August 15, 2011, 12:16 PM

A (sales tax-free) ‘mini-Thanksgiving’ weekend

Multichannel merchants say they get a boost from sales tax ‘holidays.’

Paul Demery

Managing Editor, B2B E-commerce

Lead Photo

As has been the case for several years, the state of Tennessee this summer allowed shoppers to buy all the apparel and back-to-school items they wanted at retailers without having to pay sales tax on the first Friday of August and the following weekend.

And as in other states with similar sales tax holidays, shoppers usually respond in droves. “It’s almost like a mini-Thanksgiving weekend,” says Billy Trout, an official with the Tennessee Department of Revenue.

Although his department hadn’t yet calculated the sales transactions from this month’s “holiday” weekend, the same Friday-to-Sunday deal last year resulted in total retail sales of about $90 million, Trout says. With a state sales tax rate of 7%, plus local municipal sales tax rates ranging from 1.5% to 2.75%, the revenue department figures the state gave up about $8.6 million on sales tax revenue that otherwise would have been collected by retailers.

The revenue department didn’t estimate how many additional sales were transacted as a result of the tax exemption, but local store retailers say they saw a noticeable spike in sales. “We sold a lot more on that Friday and Saturday of school items like backpacks and lunch boxes,” says Maggie Jetter, owner of Tweed Baby Outfitters, a store in Nashville, TN, that sells children’s apparel and accessories.

Tennessee, one of at least 17 states that offer retail sales tax holidays, initially launched its early-August deal as a way to help consumers afford back-to-school supplies, Trout says. It has since also become a rallying point for bricks-and-mortar retailers who contend that, for at least one long weekend, it gives them a chance to compete on a level-playing field with web-only retailers that don’t collect sales tax.

For a sales tax holiday earlier this month in South Carolina, from Friday, Aug. 5 through Sunday, Aug. 7, a multichannel retailer that is a client of e-commerce technology provider MarketLive Inc. realized a 34% hike in revenue per visit compared to the prior weekend, MarketLive says. MarketLive declines to name the retailer, but says it’s a multichannel apparel merchant that sells primarily through bricks-and-mortar stores. Although the retailer is not based in South Carolina, it usually collects sales tax there because it operates stores in the state. In addition, MarketLive says, the retailer also reported the following percentage increases for the tax holiday weekend compared to the prior week:

● Traffic, 26%

● Conversion rate, 12%

● Revenue per order, 20%

Compared to its year-to-date performance averages, the tax holiday weekend’s revenue per order increased 18%, and its revenue per visit was up 13%, MarketLive says.

Whether sales tax holidays have an impact on web-only retailers is more difficult to determine. ChannelAdvisor Corp., for example, which helps some 3,000 retailers sell on the web, including both web-only and multichannel merchants, says it has not seen any significant changes in weekend sales activity this year.

In addition to Tennessee and South Carolina, the other 15 states that offered sales tax holidays in 2010 were Alabama, Arkansas, Connecticut, Florida, Iowa, Louisiana, Maryland, Massachusetts, Mississippi, Missouri, New Mexico, North Carolina, Oklahoma, Texas and Virginia, according to the Federation of Tax Adminstrators. Most states offered the tax holidays for purchasing apparel and school supplies, but a few included other product categories. Maryland offered two sales tax holidays, one for energy products, the other for apparel and footwear. Louisiana offered three: all consumer products other than motor vehicles and restaurant meals; hurricane preparedness items; and firearms and hunting supplies.

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