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June 2012
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TRY IT Kentucky should take tax holiday plunge

School gets underway for most families in the next week or so, here and across much of the state. That occasion led to a recent article in the Kentucky New Era (Hopkinsville) that poses an interesting question: Why hasn't Kentucky joined the list of states that offer a sales tax holiday for back-to-school shoppers?

Hopkinsville, because of its proximity to Clarksville, Tenn., has an interesting perspective on the issue. The New Era article notes that one-third of U.S. states offer a weekend for tax-free purchases of back-to-school items, including neighboring Tennessee.

The New Era quotes State Sen. Whitney Westerfield of Hopkinsville as saying that although the idea of a tax holiday has been discussed in the Kentucky Legislature, lawmakers have balked when the cost is brought up.

"I don't know what the reluctance is to support it," Westerfield told the New Era. "I know every time (Tennessee) has one, all of us shop on that day. Everybody is down there taking advantage of it. It's a huge boom for local businesses (in Clarksville) and even businesses that don't fall under the tax-free exemption."

Westerfield says there is a halo effect from the event that spills over to restaurants and other businesses that do not even sell back-to-school items.

The article also quotes Hopkinsville area merchants who note the loss of dollars to Tennessee for back-to-school goods because of the lack of a like event in Kentucky.

Tennessee at one time actually had two tax holidays, beginning in 2006 - one during the back-to-school season and one in the spring. The latter was dropped after 2008 because of budget constraints. Interestingly the state's first tax holiday was also its most costly. The state waived $13.7 million in sales taxes in August 2006, but the figure fell steadily in following years to just $7.9 million in 2009 before ticking back up to $8.6 million in 2010. Observers speculate that some shoppers simply tired of the crowds, which are said anecdotally to rival Black Friday in the Christmas shopping season.

Tennessee's tax holiday runs a full weekend with items priced up to $100 exempt from sales tax. The exception is computers, which are exempt up to $1,500.

The New Era says 16 states currently offer the tax holiday, out of 27 that have tested the concept. Budget woes have caused some states to drop the program. Some states also extend the program to other items and not just school supplies.

Kentucky's most serious look at a tax holiday may have come in 2001, when Democratic Rep. Robert Damron of Nicholasville proposed a back-to-school weekend tax holiday in August similar to one that existed in South Carolina at that time (and the one later implemented in Tennessee).

At that time the state estimated the tax break would cost $4.5 million in the context the state's then-$7 billion budget. Even that small amount was more than state lawmakers could bear to part with.

Granted, the cost would be larger today, more than a decade later. But given that Gov. Steve Beshear earlier this month "found" $91 million - mostly in unspent surpluses - to fund a shortfall in the state's $9.5 billion budget, it's hard to seriously argue Kentucky can't afford a back-to-school tax holiday. It appears that millions in sales taxes are being lost anyway by virtue of people like those in Hopkinsville taking advantage of tax holidays in bordering states.

Kentucky should adopt a back-to-school sales tax holiday. It would benefit taxpayers and be a boon to businesses of all stripes, and it clearly won't break the bank as far as the state budget is concerned.

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