Shopping in NYC: Low Sales Tax and Wide Selection is the Catch
Tourists coming to New York City spent $41 billion in 2014, according to NYC & Company, the city’s destination marketing organization. Over the past decade, tourist spending has been growing on average 6 percent every year. What makes the Big Apple a global shopping capital?
Telma Prado is attracted by cheaper prices and a greater variety of products here than in Brazil, where she hails from. Hugo Prado, her husband, adds that sales tax in the U.S. is low. In Brazil, prices are inflated by a multitude of taxes listed under a complex tax code.
“Sales tax in Brazil is terrible, it can be as high as 40 percent on products comprising state tax of 15 to 25 percent plus municipal tax for the mayor and 30 other types of taxes,” said Hugo Prado, who engages in import and export business between Brazil, the U.S. and Europe.
Ernst & Young published a report in 2016 on sales tax and value-added tax (VAT) of countries worldwide. According to the report, Brazilian sales tax is broken down into multiple categories. The most common tax on goods and services charges a standard rate of 17 percent, although the actual rate can be anywhere from zero to 35 percent. In addition to import duty, foreign goods in Brazil are subject to a tariff that ranges from zero to 365 percent based on more than 9,700 classification codes.
Also attracted by the variety of options at favorable prices, Gaus Boucherie from Argentina visits New York City four times a year for business and vacation. On average, he spends $9,000 per trip buying clothes, electronics and spices for cooking.
Luxury department stores like Saks Fifth Avenue is his favorite. Sadly, he cannot find the same designer fashion labels he sees in New York City back home. “There are no similar stores in Argentina. Burberry, Kenzo and Prada all left. Only the domestic brands are here now,” Boucherie said.
Although international brands like Louis Vuitton, Chanel and Gucci are opening flagship stores around the world, most have left Buenos Aires by 2012. After former Argentine President Cristina Fernandez de Kirchner tightened import controls and introduced unfavorable tax policies, international retail brands that were burdened by increasing cost of doing business soon exited their operations.
New York City generated the highest luxury sales of $30.3 billion globally, followed by London and Paris each with $14.6 billion of sales, according to a 2015 market study by consultancy Bain & Company. While New York City is the world’s top shopping destination, its sales tax is at 8.875 percent, the lowest compared to major cities in Europe and South America (see chart below). The NYC rate is only higher than Tokyo at 8 percent and Hong Kong where there is no sales tax.
By contrast, retail prices in Brazil are far from reasonable, thanks to layers of sales tax and import duties. “The price is three times higher if imported from the U.S. to Brazil.” Hugo Prado said. “If the product costs $10 in the U.S., it’ll cost $30 in Brazil.” For tourists like Prado, New York City is probably the place to get a better bargain.
