Local retailers say the increase in sales tax on clothing in the new state budget could hurt holiday sales or force more discounts.
The state budget, passed by the Legislature Tuesday night, closes a $9.2 billion budget gap through a mixture of program cuts and tax increases. Changes to taxes will take effect in the coming months, including the reinstatement of the state’s 4 percent sales tax on clothing and shoes costing less than $110. The budget also takes previous tax revenue recommendations off the table, including selling wine in grocery stores.
“We’ll be watching to see how this affects Christmas shopping,” Ted Potrikus, executive vice president of the New York State Retail Council, said. Even without the tax, experts were predicting modest holiday sales this year, he said.
“The best we can do is mitigate the problem this Christmas. Consumers can still count on retailers putting things on sale,” he said.
The 4 percent sales tax, to be reinstated Oct. 1, is projected to raise $330 million for the state. The clothing sales tax will change again on April 1, 2011, when items under $55 will become exempt from the 4 percent tax, Susan Burns, spokeswomen for the state Department of Taxation and Finance, said. On April 1, 2012, the tax will be lifted from all clothing and shoe items under $110.
Burns said the 4 percent increase will likely bring clothing taxes in the state to around 8 percent. Most counties tack about 4 percent on top of the state rate, and do not tax what the state does not.
Ashok Mirpuri is the owner of Paisa Mizer, a clothing and gift shop located on Jay Street in Schenectady. He said the tax will likely affect the Christmas shopping season, especially for small businesses like his.
“I don’t know if it will make any difference, but keeping it at 4 percent encourages people to buy more things,” Mirpuri said. “And in this economy, when sales are already down, we would like to keep the tax down.”
Mirpuri said the tax increase did not matter much to him because he is planning to retire soon, but he said he hoped lawmakers would keep small business in mind when they change the sales tax.
In the past, the state has made good on its promises to lower the tax on time, Potrikus said. So consumers can expect the clothing tax to drop back to current levels on April 1, 2012. And although the tax increase will be tough on merchants this season, Potrikus understands lawmakers had to do what they could to pass the budget and is glad back-to-school shopping won’t be affected. “They were trying to make lemonade out of lemons,” he said.
Another tax, this one scheduled to begin on Sept. 1, is the “Expedia Tax,” which will require online, third-party hotel sales to include a 4 percent sales tax on their profits. Online travel sites like Orbitz or Expedia buy hotel rooms in bulk at a reduced price and then sell them for more. These sites were not paying the lodging tax on the difference, said Erik Kriss, spokesman for the state Division of the Budget.
Several of Gov. David Paterson’s tax suggestions did not make it into the new budget. One would have made it legal for grocery stores to sell wine in exchange for a tax and another was a tax on sugary soft drinks. Kriss said Paterson is disappointed the taxes did not pass the Legislature, as they would have generated a combined total of more than $550 million in comparison to the $330 million from the clothing tax and the $10 million projected from the “Expedia Tax.”
Now that the budget has passed, controversy regarding the sale of wine in grocery stores will die down until the next administration decides whether or not to take up the issue, Kriss said.
Paterson “thought there were better ways,” Kriss said. “This tax hits virtually everybody. It’s not really a choice to have shoes on your feet and clothes on your back. But in the name of balancing the budget the governor went along.”