A legislative finance committee has proposed cutting Connecticut”™s sales tax to 5 percent from its current 6 percent level for most items, as retailers followed up a perhaps better-than-expected holiday shopping period with a disastrous January.
The proposal is currently under consideration by the Finance, Revenue and Bonding Committee of the Connecticut General Assembly, and was the subject of a hearing last week in Hartford. The committee”™s co-chairs are Westbrook Sen. Eileen Daily and New Haven Rep. Cameron Staples.
The same bill would eliminate some current exemptions from Connecticut”™s sales and use tax, which applies to products bought in other states for use or consumption here.
Sales tax collections in Connecticut dropped by a third in January, according to the state Department of Revenue Services, including purchases by both consumers and businesses. Only the month before, the department reported a December lift in sales tax collections compared with a year earlier, despite the U.S. Census Bureau reporting retail sales nationally were off nearly 10 percent between December 2007 and 2008.
The gloom extended into the new year, after the National Retail Federation forecast a half-percentage point drop in retail sales for 2009, including the fourth quarter which is expected to record a 3.6 percent year-over-year gain due in part to comparisons with the weak holiday shopping season in 2008.
NRF excludes automobiles, gas sales and restaurant tabs from its forecast.
Like other states, Connecticut officials have considered expanding the use of tax holidays this year to help retailers spur sales. The Connecticut Retail Merchants Association, however, fears that the budget crisis in Hartford may force lawmakers to slam the door on any such holidays in the near future and possibly strip other breaks such as the tax exemption on sales of clothing under $50.
Any permanent cut in Connecticut”™s sales tax could provide an economic boost, particularly for towns such as Greenwich, Stamford, Danbury or Mystic that couple significant retail districts with close proximity to a neighboring state with a higher sales tax.
The Connecticut deliberations come even as New York City considers increasing its municipal sales tax from its current rate of just under 8.38 percent to 8.75 percent, which would siphon $900 million from consumers and businesses. New York”™s statewide sales tax is just 4 percent, but local governments can tack on up to 4.5 percent more in sales taxes.
At the other end of Long Island Sound, Rhode Island is likewise considering a cut in its sales tax to 5 percent, from its current level of 7 percent.
Stamford remains the retail capital of Connecticut, with its $11.4 billion in sales tax collected in 2007 fully 43 percent above that of Stratford, the No. 2 revenue generator for the state. East Hartford, Danbury, Manchester and Norwalk round out the top half-dozen retail areas.
For industry-specific retailers, however, different pockets have predominance. Greenwich vies with Hartford for the highest sales in automobiles; Milford has nearly the same amount of furniture and home furnishings business as the next three markets combined, including Norwalk. Westport is decked out as the top clothier in the state. Bridgeport generates by far the largest sales from beauty and health-care product sales.
