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Georgia nixes back to school tax holiday

School suppliesWhat started as an experiment in 2002 is now an annual ritual. In states across the country, parents wait anxiously, school supply list in hand, for a "sales tax holiday" to make the cost of back-to-school shopping a little more bearable. This year, however, some shoppers are finding out that a declining economy means that returning to school will be more expensive.

Georgia has become the first (and so far, only) state in the country to announce that the popular tax break won't be available in 2010. The looming $2 billion hole in the state's budget was the primary factor in the decision not to offer the holiday in 2010. The holiday, usually held over the last weekend in July, has generated a loss for the state in terms of revenue dollars each year, according to legislators.

Retailers dispute the idea that the state loses money on the tax holiday. John Heavener, president of the Georgia Retail Association, says its findings (available on its website) prove that the state actually makes money on the holiday. He suggests that the net gain is about $20 million, considering revenue generated by the boosts in sales. Back-to-school season, he says, is the second most important season for retailers after Christmas.

The legislature, however, isn't convinced. Georgia Speaker David Ralston (R) says that the state had to make some tough choices. In March, he said those choices were clear. During hearings on the matter, he told a local news crew, "I'm hearing from a lot of Georgians who really prefer to keep the classrooms open and keep the teachers teaching over the sales tax holiday."

Despite fears of a shopping slowdown, the National Retail Federation's (NRF) 2010 Consumer Intentions and Actions Back to School survey shows that families across the country will spend more on back-to-school purchases than last year. In 2009, the average American family spent $548.72 on clothes, shoes, school supplies and electronics. Total spending is expected to hit $606.40 for 2010. That translates nationwide to $21.35 billion for all children in grades K-12. Together with college spending, sales related to back-to-school are expected to hit $55.12 billion.

While parents will spend a majority of those dollars on school necessities like paper and pencils, the decision to spend extra dollars could depend on affordability. While children have a say in parents' buying decisions, with the NRF reporting that 6 in 10 adults say their children influence most of their back-to-school purchases, those items that kids cite as "must haves" are likely to be affected by economics. What's a "must have" this year? My own daughter, savvy third-grader-to-be Katie, filled me in. She cites iCarly and Spiderman book bags and lunchboxes as tops on back-to-school lists this year, as well as "anything with stripes and flowers."

So what does all this mean for Georgia? With sales tax rates hovering between 4% and 8% throughout the state (local rates boost the tax from the 4%), total average spending per family translates into sales tax of between $24.56 and $48.51 -- or about the cost of an iCarly messenger book bag. That's exactly what some retailers fear. Discretionary spending, like branded apparel and book bags, is where the lack of a sales tax holiday could make a difference. "The psychological appeal goes far beyond the cash register," said J. Craig Shearman, vice president of government affairs for the NRF. "As tight as the economy is today, a few cents can mean a lot."

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