Pataki Sales Tax Irks Stores

NEW YORK — Retailers gave the thumbs-down to New York Gov. George E. Pataki’s proposal to reinstate the sales tax on apparel and footwear under $110.<br><br>As part of a budget proposal full of what he called "tough choices," Pataki said...

NEW YORK — Retailers gave the thumbs-down to New York Gov. George E. Pataki’s proposal to reinstate the sales tax on apparel and footwear under $110.

This story first appeared in the January 31, 2003 issue of WWD.  Subscribe Today.

As part of a budget proposal full of what he called “tough choices,” Pataki said Wednesday he would ask the legislature to reinstate the state’s 4 percent sales tax on apparel and footwear costing less than $110. That tax was dropped in March 2000, toward the end of the U.S.’s economic boom. An official in the state budget office, who spoke on condition of anonymity, said the government expects the reinstated taxes to bring in an additional $363 million in revenue for the fiscal 2003 and 2004 budget years. The state’s fiscal year begins in July.

Pataki also proposed having four weeks a year when the state would not charge sales tax on apparel and footwear costing up to $500. Those weeks would be in January, April, July and September.

“We are disappointed to see this sales tax exemption go away,” said Ed Goldberg, vice president of government affairs for Macy’s East. “We are still facing competition from surrounding states, such as New Jersey, that don’t charge sales tax on ready-to-wear and footwear. The 8 1/4 percent [which includes the 4 1/4 percent New York City tax on nonexempt items] has always been viewed as a very regressive tax on the consumer. While we are disappointed, we understand there is a major fiscal crisis. We had hoped there would be other ways to solve the issues.”

Goldberg added that Macy’s was thankful for the four-week sales tax exemption proposal. “But there is an Achilles’ heel. If a jurisdiction doesn’t wish to participate, they don’t have to. White Plains, for example, has not participated in the past. They probably would not participate in this. I’m afraid many other jurisdictions might opt out as well. [Former New York] mayor Giuliani was a strong supporter of rescinding the sales tax, but Mayor Bloomberg is confronting different fiscal issues.”

Macy’s and other retailers will plead their case through the New York Retail Council lobby group in Albany.

“We are at the point in New York where whenever they instill anything for the consumer, they shouldn’t take it away,” said Stefani Greenfield, owner of Scoop, the six-unit specialty store retailer in New York. She suggested they keep the sales tax exemption and add the four one-week exemption periods for clothing under $500. “It’s tough times out there. A lot of our customers don’t realize there’s no tax under $100, and when we tell them, they’re very excited. It’s a nice perk.

“You should increase the desire, rather than put a bad taste in the consumer’s mouth. I understand the city needs the money, but they shouldn’t take it out of the consumer’s pocket. It creates confusion,” she added.

Joel Silverman, chief operating officer of Blade Board & Skate, a 15-unit chain with seven stores here, is not a fan of the proposal and thinks it will only intensify the already challenging retail market. Tax exemption was one of the bonuses Blade used to try to attract out-of-town shoppers back to the city after the Sept. 11 attacks, he said.

“Creating another barrier for them to shop in New York City is a bad deal. We pull in a lot of customers from New Jersey and Connecticut because we have a lot of merchandise that is hard to find,” Silverman said. “We sell a lot of items under $110, especially footwear. We’d hate to see that taxed in a time that is already so difficult.”

Lower-income consumers tend to feel the sting of flat taxes more than the wealthy, and if approved, this would be exacerbating to teens who are in a difficult job market, he said. “If you only have $100 in your pocket to spend and the tax is going to take $8 from that, you’re only going to spend $92, not $108.”

“If business falls more, that will cause more attrition. Shoppers will spend less and pay more taxes on what they do buy,” Silverman said.

Beth Buccini, co-owner of Kirna Zabête, a SoHo boutique, said: “We don’t have tons of items less than $100. We notice an increase in traffic when we have tax-free weeks. It gives incentives to go out and shop.”

Pataki’s budget will have to be approved by the state Assembly and Senate. Assembly Speaker Sheldon Silver — who proposed dropping the tax on apparel and footwear costing up to $500 in 1995 — said he opposed reinstating the tax. In a speech responding to the budget proposal, he said the measure would “send shoppers back across the border to surrounding states to make their apparel purchases.”

The majority leader of the Senate is Joe Bruno, a Republican whose upstate district includes Rensselaer County and part of Saratoga County. A spokesman for Bruno said the senator would review the proposal, but had no initial strong feelings for or against it.

Competition with out-of-state retailers is a key issue in New York, both because of the city’s proximity to large suburban malls in Paramus, N.J., and because retailers regard commuters from New Jersey and other suburbs who work in the city as potential customers.

New York, under Giuliani, dropped its 4 percent local sales tax in March 2000, when the state dropped its tax. A 0.25 percent tax that raised money for the Metropolitan Transportation Authority was also dropped at that time. While the city has kept its tax off — and Mayor Bloomberg made no mention of reinstating it in his budget proposal this week — many other state districts have reinstated their sales taxes or never participated in the program in the first place.

Forty of the state’s 62 counties continue to charge sales tax on apparel and footwear costing under $110. Tax rates vary from 3 to 4 percent, with some municipalities adding other taxes.

Ted Potrikus, senior vice president of the New York State Retail Council, said some retailers had found the tax-free weeks, which had been held in the late Nineties as a test of the tax-free idea, did more to encourage shopping than the state’s full-time tax rollback. In fact, he said, “there are some in the retail industry who would suggest that four may be too many, that it may take away from the promotional lure to the consumer.” He said many retailers’ greatest concern was the fragmentation of the current system, and that stores would like a more uniform sales tax rate across the state. While emphasizing that he hadn’t seen the actual proposal, he said that, given the state’s current budget difficulties, retailers were not likely to come out swinging against the proposal.

“Clearly there’s a giant budget gap, and everybody’s talking about tough choices,” he said.