Maryland Needs a Holiday from Bad Tax Policy

August 23, 2006

Maryland has joined the crowd of states that declare one or more “sales tax holidays.” The result is much hype and little tax relief, as Tax Foundation economist Jonathan Williams explains in today’s Baltimore Sun.

Scheduled for four days in August to coincide with back-to-school shopping, the sales tax holiday in Maryland is essentially a 5% sale on selected items costing less than $100.

You wouldn’t think such a small discount on fairly low-cost items would attract a crowd, but state governments spend such a huge amount advertising their temporary generosity that some retailers piggy-back on the sales with their own discounts. Some don’t.

When politicians decide what’s on sale, don’t expect it to be easy. In Maryland’s slide show on the program, things get complicated fast.

Under “What’s Exempt,” we’re told, “Qualifying clothing or footwear are articles designed to be worn on or about the human body.”

The silly clause at the end defining “clothing and footwear” seems to be just a legalistic effort to make us understand that everything in those two categories is exempt. But if you think scarves and belts and ties and headbands are “worn on or about the human body,” you’d be wrong. Those are accessories, and there’s no tax holiday for them.

From the retailer’s point of view, it might be easier just to forgive the tax on everything they sell instead of trying to keep track of such rules. No, no, no. Under “Prohibited by Law,” the State of Maryland warns, “Retailers cannot state or imply they will pay or refund Maryland sales tax on non-exempt items.”

If an item is buy-one-get-one free, and it costs $120, that means they’re really $60 each, and therefore tax exempt during the holiday, right? Wrong, if the retailer wants those items to sell tax-free, he has to change the sign to read “Half off” and sell them one at a time under $100.

Shipping doesn’t count as part of the price, but handling does. When they’re combined, handling wins — s/h is part of the price. On the sale of multiple items, the retailer must apportion the s/h to each item to determine eligibility for the tax exemption.

The complexity just goes on and on. In the end, taxpaying customers save little, and they’re certainly not getting a bargain on the price of government.

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A tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities.

A tax exemption excludes certain income, revenue, or even taxpayers from tax altogether. For example, nonprofits that fulfill certain requirements are granted tax-exempt status by the IRS, preventing them from having to pay income tax.