Do Tax-Free Holidays Really Boost Retail Sales?

Parents and other back-to-school shoppers in 17 states were provided the incentive over the past few weeks of the return of the tax-free holiday — a weekend or full week when the sales tax is waived to make back-to-school shopping more affordable for customers stocking up on new clothing, electronics and supplies. (Two states that participated in this year’s holiday, Mississippi and Rhode Island, tie for the second-highest statewide sales tax rate at 7 percent.)

For retailers, the tax-free weekend is an opportunity to interact with habitual customers, attract new business and ultimately drive sales.

According to the National Retail Federation, total spending for K to grade 12 schools and college had been projected to reach $82.8 billion this year. Families with children in elementary through high school intended to spend an average of $685, while those with young adults heading into college — as well as students purchasing for themselves — planned to shell out $942.

“With the economy thriving, thanks to tax reform and growing consumer confidence, we expect to see a very strong season,” CEO and president Matthew Shay said in a statement. “College spending is expected to be at its highest level ever, and back-to-school will be one of the three highest years on record. Whether shoppers buy now or wait until the last minute, retailers are ready with everything they need for a successful start of the school year.”

But when it comes down to the numbers, does the tax-free holiday really boost retail sales?

According to industry experts, there should be a sales nudge — albeit a slight one.

“It’s going to have a more localized effect, but it will definitely draw consumers in and inspire a small lift in sales,” said Beth Goldstein, executive director and industry analyst at The NPD Group Inc. “It likely does drive some incremental purchases.”

Specific to product, Goldstein pointed out that sneakers will bring about big business, with apparel and accessories among the industries to benefit the most. The NRF forecasted that department stores would be the top destination for back-to-school shoppers, while college-focused consumers were expected to patronize online retailers.

“As retailers are trying to make their stores more exciting and experiential, they could get more natural traffic [during the tax-free holiday] than they would otherwise,” Goldstein told FN. “They can convince customers to come back and come often.”

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

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