Cash-strapped Connecticut dives into annual tax-free week

Without a budget and with the specter of an increase in its 6.35 percent sales tax looming, Connecticut is proceeding with its 17th annual “tax-free week” starting Sunday, offering back-to-school shoppers a break on items of clothing and footwear costing less than $100.

You might think the seven-day suspension of a revenue-producer for the state is a bad idea. Some would say the optics, at least, don’t look good.

But Kevin Sullivan, the commissioner of the state Department of Revenue, begs to differ.

“We tend to think it ends up being good for shoppers and for the retail industry,” Sullivan said in a phone interview last week. “Stores cooperate by dramatically discounting items that wouldn’t otherwise be eligible, and consumers get the benefit. In many cases, they’re getting things that have been significantly reduced.”

For the state, the week means millions of dollars in “foregone revenue,” Sullivan acknowledged. This year’s estimated toll is $4.1 million.

“There was some discussion of suspending it this year, as Massachusetts has done,” Sullivan said. “But it was tied up in budget discussions ...”

Any suspension or repeal of Connecticut’s tax-free week would take an act of the legislature, which made permanent the annual giveaway in state statutes in 2000 as part of a package that reduced many state taxes and established new tax credits and exemptions. Originally, the provisions of the tax-free week applied to clothing and footwear costing less than $300. Legislation enacted in 2015 reduced the threshold to $100.

State Rep. Holly Cheeseman, an East Lyme Republican who serves on the legislature’s Finance, Revenue and Bonding Committee, couldn’t recall any “extended discussions” about repealing the tax-free week, though she said the state can “ill afford” it this year.

Tim Phelan, president of the Connecticut Retailers Association, said he assumed the committee discussed it at some point. “I would think they looked at every revenue item in the budget,” he said.

Phelan’s association views the sales tax holiday as a net gain for all parties — shoppers, retailers and the state.

“Consumers first and foremost,” he said. “For one week out of the year, they don’t have to pay sales tax on clothing and footwear up to $100. For retailers, it’s a week they don’t have to remit some taxes to the state, a week when they have a level playing field with online retailers that don’t pay taxes. For the state, it’s a plus because it keeps people in the state that week. People don’t have to leave the state or shop online to avoid the sales tax.”

Many retailers run promotions during tax-free week.

“It’s always a popular week. Like every year, we expect it to be busy this year,” said Christopher Bastien, manager of Crystal Mall in Waterford. “It’s great for families, especially those with multiple children who are heading back to school. Teachers are gearing up, too, and we’ve got stores where they can shop, like Talbots. For the kids, we’ve got Old Navy, Forever 21, H&M ...”

At the Tanger Outlets at Foxwoods, the 1 percent tribal sales tax the Mashantucket Pequot Tribe imposes will be lifted along with the state sales tax next week, according to Lori Potter, the tribe’s director of communications.

No one, it seems, can definitively say whether the additional sales spurred by the suspension of Connecticut’s sales tax offsets the lost revenue.

“I can’t say the research is compelling,” said Sullivan, the state revenue commissioner.

In Massachusetts, consumers face a second consecutive year without a “sales tax holiday,” a victim of the Bay State’s financial straits. There, lawmakers have enacted tax holidays most years since 2004, though they’ve never passed legislation that would make them permanent.

Gov. Charlie Baker filed an “emergency” bill Aug. 2 calling for this weekend's suspension of Massachusetts’ 6.25 percent sales tax on goods costing $2,500 or less. With many in the legislature fearful of losing revenue, the measure never got a hearing.

In 2015, the last year Massachusetts had a weekend sales tax holiday, the Department of Revenue estimated the state lost $25.5 million it otherwise would have collected.

Rhode Island, where the sales tax is 7 percent, does not have a sales tax holiday.

b.hallenbeck@theday.com

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