NEW YORK CITY SALES TAX ON CLOTHING: AN ANALYSIS
The City of New York and the State of New York have cooperated to enact legislation to eliminate the sales tax on all articles clothing that are priced at less than $500. The change in the sales tax laws will become effective 1 January 2000.
This research examines the derivation of this change in the sales tax on clothing in New York, together with the arguments for and against the change. Additionally, the sales tax change is assessed within the contexts of equity, administrative ease, political implications, economic impact, and revenue adequacy.
Derivation of the Change in the Sales Tax on Clothing
The argument that lower taxes leads to higher levels of economic activity has been going on since taxes were first imposed. After these eons of time, however, proponents and opponents of the argument still are able to cite figures (not necessarily hard data) supporting their own positions. New York City, however, is in a somewhat unique position with respect to the impact of sales taxes. With 37 percent of a massive metropolitan area population residing more or less centrally in the region, high sales taxes imposed within the city can be avoided easily by the residents of the city by simply shopping across the state line in a lower-tax area·primarily New Jersey.
New York City Mayor Rudolph Giuliani has been pressuring the State of New York to eliminate or reduce the sales tax since his election to the post. In 1997, Giuliani persuaded the State of New York to cooperate with the City of New York to eliminate for a one-week test period the combined state and city sales tax of 8.25 percent on items of clothing and footware priced under $500 (Listani, 1997). The tax holiday was such a success according to its proponents that they began a campaign to make the change permanent.
The State of New York legislature enacted a bill in the summer of 1997 to reduce the sales tax...