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How to Save More During Sales Tax Holidays

Matthew Ong

Shoppers across 11 different states will flock to local retailers to enjoy their state's sales tax holiday on Aug. 2. In total, 16 states - mostly in the South and Midwest - will hold sales tax holidays sometime in August.

So what exactly is a sales tax holiday? It's simply a temporary elimination of a state sales tax. Since states depend on collecting sales taxes for revenue, these holidays are usually limited to a few days a year and often only certain items are tax-free.

Most August sales tax holidays are held to subsidize back-to-school shopping for consumers. However, with complicated item exemptions and restrictions, sales tax holidays can often be trickier than anticipated. Here's a common sense guide for making the most of sales tax holidays:

1. Check the fine print.

State to state, there's tremendous variation as to which items are tax-exempt on sales tax holidays and which items are not. For example, Iowa exempts sales tax on clothing during its holiday, but items with a price tag of $100 or more can still be taxed. In contrast, Louisiana has tax-free items on "all consumer purchases of tangible personal property," according to the Louisiana Department of Revenue. Most states fall somewhere in between.

Even within a category like "clothing" you'll find some odd exemptions. In Virginia, for example, safety glasses and goggles - which you might think could come in handy in a high school lab - are not exempt, as they're considered protective equipment, but bibs and diapers are exempt from sales tax.

There's really no easy way to tell if your state might throw you a curveball at the checkout without having done your research first. Most states have accessible lists of exempt items on state websites, so take a look before you shop.

2. Don't drive across any borders.

Sales tax holidays always seem to make us forget basic math. Sales tax in most states falls between 4 and 8 percent, which means that for every $100 you spend on a tax-free item, you'll save about $5. While $5 off $100 is significant, it's not anything you'd jump at if you saw the discount advertised.

Because your savings won't be as much as you might think, sales tax holidays really aren't worth traveling far for. Once you start adding in the cost of gas, and the cost of a motel for the super ambitious, your tax savings will quickly approach zero or go negative. As always, don't spend money to save less money.

3. Don't overbuy.

Who loves sales tax holidays? Retailers. The state artificially lowers end costs for shoppers, the media gives out free advertising for a 5 percent off sale and consumers come in droves and ready to buy.

If you're going to shop on a sales tax holiday, remember that your small savings will be quickly wiped out by anything extra that you buy. Sure, getting a pair of shoes on the state sounds great - until you do the math and realize you'd need to spend $1,000 tax-free (assuming a 5 percent rate) to get a "free" $50 pair of shoes.

4. Think of the tax break as a tool, not a deal.

As discussed earlier, 4 to 8 percent off wouldn't exactly make the first page of the weekly ad circular. What it can be, however, is an excellent launching pad for bundled savings. Look for additional storewide sales over the sales tax holiday weekend in your state - they're often not well advertised before the weekend, as retailers don't want to kill their sales prospects - and take full advantage.

Don't forget your usual bag of shopping tricks, from coupons to loyalty programs to price matching. Try and get every item in your cart for closer to 20 or 30 percent off.

Matthew Ong is a retail analyst for NerdWallet, a consumer advocacy website focused on empowering users to make the best financial decisions. NerdWallet builds online tools, from an airline fee calculator to an online coupon finder, to help guide users through the money-saving process.

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