Back To School: Make The Most Of State Sales Tax Holidays – Forbes

Back-to-school shopping is one of the most expensive times of the year for families. And with millions of kids physically returning to school for the first time in a year and a half because of Covid-19, some parents may be in for a financial shock.

A May survey by accounting firm KPMG found the average parent is expecting to spend as much as $268 per child on back-to-school spending this year, compared to $247 last year. More than half of parents reported inflation as being the culprit for higher spending this year.

Sales tax holidays, which are specified periods where certain retail taxes are waived in participating states, could help families manage these costs. Many states hold these holidays for a week or a weekend shortly before kids head back to school.

Here’s how sales tax holidays work—and how to make the most of them.

What Are Sales Tax Holidays?

Sales tax holidays vary by state, but usually take place before kids head back to school. During this time, a state will include certain products to be sold tax-free to encourage consumer spending. This year, 17 states will hold a sales tax holiday.

But just because a state participates in a sales tax holiday doesn’t mean everything will be sold tax-free.

For back-to-school sales tax holidays, eligible items usually include the necessities, such as clothing, footwear, backpacks and school supplies that won’t be used for commercial purposes. The rise of technology has also pushed some states to include electronics up to a certain price.

Each state publishes a list of eligible items for its tax holiday, and will indicate a maximum price for exemption. West Virginia, for example, includes certain types of clothing during its holiday, such as pants and shirts with a purchase price of $125 or less.

Some states also hold additional sales tax holidays on other products, such as appliances or severe-weather preparedness supplies.

If you’re someone who prefers to shop online, you’ll have to read the fine print on your state’s tax exemption rules for online shopping. Oklahoma and Maryland, for example, allow online shopping to be tax-exempt during their state’s tax holidays. Still, the retailer must accept the order during the tax holiday period for it to be eligible.

How Effective Are Sales Tax Holidays?

The effectiveness of sales tax holidays depends on whom you ask. Politicians will generally favor the tax holidays, stating that they’re good for consumers because they help them save money. But tax policy analysts argue that they’re simply just bad tax policy.

“They’re not really that great,” says Richard Auxier, senior policy associate at the Urban-Brookings Tax Policy Center, a left-leaning think tank. “The whole point of a sales tax holiday is it’s really just one big advertising campaign. It’s the state using its resources to tell everyone to go out and buy things—it’s really just a giant commercial.”

Janelle Cammenga, policy analyst at The Tax Foundation, an independent tax policy nonprofit, writes that sales tax holidays “distract policymakers and taxpayers from real, permanent, and economically beneficial tax reform,” and adds that they don’t provide any significant boost to state and local economies.

Not everyone benefits equally from sales tax holidays, either. According to Auxier, consumers who benefit the most are those with higher incomes who can delay their purchases until the sales tax holiday dates, and have the purchasing power to buy more expensive items and save more. Lower-income consumers, he says, don’t always have those luxuries.

But Auxier’s stance on these tax holidays being poor tax policy doesn’t mean consumers shouldn’t participate in them. “If consumers think it’s a good deal, then they should go for it,” Auxier says.

In most cases, a sales tax holiday will save consumers money they would have spent on tax costs. But being strategic with purchases will help maximize your savings.

In Florida, for example, the state tax rate is 6%. Near the end of July, consumers in Florida can purchase a single article of clothing up to $60 without paying tax on it; the first $1,000 of a computer purchase will also be tax-free.

Those savings add up for a bigger purchase. In Florida’s case, consumers could save as much as $60 on a computer purchase, but only $3.60 on an article of clothing that costs $60. Buying more clothing would result in more tax savings, although you’re still spending additional money on clothing.

It’s important to keep this in mind while participating in tax-free holidays: Going in with a set budget will ensure you don’t overspend just because of the lure of items being sold tax-free.

How to Save if Your State Doesn’t Have a Sales Tax Holiday

Since most states don’t have sales tax holidays, you might be hard-pressed to find a way to manage this year’s back-to-school shopping. Consider these strategies to save on school supplies this year:

Make back-to-school purchases with a cash back credit card. If you have access to a credit card, making your school supply purchases with a cash back card will maximize your savings. Solid cash back cards can include as much as 5% cash back on purchases.

Be careful to note that some cash back cards limit the categories in which they offer rewards, which could limit your savings on school supplies.

Opt for a card with a strong, fixed cash back percentage, like 2%, on all spending, no matter what you’re buying.

If you opt to use a credit card, always be sure to pay the balance off in full each month to avoid paying interest.

Shop online with money-saving apps and browser extensions. If you opt to skip in-person shopping and plan to purchase school supplies online, using a browser extension while making your purchases can maximize savings.

Rakuten, for example, offers cash-back rewards for purchases at thousands of retailers, as well as promo codes for sales and discounts. If you’re hunting for the best price on an item, PriceBlink will check an item you’re viewing to find out if it’s available on other websites for a lower price.

Buy refurbished. If your child needs an electronic device, such as a laptop or tablet, consider buying these products refurbished. You can save as much as 30 to 50% on electronics when buying them refurbished, according to Lifewire, a technology review site.

You’ll want to be careful when purchasing second-hand electronics, though. Buying these products from a well-known company, such as Best Buy or Apple, can ensure you’re getting a functional product as well as a limited warranty, in case any issues arise in the near future.

Be sure to shop around and compare prices and warranties before making a final decision on your purchase.