Retailers, especially, should leverage these one-day or weekend shopping events with sales, coupons, and more
Let’s be clear up front: Tax holidays are meant for consumers. By dropping sales tax for a couple of days in late summer, states give shoppers a chance to stock up on school supplies and other items at a discount.
But retailers can win, too. They can leverage the offer of tax-free shopping as a way to draw new customers, generate additional sales and build community goodwill.
"When the tax holiday is offered, it drives a lot of foot traffic, both for the items that are tax-free that weekend as well as taxable items," says Andy Ellen, president of the North Carolina Retail Merchants Association. The state has offered an August tax-free weekend every year since 2002.
Sixteen states are offing tax holidays in 2013, according to Diane L. Yetter, president of Chicago tax-consultancy firm YETTER. If yours is one, here are five tips to help you get the most out of the opportunity.
1. Have a sale.
During tax-holiday time, shoppers can go just about anywhere and feel like they're getting a break. To make the most of the buying mood, a retailer needs to stand out from the crowd. "You pair the tax holiday with another sale and advertise that in your marketing," Ellen says.
2. Offer coupons.
A tax holiday presents a great opportunity to run coupons, says Jon Lal, founder of BeFrugal.com. Much like advertising a sale, distributing coupons can be a powerful way to drive consumers through the doors: Savings added to savings suggests a great deal on already tax-free items. These may include clothing and accessories, footwear, sports equipment, computers, books, art supplies, school supplies and school instructional materials. Put those coupons where they can be seen, for example in a kid's school bag at the end of the year, or hand them out at community events where you may already be a sponsor, Ellen says.
3. Keep the books.
Where taxes are concerned, record-keeping is a must, especially when the tax rules deviate (temporarily) from the norm. "Since many businesses are subject to sales- and use-tax audits that sometimes take place two or three years later, it is important to document the tax-free purchases in your files," offers Grafton 'Cap' Willey, managing director at accounting and professional services firm CBIZ MHM. Strict accounting will ensure that the business gets the most out of the tax holiday without facing negative fallout further down the line.
4. Follow the rules.
Know who can and can’t shop tax free. Generally, you can’t. Tax holidays are meant to give consumers a break and cannot be used by a business to purchase goods on its own behalf, Yetter says. Don't try an end-run, for instance by buying an item for personal use and then putting it into play in the workplace, either by simply bringing it to work or having the business reimburse you for the purchase. Such activity invites an audit.
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5. Keep an eye on the caps.
Most tax holidays come with a limitation, an upper end after which items become taxable. A savvy retailer will keep this in mind. Knowing that the cap is $100, for instance, it makes sense to price a pair of shoes at $99 and take a little less profit, rather than price them at $110 and drive away a shopper looking for the break.