State Sales Tax Hike Unnerves Some Square Businesses

Mass. Governor Deval L. Patrick '78 approved a 25 percent increase in the state's sales tax last week, from 5 percent to 6.25 percent, drawing apathy from some local business managers but also concerns from others who fear the move will only aggravate a slumping economy.

Of the projected increase in sales tax revenue, $275 million will be used to bolster the state's transportation network and stave off planned toll increases on the Massachusetts Turnpike. While another $160 million will be allocated to the Massachusetts Bay Transportation Authority, the agency recently announced that it will also recommend a package of subway fare hikes to be implemented in the next few months that would raise $69 million a year. The combined tax increases are expected to raise over $1 billion in revenue for the state each year.

Despite the increases, which come as part of the state's $27 billion budget and will be effective Aug. 1, Massachusetts' sales tax is still relatively low compared to that in other states. Massachusetts first implemented a sales tax of 3 percent in 1966 and raised it to 5 percent in 1976, where it has remained since. Various essential goods, including clothing that costs less than $175 and unprepared food products, are exempt from sales tax.

The approved budget will also raise the state's meal tax from 5 to 6.25 percent, and will allow local communities to raise the tax to 7 percent and keep the extra revenue. A 5 percent gross receipts tax will also be exacted on satellite TV providers' receipts from subscriptions, and local hotel taxes will increase by 2 percent. Sales tax will now also apply to alcohol purchased from retail stores, which had previously been exempt.

Denise A. Jillson, director of the Harvard Square Business Association, said that it was still too early to say how much of an impact the sales tax hike would have on the Square. But she said that she hasn't heard any complaints from local businesses, adding that Harvard Square generally has very few problems retaining businesses.

"A few new restaurants are opening. Things are going well," Jillson said. "However, it would be much better if the overall economic weather was better."

Reactions to the tax increases from shop managers and owners in the Square interviewed by The Crimson ranged from indifference to dismay. Some shop owners, such as Harvard Book Store Manager Mark C. Lamphier, said that they were unconcerned about the effect of the impending hike on their business, since the increase will be distributed uniformly across the state. Others, such as Cardullo's Gourmet Shop owner Francesca Cardullo, said that the increase was a nuisance for customers but that a 1.25 percent tax hike would have a negligible impact on sales.

Stephen Zedros, manager of Brattle Street Florists, said that he has noticed slower foot traffic and sales over the course of the year, and that the tax increase would not help the situation. Cassie Freer, a manager at ice cream shop J.P Licks, said that she was not aware of the tax increase but thought that it would be "terrible," especially since she feels that customers already see their prices as high.

Patrick's signing of the budget followed approval by both houses of the Massachusetts legislature, which had disagreed with Patrick over the appropriate response to the state's fiscal crisis. Patrick had originally proposed taxing candy, soda, and gasoline, but eventually went along with the legislature's plan for a sales tax increase after lawmakers agreed to overhaul the state's ethics, pensions, and transportation laws.

Cambridge City Councillor Sam Seidel said that he hopes that the tax increases will not have too much of a negative impact on Cambridge, even though consumers are spending less in the current economy. He noted that Harvard Square seems to be "immune" to the effects that tax hikes would typically have on small businesses.

"For the kinds of retail in Cambridge, the impact won't be very substantial," Seidel said.

—Staff writer Ellie M. Reilly can be reached at ereilly@fas.harvard.edu.