Lines to enter U.S., higher sales follow border tax hike

2014-03-22T00:00:00Z Lines to enter U.S., higher sales follow border tax hikeBy Brittny Mejia Arizona Sonora News Service Arizona Daily Star

NOGALES, Sonora — Abuelitas hold crying children and chicle vendors make the rounds while a man serenades the gathered crowd with his guitar.

The line snaking down Calle Internacional continues to grow, heading out of sight, with families waiting half an hour — enough time for three song renditions — to cross the border into Nogales, Ariz.

It’s another shopping day, with Mexicans headed into the U.S.

Some business owners in Mexico believe that the growing lines reflect the increasing number of people who are crossing to the United States to buy less-expensive products, since the sales tax in Mexico’s border regions increased to 16 percent from 11 percent on Jan. 1. Additionally, a junk-food tax, which taxes potato chips and sweets, was implemented at the start of the year.

Mexico’s Congress approved the tax increase on the sale of consumer goods in border regions last year, to bring it in line with the sales tax in the rest of the country.

The tax had been lower in border regions in order to make businesses there more competitive with those in U.S. border towns, said Manuel Hopkins Ruiz, economic development director for Nogales, Sonora.

The sales tax does not apply to other food or medicine and is mostly placed on domestic items and food disposables, such as paper products, Hopkins said. The retail sales tax in Nogales, Ariz., stands at 8.6 percent.

Sales are down 5 percent in Nogales, Sonora, but the private sector credits that to the drop of the overall economy, not the tax increase, Hopkins said. He added that the commercial sector is more concerned about the repaving of main streets downtown and how that is impacting sales.

Although Hopkins said the number of people crossing into Arizona has grown since the start of the year, he does not believe the sales tax increase is a factor.

“The growth of people visiting Arizona has increased in general,” Hopkins said. “It’s just a general growth of population in Mexico more interested in visiting Arizona.”

Already, shoppers from Mexico spend about $1 billion a year in Pima County, according to Lea Marquez Peterson, president of the Tucson Hispanic Chamber of Commerce. Although she said it’s too early to tell what the effect has been in sales, Marquez Peterson predicts the tax hike on the other side of the border will be beneficial to businesses in Arizona.

“Our retailers really depend on those revenue dollars,” Marquez Peterson said. “We definitely see this as an opportunity for the business community in Arizona, and really throughout the state, obviously.”

However, businesses in Mexico say they are suffering tax consequences. For example, pharmacies in the border region have seen drops in sales ranging from 5 percent to 20 percent since January.

Hopkins said some of the non-chain stores in Nogales “panicked” when the tax went up and even began to increase some prices.

In Farmacias Benavides, located on Alvaro Obregon Street in Nogales, Sonora, the deputy manager of branches, Nadia Montez, said she has seen a drop of 5 to 10 percent in sales.

“A lot of the products that are very expensive here are a lot cheaper in the U.S.,” Montez said in Spanish. “The tax increase has had a big impact.”

Most of the residents who walk across the border make an eight-minute trek to Food City in Nogales, Ariz. When they exit, their arms are laden with groceries they will carry back into Mexico. Some opt to place their purchases in suitcases or on carts they pull behind them.

Near the border fence, Susana Carrillo, a resident of Nogales, Sonora, said she makes four trips a week across the border to purchase less-expensive products. Asked if she thought more people were coming from Mexico because of the tax hike, she pointed at the people gathered to cross into the U.S.

“Just take a look at the line. Of course, yes,” she said in Spanish. “Most of the time I come here to buy what I need for the house. There are things here that are a lot cheaper than in Mexico.”

Danny Zuniga, manager of the Food City, said about half the store’s trade comes from shoppers from Nogales, Sonora.

Back on the Mexican side of the fence, Alma Lucia Lio, an employee of Farmacia Santa Lucia, a pharmacy that sits along the border crossing street, said she has never seen the lines to enter the United States as long as they have been since the start of the year. She said she has also seen a noticeable drop in sales.

“It’s had an impact on the wallets of our customers and on our wallets,” Lio said in Spanish. “What was cheap before is more expensive now. If the tax goes up here, there’s more reason for people to buy in the U.S.”

Some U.S. clothing stores have seen benefits from the sales tax increase in Mexico. Erika Lopez, manager of Melrose, a clothing store in Nogales, Ariz., said since the start of the year she has seen an increase in sales of about 10 to 15 percent. She said all of her customers are from Mexico.

“I think there’s going to be even more of an increase in sales because of the sale tax increase,” Lopez said in Spanish.

Mexican officials say they’d like to get a share of the new revenue from the federal government. The money could be used to stimulate small businesses at the border through economic programs and support of infrastructure, Hopkins said.

Nogales, Sonora, Mayor Ramón Guzmán Muñoz will meet with Mexico City’s secretary of economy next month to address the tax increase and its impact, according to Hopkins.

 A border zone rule allows Mexico visitors with a Border Crossing Card to spend up to 30 days in Arizona within 75 miles of the border, which could also increase business in Tucson.

Copyright 2014 Arizona Daily Star. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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