Sales Tax Holidays Another Spending Trap

Back to school shopping is just around the corner.  That means upcoming sales tax holidays for many states. It is mostly a non-event in our household, as I despise large crowds packed into malls, and would gladly pay 7% more in sales tax to shop on another weekend.

Still, for many of you sales tax holidays are second only to Black Friday in their opportunities to spend money. Funny the things that suddenly look affordable minus sales tax, when just a month or two ago they were way out of reach. Just imagine the number of people out there charging up balances on store credit cards at 24% interest rates to save 7% on sales tax.

Don’t get me wrong; I’m not totally against the idea of a sales tax holiday. Quite the opposite. I look forward to just about every opportunity to eliminate a tax from our lives. However, I consider it a spending trap because days like this often lead normally frugal people to lose their frugal minds and shop like crazy just to “save on taxes.” Spending $100 to save $7.00 rarely makes sense, unless you were going to spend the $100 anyway, and then it might.

Of course, it would be unfair for me to pick on sales tax holidays. There are plenty of spending traps put down for us these days. Many first-time homebuyers feel compelled to run out and a buy a home before they are financially ready because of the first-time homebuyers tax credit being offered. Others feel the tug of car fever driving them to car lots to trade in their clunkers for cash when their clunkers were getting them from A to B just fine.

All of these traps are designed with one purpose in mind: to increase spending. In some cases these programs offer excellent ways to save money. However, if you are not prepared to spend the money wisely you should not be tempted to spend it at all, regardless of the incentives to do so.

Since most states are offering sales tax holidays towards the end of this month and early August you still have a little time to prepare, assuming you are brave enough to fight the crowds. Start planning a back-to-school budget and set aside a little from each paycheck between now and your state’s tax holiday in a cash envelope. When the sales tax holiday is in effect you’ll have a cash budget to shop with, minimizing the risk of going over budget or resorting to credit cards to fund the shopping spree.

Will we participate in the sales tax holiday? Probably not. The only thing I might be interested in buying around that time would be a new computer, as ours is over eight years-old now. I’ve upgraded a few components over the years, but the processor and hard drive space is laughable compared to current models. Computers are the one thing that don’t usually fit into my, “if it ain’t broke, why replace it” mantra. If you want to stay fairly current, you have to upgrade every couple years at a minimum. As you can see, we are far from “current.”

By waiting until sales tax holiday weekend I could save up to $70 on a $1,000 computer purchase (I won’t spend that much, but to keep the math simple I rounded up). Retailers also typically plan sales around such holidays which could mean even higher savings.

It’s worth noting that this year’s recession, combined with severe budget shortfalls, have caused many states to cancel or postpone sales tax holidays. Be sure to check a current 2009 Sales Tax Holiday Schedule for your state before shopping.

Comments

  1. I ranted a bit about this a coupla years ago (How Did Shopping Become a Holiday?) and I’m as convinced as ever that these sales tax holidays are nothing more than an attempt to kick Americans’ consumerism into high gear so they’ll piffle away even more of their money needlessly on stuff they wouldn’t have bought otherwise. We’re like cattle complacently trotting off to slaughter…

  2. My stepdaughter worked at a national children’s clothing store at an outlet mall; the sales tax holiday was their 3rd biggest shopping of the year (after Thanksgiving Friday & the weekend before Christmas). The store RAISED prices for this event. Not that the behavior of one store is indicative of what others might do, but just another reason to keep a price book and spend more wisely.

  3. We live about an hour away from New Hampshire. There is no sales tax in that state so a “holiday” from sales tax does not impress me. We also have to drive all the way to New Hampshire to find a Lowes or Wal-mart or even a Mall. There are none in my rural area, so these kinds of shopping trips are few and far between. We might make the trip a couple of times a year. I wonder if people lived further away from stores, would they learn to make what they have last longer? Or could they find other ways to get by without shopping? This is something we have to do. We have no choice.
    Blessings
    Mrs. White

  4. My wife is actually kicking around the idea of taking a day off work to shop during our sales tax holiday. Note that this women is a CPA and does, at some level, understand that this is equivalent to a 6% off sale.

    I don’t have a fear of crowds/mobs, but I do have a strong dislike of them. (sigh)

  5. On occasion Orchard Supply Hardware here in California has a “no sales tax weekend.” I was talking to one of their computer geeks and he told me they do better with those sales than on weekends where they advertise 10-15% off everything in stock.

  6. Holy poop! 8 years old? I just *donated* a computer that was only about 5 years old. You could probably pick one of those up for about $25!

    Best deals on computers, honestly? The Dell refurb site + a refurb coupon (they sell them on eBay.) Upgrade to the 3-year warranty and you’ll still end up saving money with the coupon.

    Go to dell.com/outlet and do a search. Figure out what you want. Specific computer models go fast, but keep refreshing until you find what you want. RAM upgrades are easy to do yourself; stick with hard drive, processor, and OS you want.

    Then go to eBay, search dell outlet coupon, note expiration date and buy it. Usually folks sell them for a few dollars. Use it before the expiration date for a sweet deal on a new computer. As a bonus, the outlet sells monitors, too…although I have a HP LP2475w and would recommend it over any of the Dell monitors.

    As a bonus, Dell doesn’t charge sales tax in many states, so you’ll save big $$$ over retail stores, and get a better computer to boot.

    I use my Dell outlet computer hooked up to our TV via its HDMI out and have had 0 issues with it.

    -Erica

  7. I’m like you and despise crowded malls, so any of those sales tax days I stay away from it. In most cases if I really want an item I’m going to be frugal enough to search around to find a better deal then I would ever get on a sales tax savings day.

  8. My state thankfully has no sales tax on food or clothes (prepared food and candy are still taxed, though), so the state doesn’t need sales tax holidays to help with the back-to-school shopping. However, a friend took advantage of another state’s tax holiday when we were there vacationing to buy a new camera she was interested in. I think that’s when I wished we had a tax holiday, but I think I’d rather have tax-free clothes and food over a once-a-year tax-free event. :)

  9. We have a very high sales tax here in TN. Personally, I wouldn’t go out of my way to shop during this time if I wanted smaller ticket items, but if I needed a new appliance or computer, I’d definitely take advantage of the tax-free opportunity.

    The problem with our sales tax (combined with no income tax) is that it puts added stress on lower-income residents. I’d rather have an income tax combined with a lower sales tax.

  10. Regarding computers, I have one word of advice. If the computer you have is doing everything you want, keep it. Only get something new when you can’t do something you want to do. I’m currently using a nine year old computer with which I browse the web, email, edit and capture video, play the occasional game, etc. I had to learn new ways to get the most out of my computer, but it was worth it to me.

  11. That is an OLD computer! I get your gripe about the sales tax holiday. It’s not like Black Friday where last year I combined deep discounts with online codes and free shipping, saved myself the trip to the malls and did my shopping from the comfort of my Lazy Boy in my Pajamas. A sales tax holiday won’t save you that kind of money. But, you did have some good tips.

    Andrea
    Save Money to Make Money

  12. Here’s what me and my wife do. Please tell me if this is right.
    We write down our needs and our wants in a piece of paper with corresponding budget and highlighting the most urgent. We then go out to supermarkets and malls with our list. So even if there are nice things on sale around we would not be tempted to buy them; since we would be worried more about how we are going to buy the things we have in our list which we really want and we really need. Once we have purchase an item, we cross them out of the list and then compare the expected budget versus the actual money spent. If we are able to buy it at a higher price compared to the budget then we lower the budget of another item or we cross out an item which we think we want the least or we mark them as last priority. I hope I am making sense.

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