Shoppers Reap Benefits from North Carolina Sales Tax Reform

Published August 31, 2016

In August, North Carolina retail malls and outlet malls, such as Charlotte’s ¬†Premium Outlets and South Park Malls, reduced prices on consumer goods, cut prices and offered discount sales for shoppers, reducing prices below those found in South Carolina.

South Carolina is one of 17 states with sales tax holidays, a kind of temporary sales tax exemption which usually lasts one weekend, removing retailers’ obligations to collect and remit sales taxes on types of goods for which lawmakers attempt to increase sales.

In 2013, North Carolina lawmakers ended the state’s sales tax holiday as part of a larger tax reform and relief effort.

Roy Cordato, vice president for research at the John Locke Foundation, says ending the sales tax holiday program was part of lawmakers’ work to remove “special breaks” carved out in the tax code.

‘Overall Tax Reform’
¬†“It was part of an overall tax reform where the whole idea was to get rid of a whole bunch of special breaks,” Cordato said. “On the income tax side, we dramatically lowered income tax rate and lowered the income tax rate and got rid of special breaks for different groups.”

Nicole Kaeding, an economist with the Tax Foundation’s Center for State Tax Policy, says sales tax holiday programs generally don’t work as advertised.

“Sales tax holidays are generally sold as one of two things: to promote economic growth, or to increase the number of items consumers purchase,” Kaeding said. “Really, what the evidence shows is that just doesn’t happen.”

Spreading the Sales Around
Kaeding says sales tax holidays don’t encourage new economic activity, but cause consumers to delay pre-planned purchases.

“What does happen is that consumers change the timing of when they buy goods,” Kaeding said. “If, for instance, if you know that the sales tax holiday is this weekend, all that does is mean that you are not going to buy the same goods as last weekend and-or next weekend. You’re just going to make sure that you structure the purchase for this weekend.

Increasing Consumers’ Costs
Kaeding says sales tax holiday gimmicks may actually increase costs for consumers.

“Retailers actually have been known to increase their prices during sales tax holidays,” Kaeding said. “Basically, they will capture that 5 to 10 percent in sales tax that would be going to the state, but instead they will keep that for themselves.”