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Tax holidays pay off at malls in eight states

By Dave Bodamer

Programs designed as tax-relief for consumers are proving to be quite a boon for shopping centers as well.

Eight states implemented tax-free shopping holidays this year, and the results for the most part have been overwhelming, with many centers recording sales at least 70% better than in the same period last year.

For some malls, the response has even rivaled that of the Christmas shopping season. Even though consumers are saving just 5% to 10% on certain merchandise, the concept of no sales tax has proved appealing, and shoppers have been willing to spend, even if it means traveling to another state.

The weekends have been particularly lucrative for centers near the borders with other states, as they’ve been able to draw large numbers of shoppers from states that do not have such holidays. Meanwhile, participating states have not been hesitant about sacrificing a few million dollars from their state coffers to provide the tax relief needed to fund these events.

South Carolina’s sales-tax holiday took place the first weekend in August, and the results were seen by retailers as positive.

“Some centers did better that weekend than they did Thanksgiving weekend the year before,” said Jim Hatchell, president of the South Carolina Retailers Association. “Malls throughout the state were up about 85% over the same weekend last year. Stores that sold nonexempt items were even up more than 30% from last year. Plus, we didn’t see any lag for the weekend before or the weekend after when comparing with last year’s numbers.”

The eight states — Texas, New York, South Carolina, Florida, Connecticut, Pennsylvania, Maryland and Iowa — had different reasons for implementing the plans, which all ran more or less to coincide with back-to-school sales this year. Three states ran the program in 1999 as well. For some the program was billed chiefly as tax relief. In New York, it was meant as a way to keep retailers from locating in neighboring states that have lower sales taxes. In others the idea was to make it easier for middle-class and poor families to afford school supplies for their children.

“We’ve had a surplus here for six years running,” Hatchell said. “The fiscal impact is not as big as in a state where you have a balanced budget or a deficit. The governor said, ‘We have revenue from the people, so let’s give it back.’”

Each state has slightly different rules, but the plans generally work like this: For a few days or a few weeks a year, the states — and often local governments — stop charging sales tax on certain items such as clothes and shoes. In some states the exemption has been extended to cover school supplies and computers. The exemptions are only applicable on individual (not corporate) purchases.

The results have been high traffic and high sales, even at stores that do not sell merchandise subject to the tax exemption. In fact, the increased sales at those merchants helps offset the sales tax revenues lost, which are relatively minor compared with a state’s total budget. For example, in South Carolina it is estimated that the tax holiday cost the state about $4.5 million in revenue on $90 million in sales, less than 1% of its $6 billion operating budget.

“But if you consider the increases in sales for items not exempt and the increase in payroll for the extra hours that weekend, it was close to revenue-neutral for the state,” Hatchell said. “It’s not like the state is losing 5% of its revenue for the year or anything like that.”

In Texas, this year’s final numbers are not yet known, but in 1999 consumers saved $32.6 million in taxes on $400 million in purchases, again less than 1% of the state’s yearly budget. Texas retailers believe that this year was at least that successful, if not slightly more so.

“We wondered if the novelty would wear off. It didn’t,” said Diane Betts, marketing manager of North Star Mall in Dallas. “It certainly met expectations, and it hasn’t lost its luster.”

TeleCheck Services, which tracks retail sales, estimate that Texas retailers boosted their same-store sales by 4.8% compared with the same weekend last year.

Retailers clearly benefit from the practice and have lobbied to get the days enacted, but that is not the reason legislators are pushing for the holidays. The holidays also are not a partisan issue. Democrats and Republicans alike have lobbied to create them, and both parties have generally supported the legislation enacting the days.

“Here it was billed as a tax break to families,” said John Rogers, senior lobbyist for the Florida Retail Federation. “It was primarily pushed by the speaker of the house and a state senator. They really made it happen across party lines.”

Another factor is that shopping centers closer to state borders tend to do extremely well because shoppers will cross state lines during the holidays.

“Some of our members told us that in 1999 their sales were up 70% to 80% over the prior year,” said Michael Moore, president of the Texas Retailers Association. “It was like Christmas without the gift wrapping.”

