For the past six years, adults looking to buy a Halloween costume in New Jersey have avoided a 7 percent sales tax because of a law that took effect in October 2005 classifying the outfits as “clothing,” which is tax-exempt.
Michael Froumy, 54, of Brigantine, owner of Fro Me A Party in Egg Harbor Township, said that change has saved shoppers at his party-supply store between $7,000 and $8,000 annually. But he wonders if the state should really be giving a tax break on vampire capes and sexy French maid costumes.
“It’s really only supposed to be for necessities,” he said of sales-tax exemptions. “The state is losing a lot of money.”
The exemption on Halloween costumes is the result of a state law that sought to ratify the Streamlined Sales and Use Tax Agreement, a regional compact on sales taxes.
The agreement involves 43 states and the District of Columbia and seeks to lower the cost of tax compliance, while making sales-tax laws simpler and more uniform among the different states, the legislation states. New Jersey is one of 21 states in full compliance with the provisions, the Streamlined Sales Tax Governing Board said.
The law intricately details what is and what isn’t covered by the state levy, which is expected to bring in $7.9 billion through the 12 months that end June 30, 2012.
The bill lifted the tax on fur clothing and footwear, but sports and recreational equipment remained taxed. Thread and knitting yarn are taxed, except for people who make or repair their own clothing. Steel-toed shoes, safety glasses and other protective equipment are taxed, unless “necessary for the daily work of the user.”
While children’s Halloween or dance-recital costumes were never taxed, the bill eliminated a previous distinction that levied the tax on the sale or rental of adult costumes. Froumy estimated about 60 percent of the costumes his firm sells are for adults, while 40 percent are for children.
It is unclear how much money the state no longer collects on the sale of adult costumes. Nationally, Halloween is a $6.9 billion business, with an average $72 spent per household, National Retail Federation data show. John Holub, president of the New Jersey Retail Merchants Association, was unaware of the size of the industry in New Jersey.
He said the overall legislation simplified matters and made the law more uniform and consistent. With the previous difference between adult and children’s costumes, he said, “There could be some businesses out there that don’t realize that, and that could open them up to an audit, fines, and penalties.”
Deborah Howlett, president of New Jersey Policy Perspective, a nonpartisan think tank on public-policy issues, said the state always had a limited number of things that fell under the sales tax.
It makes sense to exempt food and clothing from taxes, she said, “but when it gets to the point when they are not taxing Dracula capes, that might be a chance to revisit things.”
At Fro Me A Party, Atlantic City resident Gigi Sturdivant, 34, was looking for a police officer’s costume. The other outfits may not be traditional garb, but to her eyes they were all clothing.
“Well, it is clothing, so it shouldn’t be taxed,” she said as she looked at the outfits. “If I didn’t have it, I’d be naked.”
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