Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: TUESDAY, March 20, 1990 TAG: 9003202893
SECTION: NATIONAL/INTERNATIONAL PAGE: A/1 EDITION: METRO
SOURCE: MARGIE FISHER RICHMOND BUREAU
DATELINE: RICHMOND LENGTH: Long
Chasers for Hangover (presumably a brand name) will likely be exempt from the state's 4 1/2-cent sales tax - thanks to Gov. Douglas Wilder's cunning maneuver near the close of the 1990 legislative session to repeal the tax on non-prescription drugs.
Authorities at the state's Department of Taxation say they have not yet compiled an official list of which currently taxable items will be exempted. The repeal legislation doesn't take effect until July 1, 1992, so there's no big rush.
But, generally, the exemptions are expected to follow New York State's listing of taxable and non-taxable products, which is considered to be the comprehensive guide for other states that choose to give a tax break to headache and hemorrhoid sufferers, dieters and the dandruff-prone.
A couple of Richmond-area pharmacists said they had never heard of Chasers for Hangover, which is on the New York list. Their hunch is that it's a specific product, but it could be a generic reference to all items that are alleged to cure hangovers.
They dread having to implement the repeal, wherein lies the rub - and they don't mean Vicks Vaporub (tax-free in New York).
"This thing's going to be a nightmare," said pharmacist David Martel. He said he expects he may spend more time at the counter explaining to irate customers why this-or-that isn't exempt when such-and-such is than he spends behind the counter filling prescriptions.
"A lot of them are not going to understand why if the word `medicated' shows up on a product's label they still have to pay the tax on it," Martel said.
Take Noxema Skin Cream, for example. It's medicated but would still be taxable under New York guidelines. Noxema Sunburn Spray, in contrast, would be tax-free.
Then, there's toothpaste, with the labels on almost all popular brands making medicinal-sounding claims like "fights cavities and removes plaque to reduce gingivitis." Virtually all toothpastes will likely still be taxed, as will tooth brushes, dental floss, denture cleaners and denture adhesives.
For small retailers that do not have computerized scanners at checkout counters that can be programmed to sift the taxable from the untaxable products, it's going to be "a tremendous administrative hardship," said Lindsay Bruce, head of the Virginia Small Business Council.
"You're going to have 17-year-old clerks in the mom-and-pop stores having to read through an 80-page list of products before they can figure out whether to add the tax or not," Bruce said.
He predicted that the process will be so time-consuming that customers will desert small retailers for large grocery stores and drug chains that have computerized checkouts.
Some clerks, facing irritated customers, will simply make judgment calls, Bruce predicted - meaning they will go ahead and add the tax to some items that are exempt and not tax some items that sound like they should be exempt.
That could spell administrative trouble for the stores' owners, warned Paul Galanti, executive director of the Virginia Pharmaceutical Association, because state law carries stiff tax penalties for retailers who do not accurately apply the sales tax and keep their records straight.
Arguments of administrative difficulties had been used by business lobbyists at the General Assembly for years to defeat bills to partially repeal the state's 24-year-old, broad-based sales tax, which is the second-largest source of revenue for Virginia's government, after the individual income tax.
But the sales tax, especially as applied to food and non-prescription drugs, is probably the most hated in Virginia. It has long been recognized as regressive, because poorer people pay a higher proportion of their income toward the tax than do others.
Thus, Wilder's slick trick to get repeal of the tax on non-prescription drugs through the legislature was a public pleaser.
He did it by getting a last-minute amendment tacked onto an unrelated bill that had already made it through committee hearings. That meant lobbyists who opposed repeal had no chance to raise arguments of administrative burden for businesses.
Wilder - for whom repeal of the drug tax has long been a cherished goal - used a tactic that was widely viewed as part of an ongoing vendetta against Senate Majority Hunter Andrews of Hampton.
Andrews, chairman of the Senate Finance Committee, has often argued that it would be irresponsible to repeal the sales tax without providing alternative taxation to make up the revenue loss for both the state and local governments.
The governor chose a bill sponsored by Andrews as the vehicle to move the repeal issue to the House and Senate floor, where it had broad bipartisan support.
Business opponents are quick to stress that they are all in favor of tax relief, if it can be enacted in a "fiscally responsible way."
Sumpter Priddy, president of the Virginia Retail Merchants Association, said, "I respect the governor for finding sufficient revenues to keep his campaign promise. However, the approximate $30 million produced [annually] from the tax could be spent to help localities underwrite state-mandated programs. Instead they'll have to raise real estate taxes to offset this loss."
Although Wilder is already talking up the possibility of repealing the sales tax on food before he leaves office, Priddy said the assembly may have to reinstate the drug tax in the next couple of years because of a continuing decline in revenue growth.
Repeal proponents scoff at such nay-sayings. They argue that state and local governments can well afford the loss of revenue from the tax repeal.
Tax Department officials estimate that in fiscal 1993, the year the repeal is scheduled to take effect, the total revenue loss will be $30.5 million - $23.6 million for the state and $6.9 million for local governments.
In fiscal 1994, the total loss is expected to be $35.2 million - $27.2 million for the state and $8 million for local governments.
But if the revenue loss is relatively minute, so will be the savings for consumers. Based on the state's estimated population of 6.2 million, the annual $35.2 million in tax savings in 1994 will amount to $6 per person.
Bruce, the small-business lobbyist, asks whether the $6 is worth the confusion it will cause in the marketplace. He points out that non-prescription drugs are traditionally defined as items "purchased for prevention or cure of disease in human beings." Bruce asks: "Is a hangover a disease? Is pregnancy a disease?"
Under the New York guidelines, pregnancy prevention items - condoms and contraceptive creams, foams and jellies - would be tax free, as would be birth-control pills. Sanitary napkins and tampons would still be taxed.
Bruce goes on to note that dermatologists have long warned that too much exposure to the sun can cause cancer. Yet, under the New York guidelines, only a few sunscreen products are exempted, while most are regarded as cosmetics and are taxed.
Indeed, consumers bent on saving a few pennies may have a new appreciation for the line in Gilbert and Sullivan's "H.M.S. Pinafore," which goes: "Things are seldom what they seem. Skim milk masquerades as cream."
If Virginia follows New York's lead, for instance:
Alpha Keri Bath Oil would be exempt but not Alpha Keri Soap or Alpha Keri Oil.
Agress-brand pistachio nuts, pumpkin seed and soy nuts would be exempt and so would Health Rite Korean Ginseng, cream of tartar, olive oil, thyme, Ayds candy and Sweet N Low.
But Sweet N Low candy would still be taxable, as would be Chiclets gum and Clorets.
Sea Breeze Antiseptic, exempt. Sea Breeze shaving lotion, taxable.
Quinsana Anti Perspirant, taxable. Quinsana Comfort Spray and Quinsana Foot Powder, exempt.
Johnson Foot Soap, exempt. Johnson Foot Spray and Johnson Foot Care, taxable.
Mennen Baby Powder, exempt. Mennen Baby Oil, taxable.
Cocoa butter, exempt. Cocoa butter lotion, taxable.
Scholl Corn Salve, exempt. Scholl Foot Balm, taxable.
No Doz tablets, exempt.
Mustache wax, still taxable.
Catnip and saltpeter, still taxable.
by CNB