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.

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