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Is Arkansas’s Sales Tax Holiday Really Worth Celebrating?

By Caleb Taylor

Arkansas’s annual sales tax holiday allows shoppers in Arkansas the opportunity to purchase certain school supplies, school art supplies, school instructional materials, and clothing free of state and local sales or use tax one weekend per year. The holiday occurred on August 1-2 this year. Sixteen other states have similar back-to-school holidays.

Although the holiday is well-intentioned, ACRE-Affiliated Researcher Aaron Newell says in “Tax-Free Shopping: Back-to-School Holiday Fails to Deliver,” published in Arkansas Business on September 21 that the policy fails to meet its stated goal of providing real sales tax relief to Arkansans.

Newell writes:

Policymakers distorting the market by favoring certain products can be harmful. Administrative costs for small businesses to administer sales tax differently and only on certain products can be high. The ‘holiday’ costs nearly $2 million annually in lost revenue. This lost revenue can harm schools, as local sales taxes partially fund education. It can also be a flashy distraction from pursuing real tax reform.”

 

Newell notes that Arkansas has the second-highest average state-and-local sales tax rate in the country behind only Tennessee. However, Tennessee’s sales tax burden is offset by having no state income tax.

 

Newell writes:

 

A sales tax holiday ignores the real problem: the year-round sales tax rate in Arkansas. We can pursue real tax reform that spurs economic growth. Expanding the sales tax base and lowering sales tax or other rates is an economically sound plan that would better help those in poverty, make us more competitive with neighboring states and help small businesses — every weekend of the year.”

You can read Newell’s entire op-ed here.

You can find more of our research on taxes and spending here.