Sales tax holidays mean win/win/win for retailers, shoppers and states

2 Comments | This entry was posted in Public Policy, Retail Trends

Dating back to the Boston Tea Party, there’s just something about taxes that really irks the American public. While nearly all types of tax relief are a big hit with most of us, the current climate of budget shortfalls at both the state and federal level mean that relief is not in abundance in 2010. However, there may be a glimmer of hope in sight with the upcoming Back-to-School season in the form of state sales tax holidays.

Here are a few reasons why sales tax holidays represent a big check in the “win” column for shoppers, retailers and the states that implement them.

Since 1997, a number of individual states (New York was the first) have offered sales tax holidays each year to help soften the blow of back-to-school expenses on families. NRF’s recently released Back-to-School survey found that the average family will spend $606.40 on back-to-school merchandise in 2010 – meaning a sales tax holiday in a state with a 5 percent tax rate would save the average family $30.32. (Granted, this assumes all items purchased were tax-free, when in actuality the list of items exempted from tax varies from state to state.) While those savings may seem small, a few extra dollars saved here and there is crucial for families trying to stick to a budget in the current economy.

But consumers aren’t the only winners when it comes to the tax-free days. First off, retailers win because they sell more. NRF members report that stores in states with sales tax holidays see significant increases in traffic and sales during these periods. Retailers also report that increased sales are especially significant in the first year or two that a sales tax holiday is held. While it is true that some of these sales are just shifted from other weekends when people would shop, the importance to retailers is that the traffic in the stores results in many additional sales that would not otherwise be made.

States win, too. Shoppers that are attracted to sales tax holidays generally make additional purchases of items that are not eligible for the tax holiday, raising additional sales taxes for the state and additional income taxes for the state. So far in 2010, 16 states have announced sales tax holidays for back to school, the first of which begins this week. These tax-free holidays usually include a list of non-taxed items which range from clothing and footwear to school supplies, books and even computers and sports equipment. Politicians know that saving constituents money is always popular – and the limited-time offer means the impact to state treasuries remains minimal. In many cases, residents of bordering states without a sales tax holiday will cross the state line to do their spending, shifting state sales and income tax revenue from the state without the holiday to the state with the holiday.

Many state governments have recognized the sales uptick and are getting creative with the incentives they offer. Some offer sales tax holidays at other times of the year for energy-saving appliances, hurricane preparedness items, or even – in the case of Louisiana – hunting-related supplies during what’s called the “Annual Louisiana Second Amendment Weekend Sales Tax Holiday.”

Regardless of the type of sales tax holiday put into practice, the positives that this action brings about – increased spending, saving budget-focused customers a few extra bucks, and the perception that state governments are being benevolent – should put this movement at the top of the radar for retailers, shoppers and states alike.

Posted in: Public Policy | Retail Trends and tagged , ,
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  1. [...] taxes clothing or other purchases? Then you’ll want to note which dates and states offer tax-free shopping holidays. (This was a topic I wrote about in my Good Housekeeping story.) With tax-free holidays right [...]

  2. [...] of course, are all for anything that cuts prices without picking their pockets, as this recent blog post from the National Retail Federation indicates. Greater Killeen Chamber of [...]

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