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Published January 29, 2013, 08:08 AM

ND considers scrapping sales tax on clothes

BISMARCK — Some lawmakers say they believe clothing is a basic necessity and have proposed legislation to eliminate North Dakota’s sales tax on clothes as a form of tax relief.

By: TJ Jerke, Forum News Service

BISMARCK — Some lawmakers say they believe clothing is a basic necessity and have proposed legislation to eliminate North Dakota’s sales tax on clothes as a form of tax relief.

Sen. George Sinner, D-Fargo, has proposed Senate Bill 2277, which he said has three benefits:

• Providing tax relief for everyone, regardless of financial ability.

• Providing relief for employees required to purchases their own uniforms, such as nurses.

• Putting North Dakota retailers on a level playing field with Minnesota and Montana, who do not have sales tax on clothing.

“It would affect tourism trade in North Dakota in a very positive way,” Sinner told the Senate Finance and Taxation Committee on Monday. “We can do something we talked about all through the campaign, provide tax relief to every North Dakotan.”

If enacted the change would go into effect August 1, and reduce the state’s general fund and state aid distribution fund revenues by an estimated $39 million for the coming 2013-2015 biennium. Cities and counties that impose a local sales tax would also be required to exempt clothing.

Currently, cities can add additional tax rates on top of the state’s 5 percent. Cities that add on a tax include Fargo at 2 percent, Grand Forks at 1¾ percent, and Dickinson at 1½ percent.

To compensate for lost revenue, $9.5 million from the state’s general fund would be appropriated to cities in two installments during the biennium by the state’s tax commissioner. There is no funding set aside to help cities after 2015.

Sinner pointed out a 2011 study by North Dakota State University that found an average farm family of 2.6 people spends $2,227 on clothing, and a family of four spends $3,000 a year, or $245 on sales tax.

He said during his fall campaign his constituents, especially women, loved the proposal.

“Women, as mothers and spouses, are the main buyers of clothing for the family,” he said. “So, I ask you, before you cast your vote ... please speak to the women in your life and ask their opinion.”

Sen. Connie Triplett, D-Grand Forks, is the only female senator on the committee. She said the concept would help provide lower income families with additional money, but she said she isn’t quite sure eliminating it completely is the right way to go.

“It may help a little to encourage those who travel elsewhere to shop locally,” she said.

Rep. Jessica Haak, D-Jamestown, testified in favor of the bill and said many local businesses compete against online retail stores, which do not have a sales tax imposed on their clothing.

Committee member Sen. Joe Miller, R-Park River, asked if the proposed bill would be better if the sales tax were reduced to 4 percent and if the tax really has an impact on the state.

“Is there a better way to address tax reform than further eroding our tax base,” he asked.

Brad Schlossman, CEO of West Acres Mall in Fargo, has spoken with Sinner in support of the bill.

Schlossman said in a phone interview it would be a good move after many have said North Dakota’s clothing tax causes some to shop in Minnesota.

“It bothers us, despite the fact that North Dakota has a better tax climate overall than Minnesota, there is one glaring exception that Minnesota has the exemption,” Schlossman said.

Minnesota’s Gov. Mark Dayton has proposed changing that state’s tax structure to include a tax on clothing that costs more than $100. The issue has created some attention since many say the tax exemption draws thousands to Minnesota.

Chairman Dwight Cook, R-Mandan, said the same concept likely will be discussed as the bill is scrutinized during committee work. No action was taken on the bill Monday.

Cook pointed out wealthy individuals would receive a larger benefit because they are able to purchase clothing that is priced higher.

He also questioned the argument that many are traveling to other states with no sales tax on clothing.

“Just look at the Minnesota license plates in the West Acres parking lot,” he said.

Schlossman said that eliminating the tax would greatly impact lower income segments of the population that have a larger issue with sales taxes than with property and income taxes.

Rep. Scot Kelsh, D-Fargo, included brief testimony about Oil Patch workers who have to purchase new clothing frequently as a result of their profession.

“It’s important we give a little break to everyone,” he said.

Reach Forum News Service reporter TJ Jerke at tjerke@forumcomm.com or (701) 255-5607.

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