Six Quick Questions on Tax-Free Weekend

July 27, 2018

Tennessee’s annual tax-free weekend kicks off Friday, giving consumers across the state an opportunity to stock up on school supplies, computers, shoes and clothing without having to pay the sales tax.

LeAnn Luna, a business professor with appointments in the Department of Accounting and Information Management and the Boyd Center for Business Economic Research, is an expert in taxes and commerce. She answered common questions about tax holidays.

Do you really save money on tax-free weekend?

It depends.  The sales tax holiday will save shoppers about 10 percent of the purchase price – the sales tax that is waived.  However, studies show that some retailers mark up prices during the tax holiday relative to other periods, or offer fewer sales on items like clothing and electronics that are often marked down significantly more than 10 percent.  The risk is buying an item at full retail to save 10 percent, but missing a bigger sale a week or month later.  

What are the best things to purchase on tax-free weekend?

Tax free items include clothing and shoes ($100 or less), school supplies and school art supplies, and computers including tablets ($1,500 or less).  

Who generally benefits from a sales tax holiday?

Anyone in Tennessee can shop during the sales tax holiday, but higher income residents often benefit more from a sales tax holiday because they are better able to shift the timing of their purchases to take advantage of the tax break.  Overall, the goal is to be a smart shopper.  Would you rush to the store to buy that item any other week if it is marked 10 percent off? 

Is there a measurable bump for the local economy during a tax holiday?

Research has shown that there is no big impact on the local economy because consumers simply shift their purchases into the tax holiday period.  The data show modest increases in revenue.   

Are there other disadvantages to sales tax holidays?

Yes, sales tax holidays can also create administrative difficulties.  Defining the exemption can be difficult.  For example, do leg warmers, sweatbands, and bandanas qualify as clothing or accessories?  There are also administrative costs to programing registers and computers to accounting for the holiday only to revert back to the original program after a day or a week.  In some cases, business have to hire extra employees to work during this high-volume sales period.

What do academics conclude about sales tax holidays?

While sales tax holidays are politically popular and they sound really great, they likely do not achieve the stated goals of saving money for parents of school age children.

Megan Boehnke (mboehnke@utk.edu, 865-974-3242)