State Approves Sales Tax Increase

The Massachusetts House approved a plan to raise the sales tax from 5 to 6.25 percent on Monday night, a hike that officials said represents a trade off between preventing cuts in services and hurting the local economy.

The sales tax increase—proposed by House Speaker Robert A. DeLeo—will raise an additional $900 million annually in revenue, helping to bridge Massachusetts’ projected $3.6 billion deficit for fiscal year 2010.

Under the plan, $200 million of the new revenue would go to towns and communities for local aid, and $275 million would go to transportation. The sales tax hike stands in contrast to the House’s initial state budget, released on April 15, which did not draw from new sources of revenue or state reserves and included wide cuts to local aid, services, and programs.

Despite benefiting ailing towns, Square businesses expressed concern over the tax’s impacts on business.

Denise A. Jillson, Executive Director of the Harvard Square Business Association, said the sales tax increase was “painful” and “difficult” for consumers who are already hard hit by the economic downturn. But she added that the negative impacts of the sales tax would probably be minimal for Harvard Square stores, since shoppers would probably view the tax as a “necessary evil” for relieving the state’s financial difficulties.

Several business owners expressed greater concern. At Crate & Barrel on Mass. Ave., assistant manager Radhika Ramdev said that the tax increase would hurt the store, which stocks big-ticket items like furniture and appliances. According to Ramdev, Crate & Barrel has already been struggling in the difficult economic climate and has experienced a slump in sales over the last six months.

“As it is, people are already hesitant to make their larger purchases,” said Ramdev. “The tax increase will make them think even harder before they even make their final decisions.”

Carole Horne, general manager of Harvard Book Store, said that the increased sales tax further tips the playing field in favor of Internet retailers.

“It’s unfair that online retailers don’t have to collect sales tax,” said Horne. “To raise the sales tax without exploring that option first just seems crazy to me.”

Though Horne said that she doubted that consumers would drive to New Hampshire just to avoid paying the sales tax, the tax would still have a negative impact on the store.

City Councillor Sam Seidel said that lawmakers should ideally be able to both protect businesses and to provide funds to towns, but that the current economic climate necessitated a trade off between the two.

But Seidel said that the nature of the customer base of Harvard Square ensured that local businesses would “probably not be terribly impacted.”

“Harvard Square is not just a place to buy goods, but also a shopping experience,” said Seidel.

Seidel said that he believed the negative impact of the tax would be smaller than the positive impact of the additional local aid that will be available to local communities from the new revenue.

Before the sales tax, Cambridge was projected to lose $8.7 million in state aid for fiscal year 2010, a loss Seidel said would probably have forced the city to make layoffs and cuts to services to balance the budget.

In approving the tax hike by a 108-51 vote, House lawmakers defied objections by Governor Deval L. Patrick ’78 to first consider ethics, pension and transportation reform bills.

The decision represents the first time in 35 years that the sales tax has been raised.

—Staff writer Liyun Jin can be reached at ljin@fas.harvard.edu.