After two years of enjoying a break on the state sales tax every August, many Maryland consumers now plan their back-to-school shopping around the week long event.
That’s one measure of the success of Maryland’s Tax Free Week, which will mark its third year when it begins Sunday.
During the tax holiday, which runs until midnight Aug. 18, consumers won’t be charged the state’s 6 percent sales tax on most clothing and footwear priced under $100.
The sales-tax-free week costs the state about $10 million in lost revenue, state Comptroller Peter Franchot said Wednesday during an announcement at Baltimore’s Mondawmin Mall to publicize the event.
But, Franchot said, the week attracts shoppers who buy more than just tax-free items.
It “more than pays for itself in increased sales,” Franchot said, adding that “for businesses both big and small, it’s a very important week.”
Tax-free periods, now offered in 18 states, have gained in popularity. Retailers tend to like them, even though it’s more cost for them tracking what’s tax-free and what isn’t. They see the returns from those who shop and end up buying more than they intended and the extra people who come out to take advantage of the savings.
Franchot was joined Wednesday by industry and state elected officials who urged consumers to get off the Internet next week and out to local malls and shops. As a group, retailers are the biggest private-sector employer in the state, employing more than 400,000, according to the Maryland Retailers Association.
Back-to-school buying, mostly in August, represents the biggest sales season for retailers except for Christmas. The week gives Maryland retailers a chance to compete with those in Pennsylvania, where most clothing and footwear are exempted year-round, as well as with retailers in Delaware, which has no consumer sales tax.
Maryland retailers have seen sales at individual stores grow from 8 percent to 12 percent during tax-free week, and many are looking for similar or improved results this year as consumers are now starting to plan for it.
Franchot said the tax-free week should be expanded to include not only apparel and footwear but other back-to-school purchases, such as backpacks.
“It’s too narrow right now,” he said of the week, which was approved by the General Assembly in 2007 and took effect in 2010.
Most states offer sales-tax breaks on clothing and footwear priced under $100. But some do include school supplies. In several states, including Alabama, Georgia, North Carolina, South Carolina, Tennessee and Missouri, purchases of certain computers are also exempt from sales tax.
Lawmakers see tax holidays as a way to keep voters happy, but it’s hard to say for certain whether consumers end up buying more than they would have without the tax break, especially at back-to-school time. In these recent tough financial times consumers have become pretty savvy about how to save money and are beginning to learn to live more within their means.
For a list of exempt and taxable items, click here.
JDKatz, P.C. is a full-service law firm focused on tax law and estate planning. We are dedicated to minimizing your existing liability and risks while providing valuable tax planning to streamline your tax issues in the future. Please call us at 301-913-2948 to schedule an appointment to meet with one of our trusted attorneys.