Retailers, consumers bank on tax holiday
Back-to-school shopping break may be expanded, has its critics
Ana Medrado made an after-work Walmart run with her young son, a quick stop for the pens and pencils topping a lengthy school supplies list.
Her soon-to-be fourth-grader clung to the cart as she scanned the aisles at a Tomball store, memorizing prices. She calculated he also would need new shoes and button-downs for his uniform and planned to save more expensive purchases for the statewide sales tax holiday next month.
”I’m just comparing prices now,” she said. “I might check Target, too.”
Medrado is among thousands of Texas shoppers who expect to take advantage of the three-day sales tax holiday, an annual reprieve from the extra charge levied on clothing items, shoes and school supplies purchased in stores and online Aug. 11-13.
The holiday is one of the most inclusive in the country, and lawmakers have bucked a nationwide trend by proposing
to expand it further even as other states scale back or eliminate similar exemptions.
Sales tax holidays, long supported by shoppers and retailers, have become somewhat controversial in recent years as states debate whether their economic benefits justify substantial revenue losses.
A study released last week by the Washington, D.C.-based Tax Foundation, an independent think tank, criticized them as “political gimmicks” that shift shopping patterns without generating economic growth or increasing consumer purchases.
The study noted that 16 states will offer sales tax holidays this year, down from 19 in 2010. Only six other states have holidays centered on school supplies.
Three holidays each year
In Texas, the back-to-school break is the largest of three sales tax holidays offered each year. The state exempts hurricane supplies in mid-April and certain energy-efficient appliances in late May.
The upcoming holiday, expected to save shoppers $87 million in state and local taxes, generates the most excitement. In addition to school supplies, most clothing and footwear items cheaper than $100 are exempted, giving adults the chance to save a few dollars on purchases for themselves as well as for their kids.
Legislators have long pointed to the holiday as a boon for consumers. State Rep. Dwayne Bohac, R-Houston, led a move to amend it in 2009 to include school supplies in addition to apparel, anticipating the additions would save shoppers $9.5 million that year.
He again sought to expand it last session with a bill that proposed raising the price limit to $200 per qualifying item and adding certain computers of any price to the list of exempted goods. The legislation stalled, but he plans to introduce a similar measure next session.
“Things that fill the backpack in the 21st century are things like a computer or a tablet or an iPad,” he said.
In Houston, pricey additions to back-to-school lists have inflated the cost of supplies. A recent Deloitte survey estimated that local shoppers will spend an average of $623 on classroom items, clothes, electronics and computers this season. That is higher than the national average.
The same survey found that 47 of respondents would increase in-store spending during a sales tax holiday. Forty-two percent would do the same online.
“The timing of the shopping does seem to correspond with the tax-free weekend,” said Jeff Buhr, retail partner in Deloitte’s Houston office.
Retailers have long promoted sales tax holidays as shopping incentives that save consumers money and boost sales. The prospect for heavier foot traffic has become especially appealing to many stores as rising ecommerce sales squeeze profit margins.
Back-to-school mainstays have been particularly supportive of such tax reprieves. Troy Rice, president of retail for Office Depot and OfficeMax, said in-store sales and traffic increase during tax-free holidays in the states that offer them.
“I can tell you tax-free holidays are an integral component of our back-to-school season and something customers look forward to every year,” he said.
The Texas Retailers Association has supported an expansion of the state’s back-to-school holiday, arguing that consumers could stand to save even more as electronics and computers become classroom necessities.
Already, the holiday is one of the busiest shopping periods for retailers statewide, said George Kelemen, the association’s president and CEO.
“It’s going to be a peak threeday period,” he said.
Comes with a cost
The Tax Foundation study, however, questioned the degree to which such periods benefit shoppers. It cited a 2001 study that showed some Florida apparel retailers raised prices during sales tax holidays, capturing as much as 20 percent of the benefit meant for consumers.
It also noted that with such holidays come steep costs to state coffers, prompting some lawmakers to eliminate them in recent years. North Carolina, for example, held its last one in 2013 after passing legislation arguing that such breaks cost the state more than $16 million a year. Massachusetts canceled a similar break last year.
Not all shoppers consider the potential savings worth the effort it takes to fight the crowds during the brief holiday.
Laura Solomon, who just started her school shopping for her three children, said she’d rather pay tax on everything than get stuck in long lines during the tax-free weekend.
“There are too many people,” she said. “I can’t do it.”
Montceny Lamas stopped at the Tomball Walmart for school supplies last week, checking off lists for three girls in high school, middle school and elementary school. She bought their backto-school clothes last year during the sales tax holiday and might do the same this year if she finds the time to shop that weekend.
“I don’t know if it was that much savings,” she said, “but it helped.”