Awuor says sales tax holidays don't work as advertised

Policy analyst George Awour of the Bell testified today against House Bill 12-1069, a proposal to create a three-day sales tax holiday on back-to-school related items.

Awuor told the Senate Finance Committee that, while tax holidays may be popular with some policymakers and the public, they are not good tax policy. He said that research shows that tax holidays rarely succeed in providing tax savings and that they do not stimulate retail sales and the economy at large.

Under Colorado's proposal, the sales tax holiday would be the first weekend in August for five consecutive years. The holiday would not kick in until the year after Colorado's personal income increases by 5 percent. Based on legislative forecasts, that is not expected to happen until 2013, and therefore the first holiday would be in 2014.

Awuor said research on tax holidays in other states has shown:

• Consumers do not purchase more goods in response to the holiday. Rather, they merely shift their buying to the holiday period.

• Retailers may see an increase in sales for the period, but they do not see an increase in annual sales.

• Consumers may not see any benefit, because retailers often hike prices to take advantage of the spike in demand.

• Ultimately, parents and students are hurt because the reduction in sales taxes results in fewer tax dollars available to invest in schools.

The panel approved the measure, 4-3, and it now goes to the Appropriatons Committee.

Click here to read Awuor's full testimony.