'Sales tax holiday' a hit with consumers - Brief Article

DSN Retailing Today, August 21, 2000 by Debbie Howell

DALLAS -- A phenomenon as liberating to consumers as credit cards and shopping carts is catching on in cities across America and making for odd shopping behavior. Customers, for example, have been seen lined 10 deep in the checkouts of a Wal-Mart Supercenter in Mesquite, Texas with kids in tow, just after midnight on a hot Friday morning.

The occasion was the Texas sales tax holiday for Back-to-School. One harried-looking Wal-Mart clerk said she'd never seen anything like it, comparing the crowds to the day after Thanksgiving. The same phenomenon was repeated at stores and malls throughout the weekend of Aug. 4 to 6, Texas' second annual sales tax holiday on Back-to-School clothing and shoes.

"It was just like holiday shopping. It was unbelievable. The parking lot was packed," said Rhonda Lewallen, director of marketing for Grapevine Mills Mall, located just north of Dallas.

The popularity of a sales tax holiday, initiated in New York three years ago, hasn't gone unnoticed in heartland America. Four new states--South Carolina, Connecticut, Iowa and Pennsylvania--joined Texas, Florida and New York this summer in offering some sort of Back-to-School tax break. While the primary goal has been to benefit taxpayers, retailers aren't complaining one bit.

"The weekend does provide a boost for us, as it does for most retailers," said Tim Lyons, a spokesman for Piano, Texas-based JCPenney. He estimated sales volume at Texas stores during the event were two to three times heavier than usual.

Like JCPenney, other retailers in Texas took full advantage of promoting the tax-free holiday. Special sections in the Dallas Morning News on the tax holiday were filled with retailer advertisements, even from chains that didn't offer merchandise covered as tax-exempt that weekend. Furniture retailer Infinity Leather, for example, promoted 8.25% off purchases during the holiday, comparable to the temporary sales tax break mandated by the state on clothing.

Mickey Moore, president of the Texas Retail Association, said retailers were better prepared this year, many of them hiring extra staff or extending hours to accommodate the crowds.

"Generally they felt it was very, very successful and in most cases better than last year," Moore said.

For Dallas-based teen apparel retailer Gadzooks, the Texas weekend was bigger than the day after Thanksgiving. "It was incredible," said chairman, president and ceo Jerry Szczepanski.

Although sales numbers showing the success of this year's Texas event weren't available, Moore said retailers surveyed following the 1999 sales tax holiday reported weekend sales increases ranging from 10% to 70% compared with the same time frame in 1998. The Texas Comptroller's Office estimated Texas families spend $400 million on tax-exempt clothing and shoes last year, saving more than $32 million in sales taxes. Savings for this year's event were projected at $37 million.

Talk of expanding the event has already begun, with state Sen. Rodney Ellis, D-Houston, pledging to introduce legislation to extend the holiday to 16 days and add school supplies to the list of tax-exempt items.

The popularity of these events has prompted both the International Mass Retail Association [IMRA] and the National Retail Federation to lobby in favor of more states enacting such tax breaks. Forty-five states currently have sales taxes, and those that don't offer a holiday may be losing sales revenue when shoppers cross state borders to take advantage of such events.

"We find more and more states are looking to enact a sales tax holiday. Over 20 states considered it this year," said Michael Hackmer, manager of state government affairs for IMRA. "Most mass retailers favor sales tax holidays because it increases the number of shoppers in their stores."

In New York, the sales tax break held for one week in both January and September since 1997 became so successful with taxpayers that the state Legislature created a permanent state tax exemption this year on clothing and footwear costing up to $110 per item. Ted Potrikus, vice president of the Retail Council of New York State, said this program is estimated to cost the state $300 million to $400 million annually in lost sales tax revenue.

"It can be expensive [to the state}. On the other side, there are arguments that if you get rid of the sales tax, more people will shop," Potrikus said.

Florida hasn't gone quite so far, but the state has expanded its holiday to nine days to cover two weekends and has added items beyond apparel, such as backpacks and ski suits. John Rogers, a lobbyist for the Florida Retail Federation, said the state's third annual event that concluded Aug. 6 continues to attract record crowds.

"It is very, very popular," Rogers said. "It was done as a tax relief for families, not as a boon to retailers. But now it has had the parallel benefit of being just that."

Pennsylvania, which took a different approach in offering a sales tax break on personal computer purchases earlier this month, reported several retailers running out of stock on POs. South Carolina, with one of the broadest rules extending tax exemptions with no monetary limits to clothing, footwear, accessories, school supplies, computers and software during a three-day period, reported similar runs on higher-priced goods such as computers.