For the first time in 12 years, back-to-school shoppers in North Carolina won’t be getting a sales tax holiday.
The tax-free event, traditionally the first weekend in August, was discontinued as part of a tax overhaul approved last year by N.C. lawmakers. Shoppers looking for a sales tax break will have to cross into South Carolina, which begins its annual three-day tax holiday at 12:01 a.m. Friday.
That’s just what Raeann Belcher intends to do. Normally the Lancaster, S.C., resident would go to Carolina Place in Pineville during the tax-free weekend to buy clothes and school supplies for her 6-year-old daughter. This year she’ll shop at the Rock Hill Galleria, she said.
“School is very expensive ... clothes, school supplies, shoes, backpack,” she said.
South Carolina retailers plan to be ready for shoppers like Belcher.
“We certainly believe there is a better opportunity to welcome North Carolina shoppers due to their repealing the sales tax holiday,” said Galleria marketing manager Angel Russell.
Legislation signed by N.C. Gov. Pat McCrory last July discontinued the annual sales tax holiday – as well as a November tax holiday for Energy Star appliances – as part of a broader overhaul that also reduced corporate and personal income taxes.
The holiday, in place since 2002, allowed shoppers to save between 6.75 percent and 7.5 percent, depending on their local sales tax rates, when purchasing school-related items such as clothing, supplies, computers and sports equipment. Lawmakers and opponents of the tax holiday pointed out that it was costing the state millions. The Department of Revenue estimated that the state lost $13.6 million in tax revenue in 2012 due to the sales tax holiday.
Some North Carolina retailers say they expect the loss of the tax holiday to cost them business during the second busiest season of the year, after the winter holidays.
“We were just as disappointed as our shoppers when we found out that we weren’t having a tax-free weekend, because that weekend has always historically been very important to our retailers,” said Nan Gray, director of marketing and business development at Concord Mills.
To boost back-to-school business, the mall held a “better than tax free” sales event this past weekend, and Gray said business was so brisk that retailers have asked mall management to repeat the event next year.
At Carolina Place, marketing manager Scott Anderson said the discontinued holiday is “a concern everywhere,” but that mall merchants hope to generate excitement with their back-to-school sales.
“(The tax holiday) is something that drove traffic to retail outlets. When you don’t have it, you are definitely going to see an impact,” Anderson said.
Representatives of SouthPark and Northlake malls also said their retailers would plan sales events.
Emily Poplin, having dinner in the Carolina Place food court last week, said the end of the North Carolina tax holiday is “a big turnoff,” adding: “We are just really not that far removed from the economic recession.”
A mother and a student adviser at Wingate University, Poplin said she and many parents she knows used to wait until that weekend to make the bulk of their back-to-school purchases. She hadn’t heard about the end of the tax holiday.
“That’s really a surprise. I’m displeased with their actions,” Poplin said. “I really don’t see the benefit of them cutting that out.”
Proponents of the tax overhaul have said residents will save more money through lowered income taxes than they would have with the back-to-school tax holiday.
Brian Balfour, policy director for the conservative Civitas Institute in Raleigh, said policymakers tried to simplify the tax code and “make the taxes apply neutrally to all economic activities. That is, not to exempt certain economic activity while taxing other activity that’s very similar in nature.”
Christie Burris, spokesperson for the North Carolina Retail Merchants Association, said local retailers will have to compete with retailers in more than 40 counties that border South Carolina or Virginia, where shoppers can take advantage of sales tax holidays, and the money in North Carolina residents’ pockets will be spent in other states.
Holidays in 16 states
Some families never took advantage of the tax holiday.
“My husband and I thought the sales tax holiday was a gimmick and didn’t pay much attention to it,” said Charlotte resident Tori Collins, a mother of two boys, ages 8 and 11.
She said the rules were too complicated and she also didn’t like the reduction in sales tax revenue for the state. She said retailers used the holiday to increase sales no matter whether purchases involved education or not.
New York was the first state to establish a sales tax holiday in 1997. The number of participating states quickly picked up. With North Carolina’s exit, the number of states participating in the holiday dropped to 16 this year.
Craig Shearman, a vice president at the National Retail Federation who deals with government affairs, said the lost sales tax revenue generally comprises “a very, very small fraction” of state budgets.
He said some state officials around the nation told the federation they lost money by holding the tax holiday, but that it was balanced by the income generated when people purchased additional items that were still taxed.
Shearman said sales tax holidays around the country generally save customers only about 5 to 10 percent. If retailers’ regular sales events take off that much, he said, consumers will balk because they are used to getting 20 to 50 percent off, he said.
“When they can save that same 5 percent or 10 percent by virtue of not paying sales tax, there’s a psychological appeal that goes far beyond the amount of money involved,” he said.
The National Retail Federation says the average family with school-age children will spend $669.28 on apparel and other school supplies, up 5 percent from last year.
With the absence of the sales tax holiday, the North Carolina Retail Merchants Association is encouraging retailers to be creative in their sales events to keep consumer traffic.
The association will be studying sales figures from this weekend, and hopes by January to be ready to make a case to lawmakers to restore the tax holiday.