August 9, 2012 / 10:05 PM / 7 years ago

Massachusetts hopes sales tax holiday boosts retail sector

BOSTON (Reuters) - Despite an improving economy, Massachusetts is going ahead with an annual “sales tax holiday” in an attempt to bolster demand during the summer retailing doldrums.

The holiday is scheduled for August 11 and 12, when the state’s usual 6.25 percent sales tax rate will be waived for nearly every item up to a limit of $2,500.

State officials and the retail industry hope the move will give a big boost to retail spending, offsetting the loss of tax revenues.

The most popular purchases over the sales tax holiday weekend typically include big-ticket purchase such as furniture, appliances, computers and televisions, said Bill Rennie, vice president of said Retailers Association of Massachusetts vice president Bill Rennie.

Few other states off the wide-ranging exemption on taxes offered by Massachusetts. Many remove sales tax on clothing, shoes and computers to ease back-to-school shopping for parents.

The Massachusetts waiver excludes motor vehicles, motorboats, meals in restaurants, telecommunication services, natural gas, steam, electricity, and tobacco products.

For the upcoming weekend the association is projecting retail sales topping $500 million, far above levels seen on a typical summer weekend, when consumers often are thinking more about the beach than the shopping mall.

An early-August weekend would normally clock up retail sales of about $100 million, Rennie said. “It really gives a big boost to the retail economy over the weekend.”

The sales tax holiday pulls millions of dollars out of state revenues, however. The state expects to forego about $21 million in revenue, said Anne Dufresne, spokeswoman for the Massachusetts Department of Revenue.

In the seven recent years the holiday has occurred, from 2004 to 2008, and again in 2010 and 2011, Dufresne said the state has foregone a total of $114 million in revenue.

Lost revenue will be transferred from the Commonwealth Stabilization Fund, a reserve fund that enhances the state’s financial stability, to the state’s General Fund.

Sales tax holidays became popular during and after the U.S. recession that ended in 2009 as a way to entice cash-strapped consumers back to the stores.

The Tax Foundation, a nonpartisan research group, said 18 U.S. states will hold sales tax holidays in 2012, just below the peak of 19 in 2010.

The group said the holidays, while creating buzz, “do not promote economic growth or significantly increase consumer purchases” because they merely pull from future demand. Some retailers also raise prices during the holiday.

Reporting by Joseph O'Leary; editing by Ros Krasny and David Gregorio

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