The Worcester Telegram: Retailers hopeful to cash in on tax-free weekend
media mentionAugust 5, 2013
By Alli Knothe
Retailers are hopeful that the upcoming tax free weekend will be the incentive needed for shoppers to buy new appliances, furniture and other staples.
“All you have is tax tax tax tax tax so for two days you’re going to get a break,” said Alan Lavine, whose family owns Percy’s on Glennie Street.
A tax-free weekend Aug. 10 and Aug. 11 in Massachusetts was signed into law Friday. The 6.25 percent sales tax will be waived for all items $2,500 and less, with the exception of gas, steam, electricity, tobacco products, motor vehicles, motorboats and food.
The Department of Revenue reported that last year’s sales tax holiday, on Aug. 11 and 12, cost the state $23.34 million in lost sales tax revenue, while less than $2.3 million was generated over the two days through additional income, corporate and other taxes.
Jon B. Hurst, president of the Retailers Association of Massachusetts, said the weekend is forecasted to generate at least $500 million in commerce in what would otherwise we a very slow time for businesses. A normal weekend in August usually pulls in $100 million in Massachusetts.
“It’s pretty comparable to a December weekend,” he said. These sales would otherwise be made in nearby New Hampshire, which does not have sales tax, or on the Internet, he said.
Mr. Hurst said when customers shop locally, the state benefits from tolls, the recently raised gas tax, and from the taxes people pay on food. Big sellers during the weekend will include appliances, electronics, and jewelry.
“Even clothing does well,” he said. “It really is a nice kick-start for the economy.”
Percy’s, which sells home appliances, furniture, televisions, mattresses and other products, will be offering discounts of up to 40 percent off in addition to the tax relief. He said several manufacturers will be sweetening the deal with extra rebates.
Rotmans, on Southbridge Street, which sells furniture, carpets, mattresses, and televisions, is giving customers an extra 12.5 percent discount on top of the tax break, which they are marketing as “triple tax free” savings.
Steve Rotman, one of the co-owners, said Rotmans can’t handle all the traffic that comes through their doors that weekend. They are encouraging customers to do their shopping in advance, reserve the item and then have the sale put through during the holiday.
Percy’s is similarly encouraging buyers to come in before the holiday and decide what they will buy.
For both stores this is a huge weekend.
“We do more business in this holiday week than we do during any other time of the year,” Mr. Rotman said. He estimated that the weekend will pull in about 10 percent of their sales for the year, with over 3,000 customers. Of those, he expects that between 25 and 30 percent will have reserved items in advance.
While it is hard to predict, Mr. Lavine and Mr. Rotman agreed that it is entirely possible that they will have more sales this weekend than in years past thanks to improvements in the economy.
“You’re going to get it anyhow,” Mr. Lavine said. Over the past 12 months, he has seen an uptick in customers replacing staples like washers, driers, and dishwashers.
“You can only fix something for so long,” he said, and anticipates that many consumers will use this opportunity to finally trade in for new products in their homes.
But some researchers argue that therein lies the problem with the tax-free incentive.
“Wealthier taxpayers are often best positioned to benefit from the holidays, since they have more flexibility to shift the timing of their purchases to take advantage of the tax break –an option that isn’t available to families living paycheck to paycheck,” wrote the Institute on Taxation and Economic Policy in Washington, D.C. in a July 24 report.
?Rather than driving people to spend more and therefore giving the economy a boost, the institute argued it simply shifts when people plan to buy.
“Increased sales during sales tax holidays have been shown to be primarily the result of consumers’ shifting the timing of their planned purchases,” it wrote.
The Tax Foundation has published similar findings and wrote that customer savings are minimal, pointing to a study that showed that some businesses exploit the situation.
“Unscrupulous retailers can take advantage of the shift in the timing of consumer purchases by increasing their prices or watering-down their sales promotions during the tax holiday,” the foundation reported.
But Mr. Hurst said stores generate about one third of their sales on impulse buys, which “doesn’t happen if the customer isn’t in the stores in the first place.”
He believes that of the 18 states that are offering sales tax holidays this year, Massachusetts’ is the most effective.
“It’s been a slow march to where we were in 2007 but we’re feeling we’re about there now,” he said. “I think the consumers feel that it’s their opportunity to invest back in their local economy.”