Tax-Free Holidays Create a Lot of Hype for Back-to-School — But Do They Spur Sales?

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More than a dozen states are gearing up for the tax-free holiday — a period ahead of the back-to-school season when the sales tax is waived on certain consumer goods to make shopping more affordable for students and their families. (The tax-free period may be a weekend or full week and falls on different dates throughout late July and August, depending on the state.)

As Americans prepare to stock up on new clothing, shoes and school supplies, retailers are offering promotions in an effort to bring regular customers back to stores and potentially attract new business.

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“Consumers are in a strong position given the nation’s growing economy, and we see this reflected in what they say they will spend on back-to-class items this year,” National Retail Federation president and CEO Matthew Shay said in a statement. “We’re expecting record spending and retailers are ready to provide students with all the items they need for a successful school year.”

According to the NRF, total spending for K to grade 12 schools and college is projected to reach $80.7 billion this year. Although customers might welcome the opportunity to do their shopping sans sales tax, a number of retail experts argue that the holiday doesn’t necessarily translate into a boost in revenues for businesses.

“For the most part, tax-free holidays impact the timing of the spend, not the amount,” said Beth Goldstein, executive director and industry analyst at The NPD Group. “Yes, there is likely some additional impulse shopping that goes on because consumers think they are getting a deal, but this isn’t incremental enough to cause a material increase in sales.”

Majority of back-to-school shopping, reported the NRF, will be done at department stores, discount stores and online, with K-12 and college shoppers planning to take advantage of free shipping.

Amid turbulent times for retail, department stores could certainly use the foot traffic, explained Goldstein, but the tax-free weekend itself might contribute only little to their sales during the season.

“It’s a ploy to drive traffic, and it used to work more so in the past around tax refund time to garner those extra dollars from consumers,” added Farla Efros, president of consulting firm HRC Retail Advisory. “But today consumers have so many discounts and deals that they have the power of decision.”

(State participants in this year’s tax holiday include Alabama, Arkansas, Connecticut, Florida, Iowa, Maryland, Massachusetts, Mississippi, Missouri, New Mexico, Ohio, Oklahoma, South Carolina, Tennessee, Texas and Virginia.)

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