Retailers sign on to proposal for sales-tax holiday in Arkansas
Posted on Friday, September 19, 2008
Eyeing dollars flowing to businesses in neighboring states, Arkansas retailers - great and small - urged legislators Thursday to allow the sale of clothing, computers and school supplies to be sales-tax-free in Arkansas for three days each year.
Five of the six states adjacent to Arkansas have tax-free sales periods, often called tax holidays. They last two or three days, usually around back-toschool time.
It's time for Arkansas to join the practice, legislators heard from lobbyists for small stores and Dillard's Inc.
Wal-Mart Stores Inc., the world's largest retailer, favors the tax holiday as well, a spokesman said later Thursday.
Similar legislation has been introduced in Arkansas every regular legislative session since 1997. It has never gone far, but it has not had the sort of backing the proposal is getting this year.
Some Arkansas legislators have said they've seen many Arkansas license plates at retailers in Missouri, Texas and Tennessee during those states' tax holidays. That hurts businesses in Arkansas and cuts into the state's revenue, they said, and they're lining up behind the idea of enacting an Arkansas holiday during the 2009 legislative session, which starts in January.
It could become a "beans or jeans ?"fight. Or a "beans and jeans"choice.
State Rep. Donna Hutchinson, R-Bella Vista, said her colleagues could view the holiday as an alternative to eliminating more of the state sales tax on groceries.
But Gov. Mike Beebe remains committed to trying to lower the grocery tax as much as possible, said Beebe spokesman Matt De-Cample.
The state Department of Finance and Administration estimates that a three-day tax holiday proposed by state Rep. Clark Hall, D-Marvell, would reduce state revenue by $ 5 million a year.
With the national economy not "doing that great"and lawmakers wanting to beef up the state foster-care system, a more limited tax reduction - like the holiday proposal - might end up being more appealing than a further grocery tax cut, Hutchinson said.
But, she said, she plans to vote for both.
The 2007 Legislature, under Beebe's guidance, halved the state's 6 percent sales tax on groceries to 3 percent, starting July 1, 2007, lowering state revenue by more than $ 120 million a year and taking the first step to fulfill a promise Beebe made during his 2006 gubernatorial campaign.
Reducing the remaining 3 percent to only the 0. 125 percent levied by the constitution for conservation would cut state tax revenue another $ 120 million a year, said Tim Leathers, deputy director for the Finance Department.
DeCample said that after the second round of grocery-tax reduction, Beebe would be "willing to look at other proposals, but... everything will depend on the economy because that will [determine ] how much we are able to do and when we are able to do it."
Among Arkansas' neighboring states, only Mississippi lacks a tax holiday, said Polly Martin, president of the Arkansas Grocers and Retail Merchants Association, which represents about 1, 000 retail stores. Seventeen states have some form of state tax holiday, she said.
"Mainly, it's the small retailer that needs it more than the larger retailer,"she told the House and Senate Revenue and Taxation committees, which are studying Hall's proposal.
Under the plan, the tax exemption would last for 72 hours on the first weekend of August.
"The concept softens the blow to back-to-school costs for parents... while providing the extra bonus of boosting sales for local retailers,"Martin said.
In 1999, Texas became the first neighboring state to enact a sales tax holiday, she said.
Dean Elliott, director of governmental affairs for Dillard's, said the department store chain with stores in 29 states experiences increases in sales on taxable and nontaxable items during tax holidays.
"By not having a sales tax holiday, we are losing revenue to other states,"he said.
After the legislative committees' meeting, Laurie Smalling, senior manager for public affairs and governmental relations for Wal-Mart, said Wal-Mart is "supportive of the effort to create a sales-tax holiday because we feel this is good for our customers in Arkansas."
Hall told his colleagues that he was shocked at how many Arkansas license plates he saw in Memphis on a sales-tax holiday there a few years ago.
Arkansas could be losing $ 80 million in sales to neighboring tax-holiday states, money that could support small businesses and jobs, and create other tax revenue for the state, he said.
His proposal would tax exempt sales of clothing, school supplies, computers, computer software and school computer supplies, and school instructional materials.
Sales of a single piece of clothing or a single school supply with a sales price of more than $ 100 and a single purchase of a computer, computer software and any school computer supply with a sales price of more than $ 750 wouldn't be exempt.
"This isn't for families that are buying designer clothes,"Hutchinson said. "This is for regular Arkansas citizens that are trying to get clothes for their citizens."
Leathers said sales-tax holidays have become "a fad"over the years.
"They are politically favorable, and they have proliferated,"he said.
But retailers sometimes find ways to make more profit when customers are drawn in by a tax holiday. Leathers said some studies show that some retailers are less likely to offer their usual customer-attracting discounts if a tax holiday is going to bring customers to the store anyway.
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