16 states waive sales tax to boost back-to-school spending

It's been a slow start to the year for retailers, but the back-to-school season offers new promise and some states are organizing tax-free weekends to get shoppers into stores.

Sixteen states have opted to drop sales tax on various items, including school supplies, computers, books and clothing. Alabama, Arkansas, Florida, Georgia, Iowa, Louisiana, Missouri, New Mexico, Oklahoma, South Carolina, Tennessee and Virginia will all drop the tax on supplies useful for students this weekend. Texas, Maryland and Connecticut will drop their sales tax on select items throughout August, while Mississippi kicked things off the weekend of July 25.

But with many people shopping early or waiting to make purchases this year, will tax-free weekends actually move the needle for retailers? Forbes' Walter Loeb thinks so.

"I think that the poor economic climate and consumers' worries make these tax-free days very important," he wrote. "I believe there will be more excitement than last year with a greater value offering by stores, which I predict will strengthen customer demand. Shoppers will take advantage of the discount this represents and make purchases for themselves and their children."

The tax holidays are aimed at getting reluctant shoppers to open their wallets and take advantage of the tax savings, and some areas could even benefit from out-of-state shoppers. South Carolina in particular is looking forward to customers crossing state lines after North Carolina discontinued its tax-free holiday this year.

However, not everyone is convinced that tax holidays are the key to stimulating consumer activity. Critics suggest dropping the sales tax doesn't generate the type of spending alleged by proponents of the initiative, instead causing shoppers to simply shift the purchases they would have already made from one time of year to another and robbing states of tax revenue. The National Retail Federation, however, remains a staunch supporter.

"Our members that track these find they drive traffic into the stores," Rachelle Bernstein of the NRF told The Washington Post during last year's back-to-school season. "When you're driving traffic into the stores, you're increasing sales not just on items that are subject to the sales tax holiday but on items that aren't subject to the sales tax holiday. Based on our tracking, retailers are able to find that there are greater sales occurring than otherwise would, and they're sales that are occurring on items that might be exempt from the holidays, so the state might be picking up revenues from that."

After a tepid first half of the year in which retail sales increased just 2.9 percent, the NRF predicted 3.9 percent growth in consumer spending for the second half of the year. The good news for retailers is that back-to-school spending is expected to be up 5 percent over last season, according to an NRF survey.

"Throughout the history of this survey, spending has fluctuated based on family needs each year, and this summer, we expect parents to continue to use caution, but also make smart decisions for their family budget that is a good balance between what their children 'want' and what they actually need," NRF President and CEO Matthew Shay said in a statement.    

For more:
-See this Forbes story
-See this Greenville Online story
-See this NRF release
-See this Washington Post story

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