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Philadelphia sales-tax hike to take effect Oct. 8

Barring unexpected problems, the sales tax in Philadelphia will increase from 7 cents to 8 cents per dollar on Oct. 8.

Barring unexpected problems, the sales tax in Philadelphia will increase from 7 cents to 8 cents per dollar on Oct. 8.

The temporary sales-tax hike was a key component of the Philadelphia fiscal-relief bill signed into law by Gov. Rendell late yesterday afternoon. It is expected to generate an additional $10 million a month for Philadelphia until the tax is rolled back to 7 percent in 2014.

The new rate is lower than those of most other big U.S. cities, but two percentage points higher than the rate levied in the Pennsylvania suburbs.

If the city had its way, the tax hike would take effect immediately. Philadelphia remains cash-strapped and loses out on potential revenue every day the increase is not in place.

But the legislation requires at least a 20-day waiting period, making Oct. 8 the earliest date Philadelphia shoppers could be asked to pay more.

"We expect to be ready by the earliest effective date," said Stephanie Weyant, a spokeswoman for the Pennsylvania Department of Revenue.

The sales tax in Philadelphia has two parts: the first 6 percent, which goes to the state, and 2 percent that will be funneled to the city. The state collects all revenue and remits the city's portion monthly. The earliest the city would start receiving revenue from the increase is mid-December, which budget officials have taken into account.

Weyant said the state would notify Philadelphia merchants within the next 20 days of a definite start date for the increase, though she was not sure what form that notice would take.

For merchants, the transition will require the reprogramming of cash registers, a job that varies depending on the machine and the size of the business.

"I'll likely swear at some point, but it will be quickly forgotten," said Michael Holihan, who co-owns the Pennsylvania General Store, a gift-basket shop in the Reading Terminal Market.

A bigger concern than register reprogramming is the possible effect on business, which Holihan said was hard to predict.

"You never know what's going to impact sales. A lot of it comes down to perception, and this is just another thing that makes Philadelphia seem, to some people, at least, as an expensive place," Holihan said. "Other people won't even give it another thought."

City budget experts have predicted a 10 percent decline in sales volume on tax-eligible goods and services because of the increase, a figure they characterize as an "educated guess."

"The theory is that when taxes rise, increasing the price of a service or good, it has the potential to influence decisions. Some people will decide either to forgo the purchase because of the higher price, or they will go elsewhere to purchase it," said city Budget Director Steve Agostini.

Nutter administration officials settled on the 10 percent estimate after consulting with economists who have studied the effect of tax increases on commerce, but Agostini noted, "Until you test it empirically, you really don't know."

The Pennsylvania sales tax is less comprehensive than those of many other states. Food and clothing are exempt, as are a host of other goods and services, such as prescription and nonprescription drugs, textbooks, lawyers' fees, and even bullion.