Experts: Sales Tax May Drive Business From N.Y.

NEW YORK (CBS 2) -- After four months of delays, New York state lawmakers approved a $136 billion spending plan which hits shoppers in their wallets, and as CBS 2's Magee Hickey reports, neither shoppers nor tax experts were happy.

The plan eliminates the sales tax exemption on clothing and shoes under $110 starting in October after back-to-school shopping is over. Then in April, the exemption would return but only on clothes and shoes costing under $55 dollars.

The full $110 dollar exemption would return in April 2012.

"It's very sad because every little bit helps," said Baychester shopper Beatrice Jubilee.

"I don't love it. I'd rather it wasn't there, make it easier to spend money," said shopper Linda Ahston.

Tax experts said restoring the 4-percent state sales tax, even for a brief period of time, hurts everyone. "I think it's going to hurt retailers. It's going to hurt the middle class. It's going to hurt lower income taxpayers because you have New Jersey that essentially has no sales tax on clothes and you have Connecticut which has a $50 exemption as well," said Wayne Berkowitz, Berdon LLP tax expert.

"My feeling is this could drive more business to New Jersey where people don't pay sales taxes. I think this is a classic example of raising taxes and curtailing spending," said retail analyst Jeff Edelman.

That view was not lost on New York shoppers either. "I think it might possibly hurt New York because so many people come here because they know that they can get discounted clothes.  You know? I'm thinking about the international shoppers," said shopper Billie Gibson.

A spokesman for Governor David Paterson praised the spending plan, saying that it closes a $9.2 billion budget gap through spending cuts and no borrowing.

"It's done. finished," said Bronx Sen. Ruben Diaz.

"I think we go back to our districts and reconnect with our constituents," said Sen. Jeff Klein, Deputy Majority Leader.

However, "reconnection" may be difficult as shoppers will have to spend more. "Everything is going up. Budget going up, taxes, milk, gas, it's hard to survive," said Jackson Heights shopper Althea Vega.

Even though the sales tax exemption comes back in April '12, retail experts believe the damage will have already been done to economy.