...

  • Sales tax holidays shift sales of the select items. Sales for exempt items drop an average of 37% to 90% in the weeks preceding tax holidays and after
  • Customers are more likely to make “impulse” purchases during tax holidays
  • The net effect economically isn’t beneficial 

So yeah, generally your thoughts and mine are on point. But what about one of your main points. Are prices artificially higher by retailers because they know people will be inclined to shop anyway due to the tax-free holiday? I wanted to get the most precise information for Florida possible on this one. A comprehensive state-wide study was conducted by the University of West Florida in 2001 (it’s dated but probably still just as instructive). They studied ten items across ten locations in Florida over three weeks. The conclusion... 

  • 20% of the lower tax benefit went to the retailers
  • 80% of the benefit went to customers

So yeah, on average prices are marginally higher than they’d otherwise be, because of the sales tax holiday, but no, the retailers don’t take all or most of the benefit. You can decide if that’s a good deal/good policy or not but those are the facts.

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