Cash In On Consumer Tax Refunds

By George Case, Faculty Member, Retail Management at American Public University

Whether it is a TV advertisement, online banner, magazine ad, or billboard on the daily commute, there’s no avoiding the message that tax season is in full swing. While few enjoy the process of completing taxes, a many do revel in the result—a tax refund check. And for retailers, tax season represents so much more. It means a boost in sales due to the annual uptick in disposable income for many consumers receiving tax refunds. Just how much of a boost? According to “The Impact of Tax Refunds on Average U.S. Families,” an online report hosted by the American Tax & Financial Center at TurboTax (based on recent IRS data):

• An estimated $230 billion in federal tax refunds will be issued this year to the nation’s taxpayers.
• In 2012, the average federal tax refund averaged $2,700 equaling more than a month’s worth of income for two-thirds of taxpayers or more than three months of groceries for the average family of four.

To capitalize, retailers must strategize how best to benefit from the seasonal monetary influx and ensure they have enough “inventory” on hand to meet consumer demand. To do so, retailers should focus on understanding customers’ needs and their access to money. So how do retailers ensure they have first shot at attracting consumers to their business? For large retailers, the answer has been to literally bring it “in-house.” Walmart, the world’s largest retailer has agreements with three of the biggest tax preparation companies in America: H&R Block, Jackson-Hewitt, and Liberty Tax Service. In virtually any Walmart, you’re likely to encounter a tax preparation specialist. Walmart charges a minimal fee (and often times it is free) for basic tax return preparation and filing. By proximity, Walmart conveniently creates the first opportunity for the consumer to spend his or her tax refund on its merchandise and services.

With the advent of e-filing, consumers can choose to receive a prepaid debit card loaded with their refund balance to use immediately in the store. In fact, Virginia and Oklahoma have announced that state refund checks will no longer be issued in lieu of prepaid debit cards and banking direct deposit. The trend of swapping refund checks for debit cards clearly has positive implications for retailers and it serves the needs of in-store filers who enjoy access to spending their refunds without delay.

According to the U.S. Census Bureau there is a significant jump in Retail Sales from January through March of each year as consumers allocate their tax refunds:

• 2007 = +14%
• 2008 = +9%
• 2009 = +6%
• 2010 = +15%
• 2011 = +16%
• 2012 = +17%                      

It’s interesting to note that the higher amount of spending primarily comes from early filers. Eighty-four percent of those who file before February 15 receive a refund based on previous years. Only 50 percent of those who file in April receive a refund. Due to recent tax structure changes the U.S. Treasury is not permitting citizens to file their returns this year until January 30. This means that there is still time for smaller retail firms to prepar