Moore’s sentiments were echoed by retailers and shopping center owners in just about every state that ran the programs.

The one state that seems to have benefited the least from the program is Connecticut. Its program is less comprehensive than neighboring New York’s, and the state did not see the same kind of sales increase. Connecticut’s program covered all apparel and footwear that cost less than $300 while the year-round exemption threshold was raised from $50 to $75. However, New York’s program covered all footwear and clothing costing less than $500, and a year-round threshold of $110 per article was instituted after March 2000.

“I appreciate the fact that Connecticut realizes the change in situation in New York was going to affect our business, but the tax-abatement week really was not terribly successful because people could only save on back-to-school items,” Stamford Town Center General Manager Al Messer said. “Most adults don’t shop for themselves during the back-to-school shopping season. So it’s not the ideal time to offer incentives.”

However, Connecticut seems to be the exception. In the other seven states, not only have the events been successful, but legislators are already looking at ways to add second holidays, extend the current periods or make the holidays permanent. (Most states only approved the holidays as a pilot program). The most common request is to extend the period to at least nine consecutive days so that the holiday catches two weekends, giving consumers a larger window of opportunity and helping to relieve the congestion in the shopping centers that occurs during the shorter programs.

Connecticut’s difficulties underscore another issue: It puts pressures on bordering states to implement them as well, or risk losing sales. For example, Oklahoma state Rep. Danny Hilliard said he believes his state needs a tax holiday because of Texas’ program. Hilliard sponsored a bill last year that would have given shoppers a three-day sales-tax break during the first weekend in August. The bill was passed by both chambers but eventually died in conference.

Scott Mitchell, executive vice president of the Oklahoma Retail Merchants Association, said the weekend was horrible for Oklahoma stores because residents crossed into Texas. Even if Oklahoma retailers held big sales, Mitchell said, people still drove to Texas because of the allure of the holiday.

“There’s just a thrill and a kick to going down there and not having to pay sales tax, not having to pay the government,” Mitchell said.

Shopping centers and the states themselves promote the weekends. In South Carolina the Assembly approved the holiday in June, just two months before it was to take place. The governor did a series of press conferences at shopping centers leading up to the event and then made the first purchase at 12:01 a.m. the Friday the holiday started. Many stores and centers were open at midnight to celebrate the event. The holiday occurred during the first weekend in August, and by noon on Saturday a number of stores had already met their whole month projections.

All eight states have plans to run the tax-exempt holidays again next year with some adding second weeks in other parts of the year or extending the current periods. Meanwhile, other states are intending to join the ranks next year.

SALES TAX HOLIDAYS CURRENTLY IN PLACE

New York (enacted 1999)
Two seven-day periods, Sept. 1-7, 1999 and Jan. 15-21, 2000.
Qualified clothing and footwear items less than $500.
Local taxes not permitted during holiday.
Permanent clothing and footwear exemption from state-level sales tax for items costing less than $110 per article after March 2000.

Florida (enacted 1999)
Nine days back-to-school (covers two weekends), three days in January.
Qualified clothing and footwear items less than $100.
Localities can opt in.

Texas (enacted 1999)
Three days back-to-school, first weekend in August.
Qualified clothing and footwear items less than $100.
In 1999, local tax not permitted during holiday, local opt-out thereafter.

Pennsylvania (2000)
Two seven-day periods, Aug. 6-13, 2000 and Feb. 18-25, 2001.
Applies to purchases of personal computers only, no limit.
Local taxes not permitted during holiday.

South Carolina (2000)
Three days back-to-school, first weekend in August.
Applies to clothes, footwear and accessories, and school supplies, computers and software.

Iowa (2000)
Two-day period, Aug. 4-5, 2000.
Qualified clothing and footwear items less than $100 (mirrors Texas).

Connecticut (2000)
Seven days back-to-school, Aug. 20-26, 2000, then third week of August every year thereafter.
Qualified clothing and footwear less than $300.
Also increased state’s permanent year- round clothing and footwear exemption threshold from $50 to $75.

Maryland (2000)
Seven days back-to-school, Aug. 10-16, starting in 2001.
Qualified clothing and shoes less than $10.