TAX NEWS - 2010

Illinois Tax: Illinois tax holiday to provide relief to consumers

CHICAGO -- An Illinois state sales tax holiday on Aug. 6 to 15, signed into law by Gov. Pat Quinn today will provide welcome relief to consumers and boost the Illinois economy, said the Illinois Retail Merchants Association.

The holiday will suspend the state's sales tax of 5 percent on eligible school supplies, clothing and footwear while leaving the 1.25 percent rate paid to local governments. The tax exemption applies to clothing and footwear with a retail selling price of less than $100. However, computers and computer supplies, PDA's and cameras are not eligible.

"Both consumers and businesses have been crying out for relief during this difficult economic downturn. The road to recovery goes through retailing and consumers, and Illinois' first sales tax holiday will go a long way in aiding these efforts," IRMA President & CEO David F. Vite said in a statement.

The holiday will provide stimulus to encourage spending, while local governments will benefit with a bump in revenues. Eighteen other states have held sales tax holidays.

According to a study of the Florida Sales Tax Holiday by the Washington Economics Group, the tax holiday has a positive economic impact, increasing gross sales by about 8 percent for the month in which it is held.

While Florida has run eight school sales tax holidays, the group analysis found it missed out when it did not do so in 2008 and 2009. If Florida had held a tax holiday in 2009, the group said it would have represented an increase in economic activity of about $1.7 billion, boosting Florida's gross domestic product by close to $1 billion for the year. The tax holiday also would have resulted in a net increase of $118 million in state and local taxes as a result of increased economic activity.

The study suggests that because of the competitive nature of retailing, all savings from a tax holiday end up in the pockets of consumers. The popular program increases store traffic in all retail sectors, and results in an increase in both jobs and overall sales tax revenue, both sorely needed in Illinois, the retail association said.

"Sales tax holidays are something both conservatives and liberals can agree on," Vite said. "Conservatives like lower taxes and less government while liberals like to give tax relief to those who need it most. Sales tax holidays do both."