With most schools across the U.S. now back in session, many back-to-school shopping lists have likely been completed. Only 7 percent of consumers who completed a recent JLL survey said they would wait until school started to do their shopping. The number of procrastinators is down from last year, when 11 percent planned to wait until after the first bell rang. For older children, the motivation to get out early and shop may be due to the fact that they see back-to-school shopping as a fresh start.
But for parents of younger children and teens alike, there is likely a larger motivating factor – saving money.
While sales tax holidays (or designated periods of time where states do not assess their sales tax on certain items) date back to 1980 when Michigan and Ohio offered a tax holiday on automobile purchases, the modern trend was really set in motion by New York in 1997. At the time, New York, a state with a historically high sales tax, was looking to curtail cross-border shopping – a trend where consumers would travel to neighboring states with lower sales taxes to make the bulk of their back-to-school purchases. In 2005, Massachusetts enacted a very advantageous holiday on all goods up to $2,500 to deter residents from traveling to neighboring New Hampshire (which has no state sales tax) to do their shopping.
This year, 17 states held a tax-free holiday during the back-to-school shopping season, down from 19 a year ago – which begs the question: Do they work? Well, as with many things in life, the answer depends on what side of the aisle (shopping pun, sorry) you’re on. There is little question that these holidays are motivating factors for people to go out and shop. In Texas alone, consumers saved an estimated $92 million in state and local taxes over the three-day holiday (August 5-7 ), which means shoppers would have spent more than $1 billion in just a single weekend. That’s a major shot in the arm for local retailers as they enter the gauntlet that is the all-important holiday shopping season.
Others are more skeptical of these programs. According to a report issued by the Tax Foundation, “Sales tax holidays do not promote economic growth or significantly increase consumer purchases; the evidence shows that they simply shift the timing of purchases.” The report cites a 1997 study by the New York Department of Taxation and Finance (the first year they held the holiday) as well as anecdotal evidence from other states that supports this conclusion. This year, Massachusetts cut its sales tax holiday to the chagrin of local retailers.
The back-to-school season is big business for retailers, with total spending anticipated to reach $75 billion this year, according to the National Retail Federation. The lure of which is enough for proponents of sales tax holidays to continue to tout their necessity.
Whether spending is shifted to a single weekend or there are actual incremental sales occurring because of sales tax holidays is still likely inconclusive. However, from what we know about shopping habits, the likelihood that retailers are capturing additional impulse buys from consumers that have been driven to stores by these holidays is pretty high. For states that can afford the lost revenue, it seems to be a boon to local business and individual consumers alike – but as states continue to be more cash strapped the question is: Will be able to take the hit on behalf of their tax base? The Tax Foundation report notes that, “Despite their political popularity, sales tax holidays are based on poor tax policy and distract policymakers and taxpayers from real, permanent, and economically beneficial tax reform.” What this really brings to light is the need for comprehensive tax reform when it comes to e-fairness legislation. A University of Tennessee study conducted in 2012 found that states lost more than $23 billion dollars in uncollected, but due, taxes from sales at online-only retailers. So if states were better able to collect those taxes (through federal legislation), they would likely find it much easier to continue to provide tax free weekends during key shopping periods like back to school.
Holly Rome is director of National Retail Leasing for JLL, a professional real estate services and investment management firm.
More on Journey
Coca-ColaBeverages to the (Taste) Test: Employees Help Fuel Coke’s Pipeline of New Drinks
Coca-ColaBrews Up Big Plans for U.S. Ready-to-Drink Coffee Category
- Coca-Cola President James Quincey: 'We’re Reshaping Our Portfolio and System to Build Our Business for the Future’
- Video: Taking HIV/AIDS Medicines and More the ‘Last Mile’ in Africa
- 7 Reasons Why Coke’s Business in North America is Growing