Tax holiday idea may be chilling sales

Associated Press

OLYMPIA — The precarious state of Sen. Patty Murray’s proposed tax holiday has Washington’s car dealers steaming about customers reluctant to buy now and perhaps miss a big discount.

State officials worry about the tax dollars that could be lost in an already tough budget climate if consumers keep postponing those big-ticket purchases.

Three weeks ago, Murray, D-Wash., proposed suspending state sales taxes for 10 days during the holiday shopping season as a way to stimulate the nation’s economy. Her plan envisioned federal reimbursement for the tax dollars that would be lost.

Although the proposal made splashy headlines around Halloween, Congress broke for Thanksgiving without approving it, so Murray’s "let’s go shopping" bill will miss at least one of the year’s busiest shopping weekends.

But Murray is not willing to give up. That has retailers who handle big-ticket items such as cars grinding their teeth. Customers browse, they say, but put off buying in hopes that a tax holiday will lop more than 8 percent — $1,600 on a $20,000 vehicle — off the price.

"If it had never leaked to the public we’d be a lot better off," said Chud Wendle, owner of Wendle Motors in Spokane. Dealers were doing record business in October, thanks to zero-interest financing offered by car manufacturers after the Sept. 11 terrorist attacks.

But Wendle said he closed 20 percent fewer deals in the first two weeks of November than he did in the first two weeks of October, even though the zero-interest financing is still available.

"A large part of that is the consumer waiting for this alleged tax holiday," Wendle said.

Dealers across the state report similar reluctance, said Vicki Fabre, executive vice president of the Washington State Auto Dealers Association.

Murray’s office holds out hope that the idea can be attached to a larger economic stimulus package bill in time for last-minute Christmas shoppers.

"It continues to be a good idea and will continue to provide stimulus to an economy that is in desperate need of stimulus," said Todd Webster, Murray’s spokesman. "We hope to get it in the economic stimulus package after Thanksgiving."

Meanwhile, a big drop in sales of cars and other big-ticket items would translate into a similar drop in sales tax revenue. But there’s no way to precisely measure the impact of Murray’s proposal yet, because tax returns for this month aren’t due for weeks, said Mike Gowrylow, a state Department of Revenue spokesman.

For Gov. Gary Locke’s budget writers, a phantom tax holiday looks like more bad news in an autumn already loaded with rising costs, shrinking revenues and unpleasant choices.

"It may be having the opposite effect on the state economy if it is indeed the case that people are refraining from spending on big-ticket items in the hope or in the anticipation that there is going to be a tax holiday," said Irv Lefberg, a top official in Locke’s Office of Financial Management.

Locke agreed to support the proposal and call a special session of the Legislature to take advantage of the tax holiday only if several conditions are met, including dollar-for-dollar reimbursement from the federal government. So far, the conditions haven’t been met, said Dana Middleton, Locke’s press secretary, and the logistics of putting the holiday into effect this year would be nearly insurmountable.

Critics and policy experts cast doubt on the tax holiday’s chances even as Murray and Sen. Olympia Snowe, R-Maine, floated the idea.

The two senators wanted federal taxpayers to pick up the tab for the states’ lost revenue — roughly $6.5 billion. But five states don’t have sales taxes, and their senators might have been unwilling to support the plan.

Seven states and Washington, D.C., have tried temporarily halting sales taxes, some of them in the summer before the school year starts.

Washington would need reimbursement of about $200 million lost to state and local governments, according to the state Department of Revenue.

Washington’s sales tax, currently more than 8 percent in most areas, supplies nearly half the revenue for the state treasury. Washington has no income tax.