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D.C. braces for tax holiday

Merchants expect some bookkeeping headaches

(Published July 30, 2001)

By CHRIS SMITH

Staff Writer

Ready or not, the District is bracing itself for the best and worst of its first-ever "Sales Tax Holiday," which begins Aug. 3 and continues through Aug. 12.

While the "holiday" was designed to stimulate retail sales in the District, some smaller merchants question whether city officials thought about the negative aspects a one-week tax holiday on only selected items would have on their business operations. Merchants are required to pay sales tax on a monthly basis.

The creation of the Sales Tax Holiday by the city government is a response to what Councilwoman Carol Schwartz, R-At Large, called a "disheartening" loss of retail businesses and jobs in the District within the last decade. Schwartz said a 16 percent drop in sales tax revenue has resulted because increasing numbers of D.C. residents are shopping outside of the city, where taxes are lower.

"The result for D.C. has been ... a continuing decline in revenue," she said.

Schwartz said she believes the event will help lure shoppers from the suburbs as well. The District has a seven-day jump on the start of Marylandís statewide tax holiday, which will be Aug. 10-16.

"Everyone wins with a sales tax holiday - from the customers who save money, to the newspapers who sell ads, to the stores that sell the merchandise and to the city - which is sure to attract more shoppers with this event," Schwartz said.

However, some merchants do not see the Sales Tax Holiday as a winning situation.

Ian Douglas, owner of Douglas Discount and Variety, said he is unhappy that city officials did not take into the consideration the needs of small businesses, such as his own, when implementing the effort.

"The city did not allow enough time for smaller businesses to make adjustments," said Douglas, who has been at his 2018 Rhode Island Ave. NE location in Woodridge for 16 years. "Reprogramming cash registers requires extra cost that is not going to be compensated by the city government. The cash registers also have to be reprogrammed again after the tax holiday."

Douglas said he is "unhappy with the law requiring participation in the tax holiday, but I have to comply or be fined. The city government needs to start doing something for small businesses. Right now they are doing nothing."

The 10-day break from the Districtís 5.75 percent sales tax will coincide with the time many parents are making back-to-school purchases. Shoppers can purchase an unlimited amount of clothing, shoes and school supply items valued at $101 or less and pay no sales tax. More expensive items remain taxable.

Schwartz, along with Councilmen Jack Evans, D-Ward 2, and Vincent Orange, D-Ward 5, introduced the legislation to create a tax-free holiday last October, and revenue projections to support the event were ratified May 9 by the cityís Office of the Chief Financial Officer.

The council members discussed the legislation of the tax-free holiday with local businesses and received "great support" from them, said John Abbot, press secretary for Schwartz.

"We introduced the legislation because it is a proven means of providing targeted tax relief to working families while also stimulating retail sales and local economic activity," Schwartz said at a June 12 press conference.

D.C. schoolchildren took home a flier during the week of June 11 announcing the tax holiday Ė giving parents a heads-up on the savings to come, Schwartz said.

And everyone will be eligible for the savings Ė not just back-to-school shoppers, she said.

One of the major participants in the Sales Tax Holiday, CVS, is happy to have the opportunity to work with Schwartz in helping stimulate retail business within the District, said Mike DeAngelis, a spokesman for the Rhode Island-based pharmacy chain that operates 48 stores in the District.

"The back-to-school period is an for important time for CVS as far as sales go," DeAngelis said, "and the Sales Tax Holiday in the District is a great fit for us in early August. I am certain the Sales Tax Holiday will increases sales in the District."

Naturally, retail stores experience an increase in business during the back-to-school season. But with the added incentive to shop 10 days tax-free, businesses are undergoing the burden of preparing for even more customers this year.

Store managers, such as Reginald Kearney of the Ames Department Store in the Rhode Island Avenue Shopping Center in Edgewood, are already making preparations for the onslaught of customers.

"I am looking forward to a big boom in business," Kearney said. "I have ordered shipments of extra merchandise to put out, and I expect this to be a good week for us."

Ninety percent of Amesí customers are right from the neighborhood, Kearney said, many within walking distance of the store. However, he said he hopes his store, the only Ames located in the District, attracts business from Maryland as well.

"I hope people from Maryland drive in and take advantage of the Districtís tax-free holiday," Kearney said.

CVS and Ames do not expect to have the same sort of problems during the Sales Tax Holiday that smaller merchants are anticipating. DeAngelis said CVS has personnel assigned to reprogram computers and take care of tax paperwork so things will run smoothly throughout the tax holiday. The Amesí corporate office will download a program into the cash registers enabling them to exclude sales tax from certain items, Kearney said.

After the Sales Tax Holiday ends, retail businesses will have the extra responsibility of documenting the tax exemptions in their monthly tax report, which is due Sept. 20.

The D.C. Office of Tax and Revenue put out a notice July 9 to businesses in the District, whether they owned a store or not, announcing the exemption period and instructions on filing taxes, said Richard Sella, chief officer in the Department of Returns and Processing.

"Retailers filing monthly or annual sales and use tax returns should enter the total amount of tax exempted due to the Sales Tax Holiday along with any other exempt taxes on line 11 of the sales tax portion of the tax return," Sella said.

Copyright 2001, The Common Denominator