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Back-To-School Shoppers: Hunting For Tax Breaks And Bargains

Aug 15, 2014
Originally published on August 15, 2014 7:27 am

For millions of Americans, August is a month for relaxing and basking in the summer sunlight.

Those are the people without children.

The households with students are likely to be scurrying around under the bright florescent lights of big-box stores, searching for back-to-school bargains on clothes, shoes, notebooks, backpacks, computers and dorm furniture.

And many shoppers are timing their purchases to take advantage of sales-tax holidays for school-related items, hoping to keep a bit more in their wallets.

"They love it," National Retail Federation spokesman Craig Shearman said of the tax breaks. "There's a psychological impact that goes far beyond the amount of money involved."

The National Retail Federation predicts families with K-12 students will spend an average of $670 on classroom supplies and school-age apparel this season. That's about 5 percent more than in 2013's July-through-September retail season.

But forecasting is a tricky business because the U.S. economy remains so uneven, giving off conflicting signals. These are some reasons why sales may turn out to be stronger than expected:

-- Hiring is heading up, so more parents are getting paychecks. The Labor Department's latest data show job openings rose in June to the highest level in more than 13 years.

-- Gasoline prices have been easing. An average gallon costs around $3.46 now, compared with $3.60 a month ago. Every penny saved at the pump can help pay for notebooks and crayons.

-- Consumers are feeling fairly good. Only 1 out of 5 parents of school-age children says the economy is worse than last year, according to a poll conducted by Google Consumer Surveys.

-- Merchants are offering very deep discounts on certain items, which should help motivate shoppers to get out of the house and spend. Those "door-buster" type sales include everything from $4 T-shirts at Old Navy to $99 dorm-friendly futons at Wal-Mart.

But many analysts see reasons for lowered expectations, including these:

— Consumer confidence is fairly good for now, but may start to erode because of bad news coming from the Middle East, Africa and Russia. "Caution is the word because the market is very unsettled right now," says Ron Friedman, a retail consultant with Marcum Group. "Folks are nervous about everything."

— Wages are still getting squeezed. Hourly earnings are up just 2 percent this year, a little below the annual inflation rate, which means buying power has shriveled a bit. The retail trade group says the pay squeeze has more than one-third of back-to-school shoppers looking for store or generic brands. "We know Americans are still grappling with their purchase decisions every day," NRF chief executive Matthew Shay said in a statement.

Given that many shoppers still face stiff economic headwinds, retailers in 17 states push their lawmakers to continue offering sales tax holidays. Typically, the tax breaks cover a broad array of school-related items, from shoes to crayons, and last from a weekend to a full week. Retailers say they are popular with shoppers who appreciate the tax relief.

But in the past couple of years, a few states have dropped the holidays to help keep state coffers full. For example, North Carolina ended its back-to-school tax break this year as part of an overall tax reform program.

Republican state Rep. John Szoka, one of the bill's sponsors, said taxpayers were, in effect, subsidizing retailers' advertising. He says retailers in his hometown of Fayetteville are offering big discounts to attract shoppers, so they don't need help from the state.

"Sales-tax incentive on top of a sale like that isn't going to spur someone to go and buy something," Szoka said.

The Tax Foundation, a nonpartisan research group, says the tax holidays don't make a difference for total sales, but only shift which weekend customers might shop. "Consumers are buying what they would have bought anyway, but just doing it at a different time," said Liz Malm, an economist with the foundation.

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Retailers have good reason to be optimistic about back-to-school shopping, thanks to a stronger job market and lower gas prices. But brick-and-mortar stores in many states say they still need an annual sales tax holiday to lure shoppers getting ready for fall classes. Kaomi Goetz of our member station, WSHU, reports.

KAOMI GOETZ, BYLINE: Marcella Ryan and her 8-year-old daughter, Megan, are at a Gymboree kid's clothing store in Stamford, Connecticut. They're looking at a black and white dress.

MARCELLA RYAN: Would you wear this for school?

MEGAN RYAN: Probably.

GOETZ: The mother presses her soon-to-be third grader for a little more feedback.

RYAN: What do you like about it?

RYAN: I like that it has, like, the zipper in the back.

RYAN: OK. Do - you can wear this. This is not too short, right?

RYAN: I don't think so.

RYAN: OK.

GOETZ: The Ryan family is visiting from Virginia. The week before, they also shopped during their own state's back-to-school sales tax holiday. Like Connecticut, Virginia is 1 of 17 states that have an annual tax-free shopping event before the start of school. Each state had its own rules and tax rates. The holidays can last one weekend to a full week, with some starting in late July and others holding off until September. Shopper Marcella Ryan says she's a fan even if stores are more crowded.

RYAN: I think tax holidays are a good idea because you're saving at the end of the day. And you're able to buy more.

GOETZ: Back-to-school shopping is a $26 billion a year business nationwide. This year, the National Retail Federation says families will spend an average of $670. That's up 5 percent over last year.

Craig Shearman is with the NRF. He says with sales tax rates at 5 to 10 percent, a temporary break doesn't compare to a typical store promotion of 20 or 30 percent off. But it's still effective because customers appreciate the help.

CRAIG SHEARMAN: They love it. There's a psychological impact that goes far beyond the amount of money involved.

GOETZ: And brick-and-mortar stores say having a tax-free holiday helps them better compete with online retailers, many of whom don't have to collect state taxes. But a lot of economists are skeptical. Liz Malm with The Tax Foundation, a research group, says the tax holidays don't make a difference.

LIZ MALM: Many studies find that consumers are buying what they would have bought anyway but just doing it at a different time.

GOETZ: The first sales tax holidays began in the 1980s. Malm says they've stuck around because they're politically popular but support may be eroding. North Carolina ended its back-to-school sales tax holiday this year as part of an overall tax reform. Republican state representative John Szoka was one of the bill's sponsors. He says for a dozen years, taxpayers were basically subsidizing retailers advertising. This is the first year without the holiday. He says retailers in his town of Fayetteville are still offering huge discounts.

REPRESENTATIVE JOHN SZOKA: You know, a sales tax incentive on top of the sales like that isn't really going to urge somebody to go buy something.

GOETZ: Instead, Szoka says lawmakers were able to use that $13 million to reduce other taxes. Holiday supporters say the repeal just sends shoppers across the state line to South Carolina during that state's holiday.

HERLEN LUCIEN: That's cute. I need a whole outfit.

UNIDENTIFIED WOMAN #1: Then get the pants if you don't like...

LUCIEN: But you know I'm not - I'm not paying full price though.

GOETZ: Back in the shopping mall in Connecticut, Herlen Lucien is school shopping for her daughter who's about to start kindergarten.

LUCIEN: I usually come right here to these two racks that says 60 percent off.

GOETZ: Lucien says she doesn't give her state's tax-free holiday much thought. She saves money by buying off-season throughout the year.

LUCIEN: For people that, like, wait to the last minute, I think it might be helpful for them. But I don't wait until the last minute.

GOETZ: Connecticut's tax-free holiday is among the most generous. The state forgoes taxes on clothes and shoes priced up to $300. Lucien says that might convince her to buy a more expensive item, like a pair of sneakers or boots. For NPR News, I'm Kaomi Goetz. Transcript provided by NPR, Copyright NPR.