TAX NEWS - JUNE 2010

Illinois Tax: Illinois taxes lower on classroom purchases

01 June 2010 -- As if kids going back to school in August wasn't cause enough for celebration, parents across Illinois have a sales-tax break to cheer.

State officials have sharply reduced the sales tax that retailers must charge on back-to-school items from Aug. 6 to Aug. 15. From coats and jackets to rubber pants, from protractors to paste sticks, the tax owed during the "holiday" will be 1.25 percent, down from 6.25 percent.

"Working families with kids going back to school, we want to give them a break," said Rep. Keith Farnham, an Elgin Democrat who sponsored the measure that is awaiting Gov. Pat Quinn's OK. "And we hope to stimulate sales, thereby creating business."

The state typically charges 6.25 percent on retail sales, but returns 1.25 percent to local government agencies. The August holiday temporarily eliminates the state portion.

The downside is the sales tax holiday could cost the state $40 million to $60 million while lawmakers continue to struggle to close a $13 billion deficit.

But Farnham and the Quinn administration believe increased sales - not only of school supplies but of other items pulled off shelves while Mom's in the store - could fill up cash registers.

"It stimulates the economy, it draws people in from border states," said Rob Karr of the Illinois Retail Merchants Association.

Florida will offer a school-supply tax holiday this summer after discontinuing it the last two years because of downturns in revenue. The holidays had been an annual event so popular lawmakers were forced to bring it back. But this year it will only be two days, instead of the week it used to run.

In Illinois, the holiday covers 10 days - a week book-ended by two weekends - and will apply to clothing and shoes under $100, along with school supplies such as binders, calculators, notebooks, paper, crayons and lunch boxes.

Computers and computer supplies are not included. Nor are art supplies such as paintbrushes or drawing pads or instructional materials such as textbooks or globes.

Kelly Kraft, spokeswoman for Quinn's budget office, said officials believe increased sales will actually outrun the drain on tax revenue because it will "get people out to the stores shopping."

Republicans cried foul. Although they've supported tax holidays in the past and oppose Quinn's proposal to raise the income tax for education, many argued a time of dire financial straits is not ripe for cutting back on revenue.

"There's a lot of cries about reducing taxes from the Republicans," Farnham said. "This is a very practical, hands-on, limited-to-a-certain-period-in-time reduction in taxes."