Prospects for Sales Tax Holiday Still Unclear

A nationwide sales tax holiday held in February would save consumers $5.9 billion, according to a new estimate prepared for the National Retail Federation (NRF). The estimate by the Arthur Anderson accounting firm is somewhat lower than the $6.5 billion calculated for a proposed November-December sales tax holiday and takes into account February's lower sales.

However, it remains unclear whether a proposed sales tax holiday initiative will be enacted. Negotiations on Capitol Hill on an economic stimulus package appeared fruitless last week. Sponsors of the sales tax holiday legislation were attempting to have it made part of the stimulus bill before Congress adjourns for the year. However, if Congress is unable to act on a stimulus package, or if this tax holiday proposal is not incorporated into the first phase of a stimulus package, it could still be considered next year, according to Chad Davis, a legislative associate with NRF.

The initiative was first proposed by NRF to stimulate the national economy, and ABA continues to support the plan as a viable way to offer across the board assistance to the retail sector and the economy as a whole.

The Sales Tax Holiday Act of 2001 would establish a 10-day period in which states that choose to participate would suspend the collection of sales tax, then be reimbursed by the federal government for the lost tax revenue. Unlike limited sales tax holidays held by individual states in the past, the nationwide sales tax holiday would include all tangible personal property with no price limit--even big-ticket items like computers, furniture, and automobiles. Only alcohol, tobacco, and restaurant meals would be excluded. But the savings still amount to extra money in consumers' pockets that will be pumped into the economy rather than lost to taxation, according to proponents.

The $5.9 billion estimate is based on the sales tax holiday being held February 15-24, which would incorporate the February 18 Presidents' Day holiday. A state-by-state breakdown is available on NRF's web site, www.nrf.com. Follow the "Nationwide Sales Tax Holiday" link on the main page to find the numbers.

An NRF-commissioned poll, conducted October 19-21, found that over 61 percent of consumers contacted "strongly favor" a sales tax holiday in their states.