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Tax-free shopping returns Aug. 9-18

(Published July 29, 2002)


Staff Writer

Buoyed by last yearís results, D.C. officials have decided to hold a second "back-to-school" sales tax holiday this August.

Beginning on Aug. 9 and continuing through Aug. 18, shoppers will be able to make tax-exempt purchases in the District of clothing, footwear and school supplies costing $100 or less per item.

This year, the District wonít have competition from neighboring jurisdictions, since Maryland has opted not to have another sales tax holiday for back-to-school shopping.

"We are the only game in the region," said Councilwoman Carol Schwartz, R-At Large, who proposed the sales tax holiday. "This one, we hope, will be the biggest success of all."

The D.C. Office of Tax and Revenue estimated almost no revenue loss from last Augustís tax holiday, Schwartz said. However, city officials reported that an additional tax holiday the District held last November resulted in a revenue loss of $600,000.

This year, city tax officials estimate a revenue loss of $390,000 from the upcoming August sales tax holiday.

Schwartz said that estimate is meant as a "worst case scenario." She said the estimate considers sales tax losses only, without taking into account additional money the city will make from out-of-state shoppers. She noted that some are likely to also spend money on taxable items costing more than $100, eat in D.C. restaurants, park in D.C. garages and pay D.C. parking meters, thus stimulating the cityís economy.

Furthermore, she added, the sales tax holiday is supposed to boost the overall economy in the long run by encouraging people to shop, even if money is lost in that one week.

"I want to see our stores full and many D.C. residents and suburbanites taking advantage of these savings," Schwartz said.

For persons with lower incomes, Schwartz said "the 5.75 percent (tax break) makes a big difference in their lives." Schwartz said she hopes the holiday will give these people, as well as others, an opportunity to purchase the clothing and supplies they need at a price they can afford.

Schwartz said she heard favorable reports about the tax holidays last year from retailers. Hechtís, the Districtís remaining downtown department store, reported that business was up 40 percent during the first three days of the last sales tax holiday, which began last Nov. 23 as an effort to increase sales after the Sept. 11 terrorist attacks. Urban Outfitters in Georgetown reported a 13 percent increase in sales, Schwartz said.

In addition, Schwartz said many retailers offered additional price reductions in order to show their support of the holiday.

"Retailers were thrilled," said an aide to Councilman Harold Brazil, D-At Large. "And it didnít cost us much money."

In a random check of D.C. retailers, The Common Denominator failed to turn up any sales specifically targeted to this yearís tax holiday, although stores appeared to be aware of the upcoming event.

At this point, there is no clear evidence that the sales tax holidays have done much to promote the Districtís overall economy. Research results from the Center on Budget and Policy Priorities, a nonpartisan research organization, show that, in general, there is no evidence of overall sales increasing in places that implement a tax holiday.

"Youíll see an increase in activity that week, but youíll probably see a decrease in later weeks," said Ed Lazere, a staff member at the center. In addition, he said, there have been studies done in other states showing that stores actually offer fewer discounts than they normally would during the sales tax period.

As far as providing savings, "if you put a sign reading 5.75 percent off in the store windows, it probably wouldnít draw people in," he added.

However, the Center on Budget and Policy Priorities has not conducted research specifically on the Districtís tax holidays. Lazere acknowledged that a border area such as the District may prove to have better results.

Copyright 2002, The Common Denominator