Shirts or shoes? Iowa’s sales tax holiday wrapped in confusion

By Paul Brennan | Iowa Watchdog

DES MOINES, Iowa — People can now buy a bowling shirt in Iowa without paying sales tax.

But if you want to buy tax-free bowling shoes to go with that shirt, you’re out of luck. Taxes still apply.

That’s just part of the confusion built into Iowa’s annual sales tax holiday “on select clothing and footwear.”

The emphasis has been on “select” ever since the Legislature created the two-day event in 2000, although the logic behind the selections isn’t always apparent.

Athletic supporters are tax exempt during the holiday, which started Thursday and continues Friday. Athletic uniforms are not.

That’s not a distinction made by some confused bureaucrat, it’s in the original law, which specifies more than 110 items as either exempt or not.

But getting to the Iowa Department of Revenue‘s current three page list of what is or isn’t exempt required bureaucratic assistance.

“Some of the exemptions are spelled out in the statute, then just like we do with other tax laws, to the extent we have authority and to the extent there needs to be some development of the law, the Department of Revenue does promulgate rules and give guidance,” IDR spokeswoman Victoria Daniels told Iowa Watchdog.

The law specifies that belts are tax exempt but belt buckles sold by themselves are not. That led IDR to declare belts sold without buckles aren’t exempt.

But these judgment calls don’t stop with IDR. The department delegates some to retailers.

For example, protective footwear is only exempt if it can also pass as “streetwear.” That fashion decision is left up to the retailer.

While there’s no question the holiday’s rules are confusing, there is a serious question as to whether having the so-called holiday even makes sense.

The Legislature justified its creation by claiming it would help the economy.

But a 2013 study by the Tax Foundation concluded, “Sales tax holidays do not promote economic growth or significantly increase consumer purchases; the evidence shows that they simply shift the timing of purchases.”

According to Daniels, IDR hasn’t studied what sort of effect the sales tax holiday has on Iowa’s economy and doesn’t collect any information specifically related to the holiday.

Anecdotal evidence from Council Bluffs and Sioux City suggests the holiday attracts numerous shoppers from Nebraska, which doesn’t have a sales tax holiday.

But that influx might be balanced by Iowans heading south to shop in Missouri. Not only does Missouri hold its sales tax holiday the same time as Iowa, it also offers more exemptions.

In addition to clothes and footwear, Missouri exempts computers and school supplies.

The Tax Foundation study concluded the main beneficiaries of sales taxes holidays are politicians who want to appear to be doing something about taxes but don’t want to tackle the hard issues involved in reforming sales taxes.

If that’s the case in Iowa, politicians nervous about taking serious action on sales taxes should know one thing: adult diapers are tax-free during the holiday.

Contact Paul Brennan at pbrennan@watchdog.org