Higher sales tax sends more Mexican shoppers across the border

A line with a half-hour wait time to get into the U.S. snakes down Calle Internacionale in Nogales, Sonora. Many blame the influx of travelers on a tax hike on Mexican stores, which has driven shoppers into the U.S. to buy domestic goods. (Photo by Kyle Mittan)
A line with a half-hour wait time to get into the U.S. snakes down Calle Internacionale in Nogales, Sonora. Many blame the influx of travelers on a tax hike on Mexican stores, which has driven shoppers into the U.S. to buy domestic goods. (Photo by Kyle Mittan)

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 in Mexico.

Some business owners in Mexico believe that the growing lines reflect the growing number of people who are crossing to the United States to buy less expensive products, since the sales tax in Mexican border regions increased to 16 percent from 11 percent on January 1. Additionally, a junk food tax, which would tax 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 U.S. border towns, said Manuel Hopkins, economic development director for the city of Nogales, Sonora.

The sales tax does not apply to 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 it to the drop of the overall economy and 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 amount 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 consequences. For example, pharmacies in the border region have already 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. “It’s the tendency that what costs more here, there you’ll find for cheap. The tax increase has had a big impact.”

After finishing a shopping trip in Nogales, Ariz., a family with handfuls of shopping bags walks toward the border to return to Mexico. An increase in the Mexico sales tax has many families traveling across the border to do their shopping. (Photo by Kyle Mittan)
After finishing a shopping trip in Nogales, Ariz., a family with handfuls of shopping bags walks toward the border to return to Mexico. An increase in the Mexico sales tax has many families traveling across the border to do their shopping. (Photo by Kyle Mittan)

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 tax hike, she pointed at the people gathered to cross over into Nogales, Ariz. “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 that about half of 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. than buy here. People are crossing more to buy over there.”

Lio said the sales tax should be lower in border regions because there are cheaper products in the U.S., and that if the price rises in Mexico, people will leave to shop elsewhere.

Lines of vehicles crowd the streets of Nogales, Sonora, on their way into the U.S. Many speculate the influx of travel into the U.S. comes from a tax hike from 11 to 16 percent in border regions.(Photo by Kyle Mittan)
Lines of vehicles crowd the streets of Nogales, Sonora, on their way into the U.S. Many speculate the influx of travel into the U.S. comes from a tax hike from 11 to 16 percent in border regions.(Photo by Kyle Mittan)

Some clothing stores across the border also 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 have some share from the federal government in the new revenue generated by the sales tax. The money could then 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.

“As public officials, we really need to work with the federal government to get that money back to the border for investing,” Hopkins said. “We feel that we’re on the right track if we really coordinate with the federal government to get that funding back to border towns.”

The sales tax increase could have an impact throughout southern Arizona because of the nine total Arizona-Mexico ports of entry. Other cities and towns that could see an increase in business include Douglas and San Luis. 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.

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