Nation's largest tax-free weekend gets underway in Texas

By Jim Forsyth

SAN ANTONIO (Reuters) - Doorbuster specials. Stores open at 12:01 a.m. Mall parking lots jammed. It's not Black Friday, or Christmastime. It's Texas's huge and increasingly controversial back-to-school tax free weekend.

"If I drive by, and it's completely packed, I am going to keep on going," said one woman in Austin, who says she already has her shopping list for the items she plans to buy without having to pay state or local sales taxes.

The sales tax holiday, which started Friday and runs through Sunday, has made the third weekend in August the second biggest shopping weekend of the year in Texas, second only to the weekend just before Christmas, and economist Ray Perryman says the weekend has become "part of the Texas calendar."

"It creates an opportunity for merchants to get more people into their stores and creates a popular diversion for people," Perryman said. "It truly has become part of our popular culture."

Nineteen states and Washington, D.C., have some form of back-to-school sales tax holiday, but Texas is the largest in the amount of money spent and the number of people participating, according to the State Comptroller's Office.

But more and more people question the popular sales tax holiday, at a time when many cities and counties across Texas are cutting back basic services.

The Texas Legislature recently slashed $4 billion from education funding and billions from other programs to close a $27 billion deficit.

"This is costing the state valuable money, the estimates are that the state will lose $50 million in revenue this weekend," said Dick Levine, senior fiscal analyst at the Texas Center for Public Policy Priorities, a liberal Austin-based think tank.

"Of this, there will be $14 million that cities and counties could have gotten to manage fire and police services."

REVENUE GENERATOR

Because Texas has no state income tax, the sales tax is one of the major generators of revenue for state and local governments.

"The most you're saving in the sales tax holiday is eight and a quarter percent," Levine said. "You probably wouldn't go across the street for savings of anything less than 10 percent."

Perryman agreed, saying a quick check of coupons in a local newspaper showed a number of sales that promised 20, 30 and 50 percent off.

"None of us would get out of bed to go to the store to save eight percent if a store advertised a sale at that level," he said. "But when people have the opportunity to not pay their taxes, they'll line up around the block for that privilege."

And that's what thousands of people were doing this morning, jamming stores in scenes which are not common when the temperature outside is in triple digits.

"I really need to buy a backpack," said one woman out bright and early in San Antonio this morning.

Ronnie Volkening, president and CEO of the Texas Retailers Association, says the size of the crowds at the malls on a Friday in August should show that the state's fears of losing money are not true.

"The additional foot traffic actually generates people to come out to buy not only those things that are tax free, but they buy other items as well," he said. "We have noted that the total sales tax collected has a tendency to go up in August, even though you have this tax-free weekend."

A proposal to do away with the tax free weekend was considered by the Texas Legislature this past spring, and one lawmaker said, despite issues like teacher layoffs and airport pat-downs being on the agenda, the most e-mail and phone calls he received all session was from citizens demanding lawmakers not mess with the Texas tax free weekend.

(Edited by Karen Brooks and Jerry Norton)