Hit the books! Back-to-school starts now for retailers
- Sales and Use Tax
- May 30, 2016 | Gail Cole
The sprint to the end of the school year is underway. Students are working to finish assignments and prepare for exams while keeping one eye glued to the calendar: three weeks left; then one; summer! Most kids will be happy to close the books and not think about the upcoming school year for two months. But for retailers, now is the time to prepare for the back-to-school retail rush.
Back-to-school spending is second only to winter holiday spending. According to the National Retail Federation (NRF), total combined spending for back-to-school and college reached approximately $68 billion in 2015. Although some consumers start earlier, most do their back-to-school shopping during July and August. Retailers have no time to lose.
To have a successful back-to-school season in 2016, retailers need to account for three factors: internet sales, mobile shopping, and back-to-school sales tax holidays.
In 2015, 90 percent of NRF survey respondents said they planned to shop online for back-to-school supplies (including clothing and electronics) due to convenience, free shipping, and the option to pick up their purchases in-store. Online back-to-school shopping increased by nearly 12 percent last year, and that growth is expected to continue this year. Already during Q1 2016, internet sales grew by 15.1 percent and accounted for 11.1 percent of retail sales (factoring out items normally not purchased online).
Online shopping saves time, facilitates comparison-shopping, and enables consumers to avoid crowds. To capture a corner of the back-to-school market (worth roughly $650 per student), ecommerce retailers need to stand out. Strategies include:
- Free delivery
- In-store pick up
- Seamless online shopping experience
Properly handling sales tax is an essential component to successful ecommerce. Consumers expect to encounter no surprises at check out. Ensure that your point-of-sale systems correctly calculate sales tax on deliveries and in-store pick up. Does the method or location of delivery affect the rate? Do you use drop shipping? Sales tax software like Avalara AvaTax ensures the right rules and rates are applied to each transaction, every time.
More than 30 percent of back-to-school and college-bound shoppers in 2015 told the NRF they planned to use mobile devices while shopping. They followed through: in August 2015, back-to-school sales made from mobile devices grew 42 percent year over year. For the first time ever, sales made from smartphones and tablets nearly matched sales completed from desktops. Retailing Today says that, this year, “Retailers should be ready to support shoppers across channels by the end of June.”
To capture consumer spend by the mobile savvy, retailers need to provide a seamless experience. Shoppers will research products and deals on their phones and tablets while walking through the aisles. Problems to avoid:
- No mobile site: site hard to view/use on mobile device
- Price glitches: prices on mobile sites are wrong
- Slow load times
Another killer: check out surprises. As with internet shopping on desktops and laptops, getting sales tax wrong can kill a sale.
Sales tax holidays
Back-to-school sales tax holidays lure consumers away from beaches to climate-controlled stores. By temporarily exempting many articles of clothing and school supplies from state and local sales taxes, they encourage consumption and boost sales during the doldrums of summer. They also complicate sales and use tax compliance.
Seventeen states and the Territory of Puerto Rico provide for sales tax holidays in 2016. All of them offer a back-to-school tax-free period in late July or August (the Puerto Rico holiday is in January). Each state holiday differs from the next in the details.
Devilish details include:
- State v local sales tax. For example, local tax jurisdictions are not required to participate in Alabama’s sales tax holiday. Retailers selling to consumers state-wide need to know whether to exempt qualifying goods from both state and local sales taxes or state sales tax only.
- Price limits. Most states set price limits on qualifying goods and these vary by state. For example, eligible clothing costing less than $100 qualifies for the exemption in Connecticut, while the exemption applies to eligible clothing costing $75 or less in Ohio.
- Differing dates. Although many back-to-school tax-free periods take place during the first weekend of August, some do not. For example, this year, a legislative change in Tennessee moves the sales tax holiday forward by one week, to the last week in July. Maryland’s tax-free period runs for a full week.
- Exempt/not exempt. Not every state exempts the same items. For example, retailers selling in multiple jurisdictions need to know that clerical vestments are exempt during the Tennessee tax-free period but taxable during the holiday in Arkansas.
- Surprise! Some states, like Massachusetts, like to wait until the very last minute to enact a sales tax holiday, giving retailers very little time to prepare. Then there’s Louisiana. To stave off fiscal catastrophe, numerous exemptions have been temporarily suspended. Qualifying items will be subject to a reduced rate rather than a full exemption during the next two back-to-school sales tax holidays.
It’s impossible to be schooled in every exemption. The most effective and efficient way to account for sales tax holidays is to implement an automated solution like Avalara AvaTax. Learn more.
Back-to-school shopping is too important for retailers to overlook. Leave it to the last minute and you could suffer from those “I’m not prepared for my final exam” anxiety dreams. Preparing all channels will ensure success.