Released September 30, 2009

RALEIGH, N.C. —- The back-to-school sales tax holiday in North Carolina recently concluded. Many people purchase retail items at that time to take advantage of the tax savings.

Are sales tax holidays considered a success?

Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"It depends on how you define success. If success is defined by encouraging people to buy when the sales tax holiday is in effect, then the answer is yes. We do see a spike, if you will, in retail sales during those sales tax holidays.

But if success is defined as getting retail sales over the entire year to be higher as a result of this sales tax holiday, then the existing evidence says, perhaps not.

What we tend to think happens - and there's some research to back this up - is people simply shift when they buy a product. For example, if you were considering buying a computer this year, and you said, well, instead of waiting until the end of the year, I'm actually going to buy it in September when there's a sales tax holiday. Then you did buy a computer during the sales tax holiday, but you would have bought it anyway during the year.

If the goal is to get people in other states to come to your state to buy to take advantage of a sales tax holiday, again, the evidence suggests that that doesn't work because more and more states are having these sales tax holidays. In fact, all the states surrounding North Carolina also have sales tax holidays.

Sales tax holidays give consumers a break, but the evidence right now is it doesn't increase overall retail sales."

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http://www.ncsu.edu/project/calscommblogs/news/archives/2009/09/economic_perspe_458.html