Not just retailers and shop-till-you-drop gift buyers are looking forward to Black Friday and the bustling holiday shopping season. State tax collectors are hoping for a big haul from taxes on those sales.
About 10 percent of annual state sales taxes come in to state coffers in January from holiday season sales, topping most other months in which about 7 percent or 8 percent of the taxes are collected, according to an estimate by Ron Alt, senior research associate at the Federation of Tax Administrators.
Remittances in January 2013 were 12 percent higher than they would have been if the holiday sales were excluded, said Alt. “States do bring in a lot of sales tax in the final quarter (of the year),” he said. “Those generally show up in the January numbers, particularly from large retailers who remit monthly.”
According to figures compiled by the Nelson A. Rockefeller Institute of Government, June generally is the biggest single month for state sales tax collections, because of accruals at the end of the fiscal year in most states, said researcher Lucy Dadyan. Other than June, January shows up as one of the best months in the calendar and “that's in general attributable to holiday season shopping,” she said.
National figures can be skewed, but monthly state receipts show the importance of holiday sales. For instance, in Maryland in January of this year, $404 million was reported in sales taxes, the best of any month except June, when tax collections were about $717 million. The same held true in 2012, when Maryland reported $421 million in sales tax receipts in January, the best of any month except June at $706 million.
Charles Zogby, Pennsylvania's secretary of the budget, said in his state “it's fairly clear” that sales taxes spike during holiday season. He said January and February combined sales tax receipts were $110 million above the monthly average for any other two months. “Black Friday being the marquee of that holiday (shopping), it's an important part of our sales tax revenue stream,” he said.
Rockefeller senior fellow Don Boyd noted that the sales tax coverage in most states is broader than just sales of tangible goods. Restaurant meals and hotel taxes, for instance, wouldn't necessarily increase due to Black Friday shopping, he said, so the shopping bulge is not quite as important as a percentage of sales tax receipts as it is for retailers' percentage of business. “It's probably less than the big retailers who rely on this time of year,” Boyd said.
The National Retail Federation says holiday sales can represent as much as 20 percent to 40 percent of annual sales. In 2012, holiday sales represented 19.3 percent of total retail industry sales for the year.
The federation projects sales late this month and in December will increase by almost 4 percent, to $602.1 billion, over 2012's 3.5 percent growth. Significantly, this is higher than the 10-year average holiday sales growth of 3.3 percent, the NRF said.
Just a slice of those sales occur on Black Friday, the day after Thanksgiving, so named because it typically is the date when store profits go “into the black” for the rest of the year. Just like tax holidays – dates on which the states suspend sales taxes on back-to-school or other goods – some analysts say that the special days just shift buying to those dates and do not increase sales or sales taxes overall. But unlike sales tax holidays, holiday shopping is not tax free.
“While you might pull a lot of people in (for Black Friday), how much of it is taken away from other sales dates?” said Alt. “But there are some people that claim that just the aspect of a ‘special day' and special sales get people to buy things that they ordinarily wouldn't.”
Barring unforeseen events at the federal or global level, this promises to be a good year for holiday shopping, according to NRF President and CEO Matthew Shay.
“Overall, retailers are optimistic for the 2013 holiday season, hoping political debates over government spending and the debt ceiling do not erase any economic progress we've already made,” Shay said.
One federal action that would make both states and brick-and-mortar retailers happy would be the online sales tax bill making its way, slowly, through Congress.
Shop.org, a NRF website that tracks online sales, forecast online sales to grow between 13 percent and 15 percent during the 2013 holiday season.
“Online and mobile continue to be a leading area of growth for retailers,” Shay said, citing the shop.org projection.
The legislation, officially called the “Marketplace Fairness Act,” would allow states to require sellers on the Internet to collect state sales taxes just like stores with four walls and a door. State officials say it could mean another $23 billion annually in lost revenue. They say it's not a tax increase, per se, just a collection of taxes rightfully due.
The bill passed the Senate on a bipartisan 69-27 vote in May and is supported by President Barack Obama. Online retailers had been the biggest opponents of the legislation, but that has begun to change with the decision of Amazon and Wal-Mart, two of the nation's biggest online retailers, to support the bill. The big companies say it's unfair to require online businesses to collect sales taxes only in states where they have a physical presence such as a distribution center.
A couple dozen state lawmakers travelled to Washington recently to press for the legislation in the House, which so far has not acted. “If we don't get this done this session, 50 states are being held hostage,” said Alabama state Rep. Gregory Wren, a Republican.
One alternative to making all online sellers collect and remit sales taxes to the states is the “small seller exemption,” which would exempt online sellers doing less than $1 million in business. This is attractive to some on Capitol Hill. But a study by the University of Tennessee Center for Business and Economic Research found that the impact of such an exemption would be minimal, because it would only affect a very small percentage of online sellers, only 26 out of 1,000 or about 2.6 percent.