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Buyers get holiday from sales tax on Saturday

For one day, Massachusetts shopping will be tax free.

On Saturday, the state holds its first ever sales-tax holiday, exempting most purchases of as much as $2,500 from the 5 percent sales tax and joining a growing list of states offering this popular form of tax relief.

The idea is to put a charge in the sluggish summer economy by stimulating the nation's main driver of economic activity: consumer spending. Many Bay State retailers are beefing up staffs and inventories, expecting a Christmas rush in August.

Governor Mitt Romney today will promote the one-day holiday with a press conference, urging consumers to go shopping. The event was approved last year as part of the economic stimulus bill that also provided about $90 million in business incentives.

Romney, meanwhile, is likely to use the opportunity to make a pitch for even more tax relief: cutting the state income tax rate to 5 percent from 5.3 percent. ''This is a good first step," said Eric Fehrnstrom, Romney's spokesman, ''but reducing the income tax to 5 percent would have a much bigger impact on the economy."

State Senator Jack Hart, a South Boston Democrat, who championed the tax holiday, said it's the best the Legislature can do for now. ''I'm all for putting as much money as we can in consumer's pockets, but the state is still in no condition to cut the income tax," Hart said. ''Hopefully, this measure puts some more money in their pockets and jumpstarts the economy."

If the experiences of other states are any indication, Massachusetts stores are at least in for a big day.

From Connecticut to Texas, state officials and retailers say these summer tax holidays generate customer traffic approaching that of the Christmas season.

The Texas sales tax holiday on clothing under $100 has become so popular that many stores remain open throughout the 72-hour period. At the Tanger Outlet Center in San Marcos, between Austin and San Antonio, general manager Nancy Braun estimates customer traffic has grown 10 to 20 percent in each year since the holiday started in 1999.

As Texas shows, tax-free shopping seems to have an allure that extends far beyond the small savings, said J. Craig Shearman, a spokesman for the National Retail Federation, a Washington trade association. Most people, he noted, would laugh off a store sale promoting savings of 5 to 10 percent.

''Americans have hated paying taxes all the way back to the Boston Tea Party," Shearman said. ''Not having to pay sales tax has a tremendous psychological effect. It really draws customers into stores."

Still, while tax holidays produce big shopping days, economists say they have little sustained impact. For the most part, economists say, consumers merely shift their spending to tax-free periods, rather than increasing it.

A study of New York's 1997 tax holiday on clothing, for example, showed that sales surged more than 70 percent during the seven tax-free days, but over of three months they were only slightly higher than the same period the year before. The study, by the New York Department of Taxation and Finance, attributed the increase to normal economic growth.

Economists add that if policy makers really want to help the economy and consumers, a permanent sales tax cut would be far more effective than temporary holidays. One reason: The additional demand generated by tax incentives allows merchants to charge higher prices during holidays, reducing the benefits to consumers.

A Florida study, based on a survey of stores before, during, and after the state's 2001 tax holiday on clothing, estimated that consumers lost about 20 percent of intended tax relief because retailers did not mark down prices as aggressively as they otherwise would have.

Massachusetts retailers say that's not the case here. Sears and Circuit City stores, for example, say national sales are scheduled during Massachusetts tax holidays.

''Sales tax holidays are the ultimate political gimmick," said David Brunori, contributing editor to State Tax Notes, an Arlington, Va. trade publication. ''The consumer is no better off. It only changes when they shop, not how much they shop."

Despite their unpopularity with economists, tax holidays are nonetheless catching on with consumers, retailers, and political leaders. Since New York became the first state to adopt a sales tax holiday in 1997, 11 other states and Washington, D.C., have followed, typically holding them during the back-to-school season.

Analysts say the tax holidays are hard for political leaders to resist. Not only can Republicans claim to cut taxes, Democrats can say they are helping working families -- and it also doesn't cost very much. Saturday's tax holiday, for example, will cost Massachusetts only $6 million to $10 million in lost revenue. The state collected $3.75 billion in sales tax in the fiscal year that ended June 30.

Massachusetts' sales tax holiday is unusual among the states. First, the Massachusetts holiday is one day; most last at least three days. Second, while most states stick to a back-to-school theme, restricting the tax breaks to clothes, school supplies, and computers. Massachusetts is far more generous, exempting all items, up to $2,500, except cars, boats, meals, and utilities. On a $2,500 purchase, a consumer would save $125.

Massachusetts retailers are gearing up, particularly sellers of big ticket items. Circuit City Stores Inc. of Richmond, Va., says it will add hours, staff, and inventory to meet demand, which in other states, has been similar to the day after Thanksgiving. Sales staff for Canton's Tweeter Home Entertainment Group have been calling customers who have placed deposits on electronics, telling them they can save the sales tax if they pay off the balance on Saturday.

At Sears, in the Solomon Pond Mall in Marlborough, general manager Rick Sliney said he is boosting staff by about 20 percent on Saturday. Over the past several days, Sliney said, his sales staff has received about 100 inquires about the tax holiday, particularly by customers looking over major appliances, electronics, and lawn tractors.

Still, it appears many consumers are only beginning to learn of the tax holiday. In interviews on Boston Common, several people said they had not heard about the tax-free day and won't be making special shopping excursions for it. Even those who knew about it said they don't plan to hit the malls this weekend.

''Any purchase that would be worth the savings in sales tax would be a large-ticket item, and that savings is not going to factor into my buying decision," said Regina Caggiano of Woburn. ''Large-ticket items are not impulse buys. You determine if you need it, why you want it, how much you want to spend -- and then you go to New Hampshire to get it."

Globe correspondent Elise Castelli contributed to this report. Robert Gavin can be reached at rgavin@globe.com.

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