Tax holiday unlikely Back-to-school relief lacking panel support

AUGUSTA – Twenty states have a “sales tax holiday” during the summer months to help ease the burden of families buying back-to-school clothes and supplies, but similar proposals have not made it out of committee in Maine.

“We have considered it; there have been several bills in,” Sen. Joe Perry, D-Bangor, co-chairman of the Taxation Committee, said last week. “But there has never been the support to get it to the Appropriations Committee.”

He said any tax cut or even a tax holiday has to be paid for and other tax breaks have ranked higher with the committee. He said the panel always has “far more” good ideas than can be funded.

“I co-sponsored one proposal a few years ago,” Sen. Richard Nass, R-Acton, a member of the Taxation Committee said last week. “It never made it out of committee as I recall.”

He said the “holidays” have been popular in other states and have provided “a little help” in buying clothes and supplies for school. He said he would support similar legislation in the future.

In the first session of the current Legislature, a broad weekend-long sales tax holiday was proposed for all taxable items by Rep. Everett McLeod, R-Lee. The estimated loss of revenue was $45 million in the first year.

“It simply was too broad and was too much to be funded,” Nass said. “I think a limited holiday, tailored to helping pay for back-to-school shopping could be affordable.”

That is the model in many states. For example, next weekend the sales tax on the first $300 of clothing and footwear is suspended in Connecticut. If you had been in Texas the last few days, the first $100 of clothing and backpack expenditures would have been exempt from the sales tax.

Several states also exempt computers and accessories from the sales tax for a weekend in August. For example, North Carolina exempts a computer up to $3,500 and Georgia caps a computer benefit at $1,500.

“The holidays for school supplies have been very popular in those states that have them,” Nass said. “I think a lot of people in our state would benefit from one here.”

But Perry said the sales tax holidays do not provide a lot of help, with many states having limits not only on what items are exempted from taxation, but also on the total amount of products covered by the exemption.

“You would have to buy $1,000 worth of clothes and supplies to get a savings of $50,” he said. “I just don’t think it is worth it.”

Perry said one of the concerns retailers had raised at public hearings on tax holidays is that not all have computerized systems to adjust for changes in sales taxes for a few days or to cap the size of purchases that get a tax break. He said a more targeted approach to help families with school clothing and supplies would be a tax credit on the income tax.

“I think the sales tax is a more cumbersome tool than using, say, an income tax credit, which some other states do,” Perry said.

And there also is the issue that some Mainers who live relatively near New Hampshire, which has no sales tax, are already able to cross the border and buy items tax free any day of the year.

“That has long been an issue,” Nass said. “I am not sure if the tax holiday would help keep people from crossing the border or not, but it certainly would help those that are not close to New Hampshire.”

But, Nass acknowledged, those who cross the border still owe Maine tax on those items, even though they were purchased in New Hampshire.

“The much maligned use tax is in play,” he said, “but there is no practical way to enforce that. If people do not self report, the tax does not get collected.”

The state sales tax is actually a sales and use tax and requires Mainers to pay the 5 percent tax on items they buy elsewhere, but use in Maine.

Perry said that adds yet another complication to sales tax holiday proposals. He said that while the proposals have a superficial appeal, he does not think they are good tax policy.

“I think Mainers want a rebalancing of the whole tax structure so they pay less in taxes and we export more of our taxes to visitors to our state,” he said.