There’s no dispute that the cost of consumer goods is soaring. The U.S. inflation rate rose 9.1 percent for the 12 months ending June 2022. With rising prices across many sectors, the prospect of shopping for your child’s school items can be daunting. What was once economical may now be expensive.
To take the edge off, look for your state’s tax-free shopping period and make your purchases then. You won’t be charged sales tax on certain items, up to a fixed amount. A couple of these special days may still be coming up for you in early August, which will be perfect timing to fix the kids up with many of the things they need for school, at a discount. To increase your savings, charge it to a credit card that offers rewards.
Who pays sales tax
As a consumer, you typically pay a variety of taxes throughout the year and for various events, including taxes on the money you earn as income on your home as property tax. Another common one is sales tax, which you are charged when you buy goods and services. The money generated for sales tax goes into the state’s coffers to pay for such things as infrastructure, fire and police departments, and public schools.
There are only five states in the country that don’t add this tax to a purchase: Alaska, Delaware, Montana, New Hampshire and Oregon. If you live in one of these states you enjoy a sales tax free holiday all year round. If you don’t, however, you’ll pay it every time you buy something, whether at the cash register or when you hit the “buy” button online.
Depending on the state you live in, the sales tax rate can be low or high. A 2022 roundup of rates conducted by the Tax Foundation found that Colorado has the lowest state sales tax rate, at 2.9 percent, while California has the highest rate at 7.25 percent. The nationwide average is 5.09 percent.
When you can get a sales tax break
Even if you reside in a state that does charge sales tax on purchases, you can avoid paying the tax during certain times of the year. Many states give residents who want to purchase items for education (and emergencies) a break on sales tax on these special weekends, making the things you need to buy just a little more affordable.
Check the Federation of Tax Administrators list of 2022 State Sales Tax Holidays to see if your state is on it, when the tax-free dates are for back-to-school items and a general breakdown of what you can get without taxes being added. A few examples for 2022 include:
— Connecticut: Aug. 21-27, clothing and footwear up to $100
— Florida: Through Aug. 7, school supplies up to $50, clothing up to $100, computers up to $1,500
— Illinois: Aug. 5-14, clothing and school supplies up to $125
— Missouri: Aug. 5-7, clothing up to $100, computers up to $1,500, school supplies up $50
— Texas: Aug. 5-7, clothing, backpacks and school supplies up to $100
— Virgina: Aug. 5-7, clothing up to $100, school supplies up to $20
Depending on the state you live in, some of those costs can be significantly lower when you shop during the sales tax free holiday.
For example, Tennessee has a 7% sales tax rate. If someone purchased a computer with a $1,500 price tag, the sales tax would be $105. If they bought it between July 29 and July 31, though, they would get to put that cash back in their pocket.
You can up the savings even more by making your purchases with a credit card equipped with a generous rewards program. There are a few ways to deepen the discount:
Spend toward a welcome bonus
Apply for and use a new credit card that comes with a sign-up bonus. With it you can purchase your children’s school supplies, and all that money you charge can go toward the card’s minimum spend. Once you hit the threshold, you will qualify for the bonus.
For example, the Bank of America Customized Cash Rewards credit card will give you a $200 online cash rewards bonus after you spend at least $1,000 with the card in the first 90 days of opening the account. That computer you bought for $1,500 will get you there. If you live in a state like Tennessee that charges 7% sales tax, the $105 tax savings plus the $200 bonus will put you ahead by $305. All you need to do is pay the balance in full by the due date and the discount is yours.
Use a cash back card that rewards back-to-school purchases
For example, if you have the Citi Custom Cash Card, you can earn 5% cash back on purchases in your top spend category every billing cycle, up to the first $500 you charge. Therefore, if you shop for your child’s school needs and spend $500, $25 will come back to you in the form of Citi’s ThankYou rewards points. You can redeem the points for cash back, gift cards and a variety of products. Add that money to your tax savings and you’ll lower the cost of those purchases. It may not seem like a lot at first, but every bit helps when money is tight.
Rotating category cards can help if the current quarter’s spending categories reward your back-to-school purchases. Unfortunately, most are rewarding summer fun from now through September. For example, Freedom Flex is offering 5 percent on gas stations, rental cars, live entertainment and movie theaters, and Discover It is offering 5 percent back on restaurants and PayPal — up to $1,500 per quarter. Purchases outside these categories get you 1 percent back.
If you have a variety of back-to-school purchases to make, a good flat-rate cash back card might be your best bet — and if you have one that delivers 2 percent, all the better. The Wells Fargo Active Cash® Card, PayPal Cashback Mastercard® and Citi® Double Cash Card are all good options.
Use a 0% APR balance transfer
Finally, if you want to make some large purchases but don’t have all the cash to pay for them in full before the due date, you may also consider a credit card that doesn’t charge any interest for a specific number of months.
In general you will need good credit, but if you can qualify for a 0 percent APR card, you can make your purchases and carry over the balance without financing fees increasing the cost. Capital One Quicksilver Cash Rewards Credit Card, for instance, gives you 15 months to pay off purchases, interest-free. It also comes with a $200 cash bonus to claim after you charge $500 on purchases within the first three months of opening the account.
The bottom line
As you prepare for the upcoming school year, it pays to know which days you can shop for the things your child needs so you can pay nothing or a lot less in sales tax. No one knows when inflation will slow down. But, according to Bankrate’s latest economic indicator pool, many economists predict it will be worse than expected.
So, it’s more important than ever to identify deals to lower your costs when you can. Charge those back-to-school purchases with one of the best rewards cards, in conjunction with special sales tax free days, and you can magnify your savings when you need it most.
———
