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State retailers cash in on tax-free holiday

Thursday, Sept. 7, 2006

At 4 p.m. on Aug. 27, a Sunday and the final day of Maryland’s sales tax holiday, shoppers were still packed in the food court at Westfield Montgomery, chowing down between making purchases, said Louise Gordon, the Bethesda mall’s marketing director.

‘‘That’s usually not the case at that time of the weekend,” Gordon said. ‘‘The mall was heavily trafficked all weekend,” as her retailers wanted to ‘‘jump on” the tax-free event and take advantage of it by offering additional discounts.

The five-day period, authorized by the 2005 General Assembly and timed to coincide with the peak of back-to-school shopping in most of the state, exempted purchases of most clothing and footwear priced up to $100 from the state’s 5 percent sales tax.

Sales were 40 percent to 60 percent higher than normal during the period at all Abercrombie children’s fashion stores in Maryland, said Jason Willard, district sales manager. The store at the Bethesda mall racked up sales of $30,000 on Aug. 26, up from $10,000 to $12,000 for a normal Saturday, Willard said.

Sales were also brisk for girls’ clothing at the mall’s Hecht’s store, sales clerk Joan Ellis said.

‘‘Tax-free really works. It was wonderful,” Ellis said. ‘‘People said, ‘Hey, it’s tax-free. I have to do my shopping now.’”

Sophie Hanieh, group sales manager for girls’ clothing at the same Hecht’s, agreed.

‘‘I doubled my goal,” Hanieh said. ‘‘Saturday we expected $8,000 and we got $16,000 in sales. And Sunday we expected $4,000 and sold $8,000.”

Hanieh also compares her sales routine with the Hecht’s in Tysons Corner, Va., where she lives. During the Maryland tax-free holiday, she said, the Bethesda store’s sales of girls’ clothing doubled those of the Tysons Corner store.

‘‘The sales volume was similar to Black Friday,” said Paul Guderian, store manager of the J.C. Penney department store at Lakeforest mall in Gaithersburg, referring to the day after Thanksgiving, historically one of retailers’ biggest days. ‘‘This, too, is one of our best events, a huge event.”

But, Guderian said, the next such holiday should be a week earlier, before school begins in Prince George’s County, too.

Overall, the sales tax holiday boosted sales 10 percent to 12 percent over the same period last year, when there was no holiday, said Thomas S. Saquella, president of the Maryland Retailers Association. He based his assessment on a limited survey of members.

‘‘I think it is just that people see it as a chance to get out,” said Willard at Abercrombie. ‘‘And the great thing is that it is close to school opening again.” He said he has seen a similar response to tax-free holidays by shoppers in North Carolina and Florida.

‘‘It works because it is a key retail time,” said Gordon, the Bethesda mall manager.

In contrast, the tax holiday had little impact at the strip shopping center on Coventry Way in Clinton, according to store managers at PayLess Shoes, Wal-Mart and Fashion Bug, a store that features clothes for the ‘‘Junior Ms.”

Michelle Sharpe, co-manager of the Fashion Bug, said, ‘‘We were very slow for a weekend even though we offered to double the discount on sales tax.”

That fits a pattern, Saquella said.

‘‘You are going to see that your malls are going to get the lion’s share of the discount sales,” he said. ‘‘They are going to ring up the better numbers.”

Perhaps fashion-hungry teenagers, or at least their parents, heard the tax-free call the loudest. Mike Sellitto, manager of the teenage retail store Hollister Co. at Lakeforest mall, calculated that sales for the five days increased 145 percent over the same five days the previous week.

Retailers contacted for this report said they didn’t know if shoppers held off on purchases earlier last month, waiting for the tax break, which would in effect neutralize the holiday’s benefit for retailers.

The holiday was Maryland’s second. In August 2001, a seven-day holiday contributed to a 10 percent increase in August retail sales over August 2000, according to Michael D. Golden, spokesman for the Maryland Comptroller’s Office, who called the overall impact to state revenues minimal.

The Federation of Tax Administrators in Washington, D.C., reports that 13 states and the District offered tax-free periods in August. Florida offered tax-free days in May for hurricane supplies and in July for clothing and school supplies, and plans a tax-free period in October for energy-efficient appliances.

The federation reported that after 2001, such holidays lost favor due to the economic slump, but are now in a renaissance.

‘‘They are like flowers in bloom after a particularly cold winter,” the federation’s Web site waxes poetically. ‘‘Now that the money is slowly but surely starting to trickle back in, and states again have some room to play with, the holidays are cropping back up across the country.”

However, Saquella and others note a bizarre phenomenon associated with such holidays: ‘‘Tax-free days strangely draw more shoppers than 50 percent-off sales.”

And sales personnel at several stores also wondered why a 5 percent sales tax savings seems so popular with shoppers, when more significant savings can be realized during big sales.

The consumer attraction to sales tax holidays also confounds Verenda Smith, a spokeswoman with the tax administrators group.

‘‘Well, it’s a growing idea partly because is it a fairly new one. Why it plays well befuddles us in the tax world,” Smith said. ‘‘People will not walk across the street to save 5 percent on a pair of jeans, but they will respond to this. The logic isn’t there [for consumers]. But for retailers, yes, they respond to a sale. That is their stock and trade. They put their own promotions with it and there is good marketing material there.”

The tax-free holiday works, said Del. Jean B. Cryor (R-Dist. 15) of Potomac, because ‘‘I think everyone likes a bargain and it has to be at the right time. Back-to-school shopping is not browsing. It is real shopping.

‘‘It matters because, with all the governments bureaucratic slowness, this is a time to give families a break, when the kids go back to school. This is a paperless coupon,” said Cryor, who introduced the enabling legislation.

‘‘It works because people say, ‘It’s a nickel in my pocket instead of the state’s pocket,’” said Sen. Lisa A. Gladden (D-Dist.41) of Baltimore. Gladden sponsored a Senate version of the holiday that was not signed by Gov. Robert L. Ehrlich Jr. (R). ‘‘It is doing very well, especially in the malls. And even in poor neighborhoods, every little bit helps.”

This report originally appeared in The Business Gazette.