Evade Md. taxes legally this week

State is forgiving its 5% sales levy for 5 days on some items

August 22, 2006|By ANDREA K. WALKER | ANDREA K. WALKER,SUN REPORTER

For five days this week you can refuse to pay your taxes and not be considered a cheat.

The state is lifting its 5 percent sales tax on certain clothing and shoes from Wednesday through the weekend.

The brief tax holiday covers items such as coats, belts, pants, shoes and sweaters that cost less than $100. Accessories such as ties, handbags and jewelry aren't included.

State officials say the promotion benefits consumers and retailers. Consumers get a needed discount during the busy back-to-school shopping period and retailers see a boost in traffic. The promotion is also meant to encourage consumers to shop at Maryland stores, which face stiff competition from neighboring states and jurisdictions. Delaware has no sales tax and Washington and Virginia have their own tax holiday sales.

"It really drives customer traffic, there's no question about it," said Tom Sequella of the Maryland Retailers Association. "Retailers are as mystified by it as anybody. They'll have 50 percent and 60 percent sales, and it doesn't generate the same traffic at what is essentially a 5 percent sale."

But critics of the plans say they amount to little more than publicity stunts, and that the savings for consumers is minimal. Retailers may experience higher sales during the tax holiday, but some of the increase comes at the expense of sales later.

"Some studies show that tax holidays are not actually done in ways that end up having a long-term benefit to the customer or the retailer," said Gregory Fairchild, a professor of business administration at the University of Virginia Darden School of Business. "I think economically they're like the party you went to when you were a kid and there was a lot of cake and ice cream and fun, but after that party you end up with a stomachache."

Many states used to shy away from the plans because they cost tax revenue. New York gave the first tax-free shopping holiday in 1997. The increased interest might lie in politics, experts said.

"I think you see more states doing it because it's a great thing for the politician to say, "We're saving you money,'" said Britt Beemer, of America's Research Group, a retail consultancy that tracks consumer shopping habits.

Gov. Robert L. Ehrlich Jr., who is running for re-election, was recently criticized by Democrats for using first lady Kendel Ehrlich and their 7-year-old son, Drew, in a promotional spot for the event.

Maryland held its first tax holiday in 2001 but waited five years for the next one in part because of a tight budget.

The state lost about $5.1 million in sales taxes during the weeklong period, according to the state comptroller's office. It is expected to lose $5.5 million this year.

Sequella said some of the losses are offset by increased purchases of goods not covered under the tax holiday.

In 2001, revenue losses were about 20 percent less than expected, Sequella said.

"I think of it as a paperless coupon," said Del. Jean B. Cryor, a Montgomery County Republican who introduced the legislation for the holiday.

"It's a catalyst to get people into the store," Cryor said.

Divah Inc., a Baltimore-based women's clothing store, expects to be busier because of the tax exemption.

"I'm hoping more customers will come shopping because they know there won't be any tax," said Linn Koo, the company's president.

Towson Town Center mall has been gearing up for the promotion for the past two weeks, putting up signs throughout the mall and promoting the event in its newsletter.

"We're hoping to keep the dollar here and bring in some shoppers from Delaware," said Samantha M. Harris, marketing manager at the mall.

Shoppers at Towson Town Center had differing reactions to the potential savings. Many hadn't heard of the tax holiday.

Gail Branch, 42, and her daughter Denea Curry, 17, said the 5 percent savings aren't enough for her to delay shopping until the end of the week. She also didn't like that only certain items qualified for the tax-free savings.

"I can go across the [Bay] Bridge and get everything I want tax free" in Delaware, Branch said.

But Louisa Townsend, a Realtor from Sparks, said every little bit of savings makes a difference when school shopping for her three daughters.

"It's five bucks on a hundred dollars," she said. "It's worth it if you're buying a lot. You can just get more stuff with the money you save."

andrea.walker@baltsun.com

Tax-free days

What:

Maryland sales tax holiday.

When:

Tomorrow to Sunday.

Tax break:

Some items of clothing and footwear that cost less than $100 are exempt from the 5 percent sales tax.

What it covers:

Belts, coats, pants, jackets, shoes, socks and sweaters.

What it doesn't cover:

Handbags, jewelry, ties, umbrellas, clothing or footwear designed for protective use, such as football pads.

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