Area Merchants Decry Tax Bill

As Gov. Michael S. Dukakis awaits judicial clearance before signing a bill imposing a 5 percent tax on nearly 600 types of service industries, Harvard Square merchants charged yesterday that the measure could stifle the state's struggling service industries.

The comprehensive package, passed late Saturday night by both houses of the state legislature, would extend the state's traditional sales tax to transactions in areas ranging from law and consulting to architecture and landscaping. Yesterday, Dukakis asked the State Supreme Judicial Court for advice on the constitutionality of the bill, which would also raise the state's personal income tax in an attempt to remedy a mounting budget deficit.

Dukakis' decision comes in the wake of recent threats by several groups to file lawsuits challenging the service tax. The governor has until July 18 to sign or veto the bill.

Locally, owners of service businesses in the Square said that the tax is dangerous because it would turn new companies away from the state, at a time when the "Massachusetts Miracle" is already a distant memory.

"It certainly doesn't make the Massachusetts environment conducive to bringing businesses in," said Tod Beaty, president of the Harvard Square Business Association. "It's going to be a shock for any company that didn't have to charge its customers before."

Beaty added that the tax could particularly hurt engineering and consulting firms looking for out of state contracts. He said Massachusetts firms would be at a disadvantage, because they would have to compete with out-of-state firms, which did not have to pay the added tax.

"It's competitive out there and this additional 5 percent is going to make it harder for Massachusetts firms to compete in an already competitive marketplace," said a controller of a local architectural firm, who preferred not to be identified.

The controller added that the tax could unduly burden a firm's cash flow, because it would be levied when a contract is signed, and not when payment is received. He said that architectural firms must often wait 90 days after signing their contract to receive payment.

While several merchants acknow- ledged that the state must take measures toalleviate its fiscal woes, which are intensifyingas credit agencies threaten to downgrade thestate's bonds, the merchants said the State Houseshould concentrate more on the spending side ofthe ledger.

"The state spent as if we were going to be on acontinual high for the next 20 years," Beaty said."If I ran my company like the state runs itself,I'd go out of business."

Despite the alleged hardships in store for theprivate sector, however, officials at firms wholand much of their contracts in the public sectorwere not so skeptical about the new service tax.

"My first reaction was, hey, things are hardenough and clients are tired of paying," said JoeMarshall, a senior associate at Moriece and Gary,Inc., a Cambridge architectural landscaping firmthat deals primarily with government work.Marshall said firms would not have to pay theservice tax for public sector work.

Some local merchants, who already pay taxes ontheir services because of the materials they use,said they were not overly concerned about the newtax.

"I already pay taxes on a lot of myphotography," said Frances Antiput, ofKoby-Antiput, a photography firm on J.F.K. St.

And at least one Square merchant said he wouldwait until the tax sets in before worrying.

"To tell you the truth, I don't really know,"said Steve Rossman, owner of The Swiss Watchmaker,when asked about how severely the new tax wouldaffect his repair operations. "I'll worry about itwhen the time comes.