Stateline Story

New York Sales Tax Holidays Prove Popular Idea

With New York planning to make its temporary clothing sales tax holidays permanent on March 1, other states are considering copying the limited-time tax breaks popularized by New York, Texas and Florida.

Dec. 1 was to have been the day the sales tax on attire was lifted for good. But under a deal reached earlier this year between Governor George Pataki and legislative leaders, a three-month delay was imposed to allow the state to bring in approximately $150 million in tax revenue during the Christmas shopping season.

The popularity of New York's four previous, week-long, sales tax holidays that Pataki says saved New Yorkers an estimated $350 million since January 1997already has spurred Florida and Texas to enact temporary tax-free periods of their own. And now lawmakers in Michigan and South Carolina are poised to follow suit.

Wisconsin Gov. Tommy Thompson's proposed Christmastime sales tax holiday was rejected by the legislature last month in favor of individual rebate checks.

The sales tax holidays are generally scheduled for early September, when working class families can take advantage of the savings on back-to-school items.

"The tax-free week provided working families an opportunity to increase their purchasing power, while also helping merchants by keeping more shoppers in New York. With the permanent exception coming, working families can keep more of their money," Governor Pataki said in announcing the new date for lifting some sales taxes for good.

While the previous temporary exemptions applied to clothing and footwear costing up to $500, the permanent exemption will apply to articles priced up to $110. Clothing and footwear are defined by New York law as any article worn on the body, including jewelry, watches and certain sporting equipment.

Michigan lawmakers, noting the 20-25 percent upswing in sales during the New York holiday periods, have introduced no fewer than 10 bills proposing a variety of exemptions from that state's 6 percent sales tax.

According to the state office of revenue, sales tax collections amounted to $5.9 billion in Fiscal 1999, up 5 percent from the year before.

The plan receiving the most support in Michigan so far is a proposal to create a two-week tax holiday around Labor Day. Estimates are that the two-week tax hiatus on purchases up to $500 would save consumers between $16 and $28 million annually.

"A brief window is responsible and doable and can give a real break to working families trying to stretch their dollar," said state representative Nancy Cassis, the sponsor of the bill.

Cassis is a native New Yorker and says she got the idea from a visit to the state during one of its sales tax holidays.

Republican Gov. John Engler has not endorsed the idea of tax holidays.

"It's not a proposal I've made or looked at in a serious way," Engler said in a statement responding to the Cassis proposal.

The most sweeping Michigan proposal would make February 20 tax-free for any purchase, without limit.

State Treasurer Mark Murray said that unlike New York, Michigan is not a destination for out-of-state shoppers. He fears that rather than generating new sales, a tax holiday would merely shift the time when purchases are made.

Murray added that three-quarters of sales tax revenue goes to the state's School Aid Fund and that the administration would prefer to pursue other, unspecified tax cuts.

Earlier this month, South Carolina Governor Jim Hodges proposed a three-day exemption from the state's 5 percent sales tax on back-to-school items ranging from clothing to computers during the first weekend of August.

Hodges' proposal, which was welcomed by legislative leaders, would save consumers an estimated $5 million annually, he said.

Wisconsin Gov. Tommy Thompson's proposed Christmastime sales tax holiday was greeted with much less enthusiasm in the legislature. Key legislators pronounced the plan dead almost immediately, saying public support for the proposal was severely lacking.

Thompson's plan would have voided the state's 5 percent sales tax from the day after Thanksgiving until New Year's Eve on purchases under $500. Consumer savings would amount to $400 million, the Republican governor said.

But legislative leaders pushing for an annual sales-tax rebate rejected the idea.

Lawmakers instead approved a $700 million rebate in the form of checks to be sent directly to an estimated 2.5 million taxpayers. The average check will amount to $271 and will be linked to taxpayers' adjusted gross income on their 1998 state income tax filing.

For married couples, the rebates will range from $360 to $534, while single tax filers will receive between $184 and $267.

Under Thompson's proposal, the average Wisconsin couple would have had to make $9,000 in purchases to get the same savings as under the rebate plan.

Rebate checks are scheduled to arrive in late December or early January, and are expected to give a boost to holiday sales.