Tax Free weekends

Hugh Hewitt reports that Massachusetts suspended sales taxes over the weekend and saw the biggest shopping day so far, which prompts him to write:

There are many lessons in this bit of news. The first is, obviously, that people respond to pricing, and do so instantly. The second is that sales taxes are particularly of interest to consumers, and that governments would be well served to think supply-side with regards to sales tax levels.

While people do respond to pricing, as one retailer notes people respond to the idea of "screwing the government" more so. And after while, this thrill would probably wear off, leaving a net effect of less revenue for the state and more revenue for business.

"I can't believe that if I offer a 5 percent or 15 percent discount on this stuff, I have a hard time selling, and that people are eating up this discount," said Gary Hillman, manager of Rosetta Stone, a kiosk that sells language tapes in the mall. He said sales of his tapes were up 75 percent.

But that's not the issue I have. I'm left wondering, if the state cuts sales tax, where are they left to make their money? If production doesn't occur in the state and their is no taxes made on the production, where is Massachusetts making money on, for example, sales of iPods?

I ask this as a serious question, and I hope a econominded blogger can come by and straighten this out. While personal spending would see a momentary boost (no doubt from people refinancing their houses), where would state governments see a big increase in revenue?