Last year, North Carolina forfeited an estimated $12.3 million in sales tax revenue during the state's three-day back-to-school tax-free weekend.
This year, during the holiday that begins Friday, it is expected to give up even more.
Still, state legislators say that revoking the popular shopping weekend was never much of an option - despite the $800 million deficit facing lawmakers this year. That's not to say that the legislature didn't look at repealing the mandatory tax break on school supplies, clothes, sports gear and computers.
Such a move would not be unprecedented. Both Georgia and the District of Columbia have repealed their tax-free holidays to save money.
But in North Carolina, the tax holiday's popularity with shoppers and retailers made legislators hesitate to call off the tax-free weekend.
"Yes, it was discussed and it was discussed very honestly, but it was a relatively brief discussion," said Rep. Pryor Gibson, a Democrat from Wadesboro, the House finance committee co-chairman. "A lot of the debates we have over cuts or anything like that get strung out. But ... there was pretty strong unanimity that if you're going to provide tax relief for families, this was as good a place as you could get."
Repealing the law would deal a crushing blow to already battered retailers.
Years of slumping consumer confidence and slow sales have left few opportunities to drum up extra business.
June retail sales were down 0.5 percent from May but increased 3.3 percent year over year.
For retailers such as Sam Mobley, who owns Mobley's Shoes in Raleigh's Stonehenge Market, the back-to-school season and the tax-free weekend are more important than ever.
"I'd hate to see them take it away," he said. "It kicks off the season nice and early, gives the customer a bit of a jump start in terms of saving some money."
Retailers love it
Mobley is one of a growing number of retailers who extend the tax-free weekend into a weeklong sale by offering a discount equal to the amount of sales tax on additional days. This year, he started his tax-free promotion on Friday, a week before the holiday, and will run the promotion through the tax-free weekend.
"Last year we were up about 10 percent for the month," he said. "I can't attribute that all to the tax-free weekend, but it gives us good cash flow to get some customers in early."
Other retailers see even greater impact. At the New Balance stores in Durham and Raleigh, the tax-free weekend is also extended to a week. It has become so popular that the stores stopped having a fall anniversary sale to focus all of those resources on back-to-school.
"This is our Christmas," said owner Mark Allard. "We do essentially about a month's worth of business during that week."
Malls also see a healthy bump in traffic, always welcome in the middle of summer. At The Streets at Southpoint in Durham, mall officials treat the tax holiday like the weekend after Thanksgiving. There are contingency plans for traffic flow and handling a busy mall full of shoppers.
Malls get a boost
Traffic at the mall increases about 21 percent during the tax-free weekend, compared with other summer weekends.
For the year, The Streets at Southpoint has actually seen traffic increase slightly, but mall manager Pat Anderson said any event that draws people to the mall is still incredibly important.
Even retailers who do not sell items that qualify for the tax break benefit from the event.
Appliances and big-screen TVs are not tax-free. But furniture retailers and appliance stores typically offer discounts equal to the tax rate in their own "tax-free" sales. Businesses that still charge the sales tax often benefit from the weekend, too.
At the Kanki restaurant in Crabtree Valley Mall, 20 percent to 30 percent of the customers are shoppers who decide they'd like to eat, said chain spokeswoman Carole Marcusse-Sell.
She said the tax-free weekend gives people incentive to get their shopping done. "When you kind of look at the big picture, maybe it's 6 or 7 percent [off] stuff," she said, "but it's the mindset."
It's those "extra" sales that legislators hope may eventually equate to profit for the state on the sales tax-free weekend. This year, the legislature estimated the tax-free weekend could cost about $15 million in lost revenue.
Gibson, the finance co-chairman, said that sales at restaurants and stores that sell items that don't qualify for the tax break help offset the lost revenue. There are no estimates on how much of this additional spending the tax-free weekend generates, but "in a couple more years, it may actually show that we gain more revenue than we lose," he said.
Counties cope with it
Though retailers gain dramatically from the weekend event, the weekend still costs plenty.
In addition to the estimated $15 million the state forgoes, county governments also give up their sales tax revenue for the weekend.
Counties charge between 2 percent and 2.5 percent on top of the state sales tax. In 87 of the 100 counties, including those in the Triangle, the rate is 2 percent.
Like the state budget, county budgets are also being severely crunched by decreases in revenues from all kinds of taxes, including sales and use tax.
In its fiscal year 2011 budget, Wake County predicted a $7 million decline in sales tax revenue. Durham County likewise predicted a 2 percent decrease.
Officials from Wake County could not provide an estimate of how much in tax revenue is given up during the tax-free holiday.
Durham County officials had no estimate but did say there is a substantial dip in sales tax collections in August. For the past four years, the decrease in revenues from July to August has been 12.5 percent to 20 percent, and the increase from August to September has been 20 percent to 30 percent. However county budget officials say there is no way to know how much of those fluctuations are due to the tax-free weekend.
Rough math would suggest that the state's revenue loss of $15 million means that total sales for the weekend are roughly $260.9 million. Using the 2 percent rate that most counties charge, that means all10-0 counties will lose a total of at least $5.2 million.
Though it is lost revenue, counties have already accounted for the tax-free holiday losses within their budgets, said Pam Meyer, director of budget and management services for Durham County.
"It's not something we've quantified," she said. "Since there's been a sales tax holiday the past several years, we are simply used to it happening each year."
Pols cater to merchants
Still, critics of the sales tax holidays say they are more about political posturing than actual savings.
"Sales tax holidays are political gimmicks" said David Brunori, executive vice president of editorial operation for taxanalysts.com and a professor of public policy at George Washington University. "They provide little relief and a great opportunity for politicians to pat themselves on their backs.
"Keep in mind there is a reason why the retailers in every state advocate for holidays. They are the one's making money. They know people will flock to the stores and can set prices, inventory, and staff to maximize profits."
Shoppers plan for it
As for shoppers, they love a bargain - or just the idea of one - and many North Carolinians have made tax-free shopping an annual event.
Kids or no kids, many use the weekend to stock up on clothes or make large purchases such as computers.
Keeping those shoppers in state may have played a role in the decision to keep the tax-free holiday going this year.
The state first introduced the holiday in 2002 after retailers argued that they were losing business to neighboring states including South Carolina. This year, South Carolina and Virginia are both having tax-free holidays, and both are the same weekend as North Carolina's.
Of course, some people will still cross state lines to save money.
Jenni Bruckman is planning to meet her mom this weekend in Myrtle Beach to take part in South Carolina's tax-free weekend. Bruckman's mother, who lives in Georgia, was looking for an alternative after Georgia canceled its tax-free holiday this year.
"We're having a mother-daughter weekend," said Bruckman, 26, who lives in Wake Forest. "There are so many good outlet malls. I've gone on all their websites and downloaded their coupons."
Still, some shoppers would be unfazed should the state choose to repeal the tax-free weekend in the future.
Tanya Otte of Apex has three sons, only one of whom has started school. However, because Olive Chapel Elementary is a year-round school, Otte can't wait for the back-to-school sales or the tax-free weekend in August.
Her son, Trevor, finished first grade June 30 and began second grade on July 9.
"You're supposed to send your child with the supplies the first day of school," Otte said. "So in-between Fourth of July weekend, you're supposed to get a bunch of supplies."
Otte said she is normally a frugal shopper, but she wishes stores would take into account the staggered schedules of area schools.
"Last weekend I was in Target and they auto-printed me a coupon to save $5 off $25 of school supplies, but it was two weeks too late. ... I sort of just grit my teeth. Any time I see penny sales, I just cringe because I've already spent the money."
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