The Massachusetts Legislature again agreed to a sales tax holiday the weekend of August 13-14.  Just before the vote, the Retail Association of Massachusetts released the contents of a study on the holiday it commissioned from the Beacon Hill Institute. 

Like the Sales Tax Holiday itself, the Beacon Hill Institute study underwhelms.

The annual holiday continues to be popular in the Legislature, though important fissures emerged this year with both the Speaker of the House and Senate President expressing varying degrees of unease.

Senator Michael Rodrigues (D-Westport), a small business owner, was much more vocal, calling it a bad “habit” that has “no positive economic impact.”

The Department of Revenue claims that last year’s sales tax holiday cost the state $25 million in lost revenue.  The National Tax Foundation claims that sales tax holidays merely shift consumer spending and don’t result in economic growth or an increase in consumer purchases. 

But the BHI study for the Retailers Association claims that the sales tax holiday results in a $168 million boost for retailers during the course of the weekend.

That’s an important assertion because it has been widely believed that the sales tax holiday is a far greater political gimmick than trigger for economic development particularly in this moment when retail sales are healthy and consumer spending in Massachusetts is stronger than the nation as a whole.

Still, when David Tuerck, the Director of BHI, declared that the Sales Tax Holiday “creates a lot of benefits for the state beyond the fact that it brings in some retail sales from New Hampshire and the Internet,” policymakers were sure to take notice.

I did as well and took a close look at the study. 

I’m left with greater concerns and questions and still hope the Legislature might abandon the gimmick next year.

The first major concern that I have is that the Retail Association of Massachusetts made the sales tax holiday one of it important goals as a trade group.  But out of its 1,467 members, their email “poll” only had 63 respondents.

This is a little more than a 4% response rate.  For such an important issue to RAM, this seems rather low.  Or perhaps the issue isn’t as visceral to the RAM membership as it is to the association’s leadership.

Put another way, RAM wanted its study to boost support for the Sales Tax Holiday and when they polled their members, 96% couldn’t bother to respond to a fairly quick email survey.  That should raise our collective eyebrows.

The questions that their 63 members answered yields interesting results.  For example, Question 1: while only 42 respondents declared they expect a gain in sales over the holiday, the average gain of respondents was 180%. 

That’s pretty impressive.  But if you turn to page 8 of the report you find that one respondent alone declared an 850% gain. 

This is one example of how averages can be quite misleading.

The third question to members is interesting: “What percent of your total annual sales are attributable to the Sales Tax Holiday, including additional sales on discounts offered before and after the event and including any sales of goods priced over $2,500?”

In other words, a sale – something retailers can do, and often have, anytime.

And the results of that question are even more interesting as BHI only reports how many of their members responded, then notes that “the average answer over all respondents was 4%.”  There’s no breakdown by percent.

It gets stranger two bullet points down: “Where do you believe you primarily obtain sales from during the Sales Tax Holiday?”

This is key.  The RAM leadership claims the holiday helps Massachusetts retailers compete against internet sales and tax free sales in New Hampshire.

And only 8 retailers believed the primarily obtains sales from NH sales or the Internet.

Thirty-eight said from other taxable weeks – so those sales would be made anyway and Commonwealth would receive the tax revenue.

Further down we come to the poll of 450 Massachusetts consumers by Opinion Dynamics multiplied by Census Bureau numbers.  This survey would carry a lot more weight if the survey results and methodology were released.   We have to assume they poll a representative sample.  

I’m happy to make that assumption because their firm is reputable but, still, these things should be easily accessible.  My colleague, Professor Cunningham, is still waiting for the Massachusetts Fiscal Alliance to release their survey results and methodology on a “poll” they commissioned earlier this year.  One shouldn't have to wait.

After polling individuals, BHI applies the percentages not to individuals but to Massachusetts households.  Their method here is found on page 10.  I have no idea if that is a reasonable assumption.  I’m really unsure of this methodological approach and have to leave that to my colleagues who study polling methods. 

Still, within the survey we find additional interesting tidbits:

• Only 23% of consumers said they’d ever spent more than $500on the tax free weekend.
• Sixty-eight percent said they’d never made a tax holidaypurchase.

The second question used by BHI seems to me designed to point respondents to a particular answer: "If the Massachusetts Legislature and Governor re-authorize future Sales Tax Holidays, how likely will you be to participate by shopping nearby and keeping your consumer dollars local instead of buying online or in New Hampshire?"

Not surprisingly, 48% answered very likely and 24% said somewhat likely.  This is striking and doesn't reflect well, in my view, on the question.

We have a situation where 72% of respondents are somewhat or very likely to take advantage of the sales tax holiday this year but who also admit that, by and large, they've never made any major tax-free holiday purchase before.

Perhaps they've just changed their minds. 

The BHI report underwhelms and should not have been given the attention it received.  It speaks more to the politics behind a particular group.  All pressure groups want to be viewed as successful in getting the Legislature to advance the group’s goals. 

Tellingly, the head of the Retailers Association of Massachusetts, had this to say to the Globe:

“Everybody who runs for reelection every other November says they are pro-small business and pro-Main Street,” he said, adding that support for the sales tax holiday is “the best indicator of whether people support their small businesses and support their consumers.”

The “best indicator” of support for small business cannot possibly be an affirmative vote for a tax holiday widely viewed as ineffective and for which only a tiny fraction of RAM membership bothered to register discontent in a RAM sponsored poll.

My few takeaways on all of this:

• Consumers are not significantly changing their spending habits as a result of the Sales Tax Holiday. This is exactly what leading analysts have been saying all along.
• Bad habits are hard to break, particularly when the words“tax” and “holiday” are fused together.
• The BHI report says more about the politics of pressure groups than it does about good tax policy or the best way to support smallbusinesses or consumers. 

The Sales Tax Holiday doesn't deserve the amount of time it is given each year.  Legislators who really believe small businesses and consumers in Massachusetts are burdened by tax policy or regulatory policy should deal with those issue forthrightly.  

By indulging this gimmick every year, they take time and space away from meaningful debate on issues that actually matter.  And that is no cause for celebration.