The back-to-school season is big business. American parents planned to spend an average of $434 or $630 per household on supplies ranging from lunchboxes to shoes to computers, according to two surveys conducted in July.
But some parents will have to spend more than others on the same things, based purely on geography.
Eighteen states suspend taxes on clothing and/or back-to-school items at the end of the summer. It’s called a back-to-school tax holiday.
Unfortunately for Angelenos, California, the state with the highest statewide sales tax at 7.5%, is not one of them. So while you browse Target or Walmart for the best discounts, parents from Virginia to New Mexico have the chance to save even more money on purchases for their kids this month.
Sure, it sounds like California’s parents lose out every summer. But don’t be too disappointed.
-Tax holiday savings range from about 4% to 9%, less than what a buyer would usually save on a sale item.
-As demand increases during tax holidays, some retailers raise the prices of their back-to-school items.
-Some doubt the benefits of tax holidays: While they can save consumers money, they can also cost cities and states millions in lost revenue.
-They’re not necessarily good for business. A report by the Tax Foundation, a Washington think tank, reviewed studies in some tax holiday states that found that tax holidays don't increase overall spending; consumers just buy more during the holiday as opposed to during another time.
A tax holiday “would be of help to parents in terms of their saving some funds when they do buy,” said Rick Tuttle, a former Los Angeles controller. “The offset could be, though, that the services they’re receiving in terms of schooling, public safety ... [are] negatively affected” as a result of lower tax revenues.
Why is back-to-school so big it merits a tax holiday?
After the winter holidays, the back-to-school season is the biggest driver of sales at many big-box stores, such as Target. For Staples, back-to-school shopping consistently makes August through October its highest-earning quarter.
Parents think of back-to-school shopping as a necessity because their children are always growing and need fresh supplies to conquer a new grade.
Then there’s the psychology.
“The new school year represents a reflection on the past, a disappointment with some of the things that we have done and an opportunity to start fresh, to do things in the right way,” behavioral economist Dan Ariely said. “People go ahead with this hopeful view and make all kinds of purchases."
Reach Sonali Kohli on Twitter @sonali_kohli or by email at email@example.com