Back-to-school underscores tax-free dilemma - State-mandated marketing initiatives

DSN Retailing Today, August 26, 2002 by Mike Troy

Not everyone agrees with those figures. Rick McAllister, president of the Florida Retail Federation, contends, "It doesn't cost the state of Florida anything. People don't just buy items that are tax-free. [Retailers] can run an ad offering 25% off and it doesn't generate the sales that a tax-free holiday does and the discount is only 7%."

Despite that assertion, McAllister said the Florida Legislature and the Department of Revenue have not done a thorough study to determine the impact on sales.

Even if conclusive evidence were produced showing a favorable sales impact, the debate continues to center on whether such programs are tax policy at a time when tax simplification initiatives are being pursued. Chuck Courtney, president of the Texas Retailers Association, addressed that topic at the National Retail Federation's recent State and National Retail Executives Conference.

Courtney appeared on a panel with a May Department Stores executive to discuss a proposal called the Simplified Sales Tax Implementing States (SSTIS). It is something retailers will be hearing more about because it addresses simplification of the sales tax code so that out-of-state-sellers, such as online retailers and catalogers, will be required to collect sales taxes. As part of the SSTIS, states are looking at ways to simplify tax-free holidays and clarify definitions.

"It would be beneficial to the retail community because they will have standard definitions for such things as what is food and what isn't and what constitutes a layaway," Courtney said.

He added that defining food isn't that simple and cited Texas' "five-donut" rule.

"If you sell five doughnuts at one time it is taxable because someone could conceivably eat five doughnuts at one time and it would, therefore, be immediate consumption. If you sell more than five doughnuts, the assumption is the person is taking them home."

According to Courtney, states are as interested as retailers in achieving standardization of tax-free holidays. That may be the case, but getting 50 states to agree on a simplified sales tax code and standards for tax-free holidays is a monumental and time-consuming undertaking that ensures retailers in many states will continue to face the challenge of operating stores during the frenzied periods.

RELATED ARTICLE: Auchan expansion unlikely in U.S.

HOUSTON--Roughly 15 years ago, the buzz in the retail industry was the arrival of European-style hypermarkets on U.S. shores. Supervalu was involved in opening a Bigg's Hypermarket in Cincinnati. Wal-Mart opened its Hypermarket USA stores in 1987, followed by Kmart with its American Fare concept and French retailer Carrefour. A year later, another French retailer, Auchan, opened its first U.S. store in Houston.

Although the furor over hypermarkets has long since subsided with the departure of Carrefour and the evolution of the hypermarket into the slightly smaller supercenter concept, Auchan has continued to operate quietly in the Houston market.

After opening a 240,000-square-foot store in 1988 and a second unit in Chicago in 1989, the company waited 11 years before it opened a third store, in Houston, in 2000. The stores draw heavy customer traffic, according to the company, with about 50,000 customer visits each week, and they are set up to handle volume with 60 checkouts. So why hasn't the company opened more stores in the United States?