Retailers Banking On Early Sales-Tax Holiday to Boost Back-to-School Sales
by: Andrew Schneider, July 29, 2013 6:07:00 am
The front of Target’s Houston Central store on the edge of the Heights is bustling. There are plenty of mothers shopping with children in tow. A jumbled display area next to the cash registers stands crammed with notebooks, binders, and assorted paper goods. And hanging overhead, visible from one end of the store to the other, are dozens of giant pencil-shaped signs, advertising back-to-school sales.
Patrick Lopez is the manager on duty.
“You’re going to see popular items such as, like, pattern backpacks. We got some school-handy headphones, which have been ever popular. More technology based items, such as the USB sticks for the computers that students may need this year as compared to previous years.”
A walk back to the section where school items are on display reveals floor-to-ceiling shelves lined with backpacks in checkerboards, plaids, and zebra stripes. But there are no customers in sight.
Lopez expects sales to pick up the weekend of August 9. That’s when Texas’s sales tax holiday kicks in. The three-day holiday is a week earlier this year. State Senator Rodney Ellis, whose district covers much of Houston, wrote the bill moving the dates forward.
“The retailers asked us to change it, because I passed legislation to change the school starting date for some schools in Houston, which is the largest shopping market in the state.”
The combined state and local sales tax for Houston is 8.25%. Ellis says a break on that can make a big difference for low-income families. He puts the savings to Texas consumers since the state adopted its tax holiday in 1999 at about $700 million. And it’s no small benefit to retailers. Ed Wulfe is a commercial real estate developer, specializing in the Houston retail sector.
“The back-to-school holiday is probably second only to Black Friday, which occurs after Thanksgiving and kicks off the holiday season.”
Wulfe says, nationwide, retailers are estimating households will spend about $600 to $700 apiece on back-to-school merchandise. That’s down slightly from last year, when stores saw a huge jump in sales. In those circumstances, every little bit helps.
But not everyone buys the argument that tax holidays boost overall sales. Steven Craig teaches public sector economics at the University of Houston.
“You know the question is, ‘Does the sales tax holiday stimulate total sales, or does it just move sales from a couple of weeks one side or the other?’”
Then there’s the question of what counts as a back-to-school item. Texas shoppers will get a tax break on goods like clothing, footwear, and backpacks — but not on more expensive items, like computers.
“You’re really distorting your tax system. The whole purpose of the tax system is to raise money for the government but to have as small [an] impact on the economy as possible. Is there any reason that we want to help retailers of clothing more than retailers of electronics, just for example? No.”
The retailers that tend to benefit the most under this scenario are the ones that sell everything, like department and discount stores. Again, real estate developer Ed Wulfe.
“The stores have all kinds of promotions and sales on other merchandise. And the name of retailing is customer traffic. And if the customer traffic is in the stores, they’re going to buy, and they’re going to buy more than just the back-to-school merchandise.”
That’s certainly what stores like the Houston Central Target are counting on. They’ve now got another reason to hope. The University of Michigan just issued its index on consumer confidence for July. The index registered 85.1, its highest level in six years.
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