Next time state officials say they are doing you a favor with tax-exempt sales, do what Santa does: check it twice. North Carolina officials promoted the recent tax-free weekend for school supplies as a boon (or bone?) to families of school-age children. And so it was, to a degree. Although the back-to-school season has always had great promotional value, the idea of leaving the 7 percent state tax per item in the family’s pocketbook, available for another use, is clearly popular. Without taxes, effectively lower prices mean families can and do buy more clothing and supplies during this period.
Big ticket items, for which tax adds a significant dollar amount to the total price, are some of the most attractive purchases during the tax-free period. But as I discovered in my search for a student computer, buying tax-free “in person” isn’t necessarily smarter than buying online, even during the state’s tax-exempt window. Amazingly, the tax-exempt policy, and some retailers, actually drive buyers to the Internet by adopting guidelines that literally turn business away.
Here are some things not to do, then, if the object of the tax holiday is to make expensive purchases easier for families to afford: Yes, exempt computers, but don’t retain taxable status on complementary goods, the things needed to make a computer really useful. This includes printers, printer supplies, cables, and peripherals. Without these, the value of the computer for educational purposes is significantly reduced. Will your kids be turning in their electronic notebooks, so teachers can read their brilliant compositions? No, they will have to print them, email them, or submit them on disk. The family-friendly solution is to exempt all of the necessary complimentary goods.
In terms of marketing, the tax-free holiday also threw a curve at some of the most economical and attractive options—”bundled” printers and computers. Given the taxable status of printers, vendors could not apportion sales tax to the printer alone, when part of a bundled set. Since the printer is usually far less costly than the computer, the state gained tremendously. It taxed the entire package, at significant consumer expense.
Take the example of a $1,049 computer/printer bundle—like the one I wanted to buy. If the entire package is taxed at 7 percent, the purchaser pays an additional $73.43, for a total price of $1,122.43. If one considers the $129 price of the printer (when sold separately), sales tax on the printer alone would be $9.03; total payment for printer: $138.03. Even though the separate component prices in these printer/computer bundles don’t break out exactly this way, it’s clear that by choosing the bundle during the tax-free weekend, the consumer will pay the entire $73.43 tax on the $129 item. The effective tax rate for the printer: 56.9 percent! Instituting a tax exemption for printers and peripherals, or using an apportioned technique, would be more family friendly than the state’s current tax-holiday plan.
Most vendors approached the problem creatively. Many decided to simply absorb the tax on non-exempt electronics (and other items), through significant discounts or rebates. At least one computer vendor managed to combine the worst of marketing and salesmanship, however. Since they could not apportion the tax/no tax items in their most economical bundled packages, they withdrew all such combinations from the North Carolina market during the weekend. There were some tense moments in the store Friday morning, as I questioned where the stack of boxes on display Thursday night had gone, and why, even with the tax, they would not sell me the item at all. In retrospect, they (and our legislators) did me a favor.
I exited the store and checked the Internet. Online, I discovered that not only could I purchase the identical bundle, but for $1,049 plus $19.46 shipping and $1.34 tax, I could get it delivered to my door. Whoa now! That’s a .1 percent (vs. 7 percent or 56.9 percent) tax, for a total payment (with shipping) about 2 percent over the bundle price. Clearly, that was the most family- and market-friendly option. And thanks to Governor Easley’s tax-free weekend, that’s where I made my purchase.