Retailers fret over tax-free week loss

Md. businesses worry D.C. will siphon off sales

Assembly didn't re-enact plan

August 03, 2002|By Gus G. Sentementes | Gus G. Sentementes,SUN STAFF

As the back-to-school shopping season approaches, Maryland consumers won't see a repeat of the tax-free shopping week held last August. The General Assembly didn't re-enact the measure because of the state's tight fiscal situation.

Retailers are disappointed and concerned that Washington, which is having a 10-day tax holiday beginning Friday, will siphon off sales, said Tom Saquella, president of the Maryland Retailers Association.

"A lot of members have expressed to me their disappointment that they're not going to have a tax-free week," Saquella said. "It went very well, and they looked forward to doing it again this year, since sales haven't been all that great, especially in the apparel area."

Last year's first-ever tax-free week - dubbed Shop Maryland Week - gave consumers a chance to save on the state's 5 percent sales tax on clothing or footwear costing less than $100. Washington also had a tax-free period last summer, which lasted 10 days and offered a tax break on school supplies, in addition to shoes and apparel.

Maryland is among a handful of states that have given tax holidays in the past but haven't scheduled one this month. New York gave the first tax-free shopping holiday in 1997, and several states and municipalities have since used the tactic to boost retail sales of everything from clothes and shoes to sports equipment and computers.

"Last year, we had a very significant increase during the period," said Edward Goldberg, Macy's vice president for government affairs. "Taxpayers came out and showed their support for it. ... I think all of us as citizens like to see tax reductions."

Saquella estimated that the association's members last year saw a 30 percent increase in sales for the week and a 20 percent jump for the month. The sale of taxable merchandise, such as home products, also received a boost.

The state comptroller's office, which is responsible for state tax collection, conducted a report that estimated the state lost $5.1 million in sales taxes last year during the weeklong period. Sales tax revenues from clothing-related categories were down 5.2 percent last year compared with the corresponding period in 2000, the report showed.

"The comptroller felt [tax-free week] was great for the consumers as well as the businesses in the state of Maryland," said Michael D. Golden, spokesman for Comptroller William Donald Schaefer. "Balancing that with the small amount of revenue lost, it really was a win for everybody."

Critics see little value

Some experts said tax-free shopping holidays offer little value to consumers and only benefit retailers. And what sales retailers do capture during a tax-free period might be offset by a drop-off in sales at other times, they said.

"They are purely political gimmicks," said David Brunori, a contributing editor to State Tax Notes and a public policy professor at George Washington University.

"Basic economics will tell you that if more people are shopping that week, prices are going to go up. ... There's all sorts of scholarly and anecdotal information that shows that prices are higher during [a sales tax holiday]. So what happens is the consumer may save up to a couple of percentage points on the item, but you might pay 10 percent more on the underlying good."

Peter S. Fader, a marketing professor at Wharton School at the University of Pennsylvania, said it's misleading for states to institute and promote tax-free holidays, which usually offer only a shallow price cut.

"Of course the retailer is benefiting from it because it's creating traffic in their stores," Fader said. "And they're not laying out any promotional money for it."

D.C.'s third of year

In Washington, which begins its third tax-free shopping period next week since last summer, retailers are expecting a big sales boost based on last year's results, said Mary Rudolph, regional affairs director for the Greater Washington Board of Trade.

"I don't know if they'll do better because Maryland is not going to have one, but I can tell you they expect an increase in business because they saw a bump last year," she said.

Back-to-school shoppers took advantage of Maryland's tax-free break in August last year to stock up on clothing and footwear for children.

At Payless Shoesource in Ellicott City, store manager Christina Kirts said, "There were just more customers out, and they were buying more."

Other retailers not directly tied to the annual back-to-school shopping frenzy nevertheless saw a spike last year - but they're not holding their breath for a similar one this year.

"We were up about 20 percent, and also up for the whole month," said Stanley Zerden, general manager of Queen's, a large-size women's store in Old Town Mall in East Baltimore.

He said the brief tax holiday will be missed by many of his low-income and middle-income customers.

Said Zerden: "The sales tax is a very regressive tax that punishes the low income customer."

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