Business

'Tax holiday' saving may not be big, but shoppers still happy to have it

Posted August 04, 2010 11:00 pm

By Kim Mikus

Illinois' "tax holiday" may not produce huge savings for back-to-school shoppers, but retailers around the suburbs still are doing what they can to instill it with a "Black Friday" spirit.

A 10-day sales tax holiday kicks off Friday in Illinois, cutting 5 percent off the ultimate cost on qualifying school items. The National Retail Federation expects families to spend about $600 to get ready for school. The tax holiday would therefore save a family around $30, about the same amount it would cost to go to dinner at a casual restaurant.

However, in today's economy, experts say, that dinner - or whatever families may put the $30 toward - is a real incentive for many shoppers. And recession-weary retailers are stoking that bargain-hunting mentality with additional promotions, discounts and coupons as a way to create a shopping frenzy similar to that seen on Black Friday, the day-after-Thanksgiving buying spree that kicks off the Christmas shopping season.

In fact, for many retailers the back-to-school period is second only to the Christmas holiday in generating sales and profits.

"The tax savings along with other sales will mean a substantial savings for the consumer," said retail analyst Neil Stern, partner at Chicago-based McMillan/Doolitte retail consultancy. "If you're a smart shopper, you can save quite a bit of money over the next 10 days."

State officials cut the sales tax that retailers charge on back-to-school items through Aug. 15. reducing the cost at the cash register for items from belts to gym shoes and lunchboxes to legal pads.

The state typically charges 6.25 percent on retail sales, but returns 1.25 percent to local government agencies. The August holiday temporarily eliminates the state portion. How much tax shoppers pay depends where they shop. For example, Woodfield shoppers are traditionally charged 9.5 percent due to county and municipal taxes. During the tax holiday, they will be charged 4.5 percent tax on qualifying items.

Many stores are jumping on board in an effort to gain a piece of the spending pie. Stores at Woodfield, including Gap, The Buckle, Sears, Charlotte Russe, Finish Line and Crocs are opening at 6 a.m. Friday with special promotions and sales. J.C. Penney is opening Saturday at 7 a.m. with "tax holiday" sales. Gurnee Mills is hosting a Back-to-School Super Sale where stores with red banners in their window are offering special promotions.

"We'll be having a huge door-buster sale in connection with the tax savings event," said J.C. Penney spokeswoman Ann Marie Bishop.

Retail experts believe the tax incentive will spark buying.

"The need to buy school supplies and clothes coupled with the tax incentive will trigger spending," Stern said.

He added that the tax savings alone is substantial for the shopper struggling to make ends meet.

Lake Villa mom Cori Denman, who waited to buy clothing for her 16-year-old daughter until the tax holiday kicks off, agrees.

"It all adds up. It's not a huge, over-the-top savings - but it's something," she said.

Added late in the legislature's process of setting a state budget, the tax holiday has not been widely promoted, and many shoppers are not yet aware of the tax incentive in Illinois, the 14th state to launch the campaign.

"I didn't know about it. I would have waited to buy school supplies," said Kelly Donea, a mom from Barrington.

Donea said, though, that she has not yet bought jeans and other clothes for her elementary school-aged children and is looking forward to the savings.

"My daughter wants a North Face jacket, so the tax break will help with that," she said.

At a time when consumers are holding back on spending, other retail analysts agree the tax break will be embraced with open arms.

"I think anytime people can save money, particularly when kids are going back to school, it's a good thing," said John Melaniphy, president of Melaniphy & Associates in Chicago.

He added that other states that have held similar stimulus deals have "seen some pretty impressive impact."

Area retailers are not sure what to expect during the state's first tax cut.

"I just don't know. It's a first for us," said Woodfield General Manager Marc Strich.

He added that August is traditionally the third busiest month of the year after November and December at the Schaumburg mall.

"Saving 5 percent could turn into significant savings for the shopper," Strich said.

Other states have seen success in lifting sales during the tax event.

Florida has utilized the tax incentive periodically over the years. Retailers there were upset when the state cut the tax program this year from 10 days to three. Florida officials expect its back-to-school shoppers will avoid $23 million in state and local taxes this year. That's down from $35 million in the last tax holiday in 2007, which stretched over two weekends.

North Carolina also has a three-day tax break period that it has offered for eight years. However, bigger-ticket items including computers and PDA's are included among products for which shoppers receive tax credit.

Retailers there agree it has become a crucial part of their year, according to the North Carolina Retail Merchants Association.

"Back-to-school shopping is significant to the retail economy as much the same way as Christmas shopping," an association release states.

In Illinois, computers, cameras, sports equipment, jewelry, watches, umbrellas and textbooks do not qualify for the tax break. The focus here is on school supplies and clothing items that cost less than $100. Items in this category include school uniforms, bathing suits, household aprons, gloves, jeans, gym shoes, slippers and shoe laces.

The National Retail Federation says spending on apparel will take up the majority of consumers' budgets with the average family of school-aged kids expected to spend $225.47 on jeans, shirts and other types of clothing. Running the gamut from laptops and netbooks to smart phones and MP3 players, parents are expected to spend an average of $181.60 on their children's electronic or computer-related school needs. Families will also spend an average of $102.93 on shoes and $96.39 on school supplies, the federation says.

"It's generally known, retail sales are dead. Anything you can do to generate sales is a positive. I think this will drive traffic," Melaniphy said.

And, retailers are banking on the fact there will be carryover from the tax break items to other retail arenas.

"Hopefully," Melaniphy added, "shoppers will spend money on something other than school supplies."

The tax holiday starts Friday for back-to-school shopping. Meijer sore employee Craig Gareiss stocks shelves in preparation for the 10-day event. Daniel White | Staff Photographer

What's in and what's out

A sampling of items that qualify for tax discount

Clothing/footwear with selling price under $100

coats/jackets

boots

sandals

neckties

school uniforms

belts

hosiery

lab coats

ear muffs

socks

School supplies

crayons

lunchboxes

binders

compasses

calculators

glue/paste

index cards and index card boxes

Non-qualifying items

Computers and related supplies

reference books

workbooks

clay and glazes

cell phones

umbrellas

watches

briefcases

ballet shoes

baseball gloves

video cameras

PDAs

Rollerblades

protective gloves

reference maps and globes

water colors, oil paints

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