Bouquet of state tax hikes
On August 1, Massachusetts will take a bigger tax bite from consumers, as new state taxes and tax increases take effect.
A 25 percent hike in the state sales tax, from 5 to 6.25 percent, is the first sales tax increase in 33 years. The other "first" of significance to many Massachusetts consumers is a new 6.25 percent state sales tax on the retail purchase of beer, wine, and alcohol.
And in addition, the state's fiscal year 2010 (FY10) budget, signed by Gov. Deval Patrick on June 29, includes provisions to increase the state's meals, hotel, and satellite television taxes.
The FY10 budget also calls for local taxation of poles and wires owned by telephone and telegraph, cable television, Internet, data service and other telecommunications corporations and located on public ways.
The state senate estimates the increased sales tax will generate an additional $633 million in revenue. Some current exemptions will remain, such as purchases of individual items of clothing that cost $175 or less, and the sale of food, other than restaurant meals.
Sales before the sales tax increase
The Boston Globe reported Monday that some worried merchants struggling with sluggish sales are rolling out discounts and advising consumers to make big purchases before the August 1 sales tax increase.
Here, Oak Bluffs businessman and selectman Ron DiOrio is looking at the sales tax increase from a different perspective.
Mr. DiOrio is the co-owner of Craftworks on Circuit Avenue in Oak Bluffs with Paula Catanese. When asked whether they plan to hold any big sales in anticipation of the sales tax increase, the answer was no.
Instead, Mr. DiOrio explained, "For the balance of the year and probably through next year, we're going to continue to tax at 5 percent, and I'm going to eat the additional one percent, as the cost of doing business."
In light of this year's recession, the state is not likely to offer consumers what has become an August tradition over the past several years, a traditional tax-free holiday in August. Staff in the state's executive office for administration and finance and in Senate President Therese Murphy's office confirmed Tuesday that the sales tax holiday has not come up this legislative session and is not likely to.
New alcohol tax
For package stores, the new retail sales tax on alcohol may be the source of both resentment and confusion for some of their consumers.
The state already taxes alcohol at the wholesale level. However, current state and federal excise taxes on alcohol are figured into the prices before products arrive at package stores.
Alcohol purchased in restaurants or taverns has been subject to a sales tax for many years. The new sales tax, however, will be added on at the package stores. For consumers, the new sales tax translates into 50 cents more on an $8 six-pack of beer, for example, or $1.25 on a $20 bottle of wine.
"As far as probably the Cape and the Islands are concerned, the politicians probably couldn't have picked a worse time," Brion McGroarty, owner of Town Provision Company in Edgartown, said on Monday.
Mr. McGroarty, who has owned his store for 20 years, said at first the legislators had discussed increasing the state excise tax on alcohol at the wholesale level, which would have been more reasonable and made collection simpler.
"So we're completely powerless - we're going to have to pass the added cost on to the poor consumer," Mr. McGroarty said. "I just wish our politicians would try a novel approach someday and do what we have to do out here in the business world and what people are going to have to do at home, which is to spend less. It seems like that is never an option."
In a phone call Monday, former owner Martha Look of Al's Package Store in Edgartown agreed that the timing of the new tax is difficult for Island package stores. "We only have at most three months to make money," she said. "We lose money for three, and then break even for six."
Ms. Look said she believes the new tax will affect sales initially when it goes into effect, but that will change. "People coming here in August who are aware of the new tax may be more apt to buy alcohol off-Island and bring it with them, because prices tend to be more expensive, but by next year, everyone will be used to the new tax and back to buying locally," she said.
Although Ms. Look agreed that it's a bad year to add a sales tax, she said, "Where are we going to be if the state goes bankrupt? I'd rather see them up the sales tax like they did than close down all these programs."
Still, Ms. Look said she is not looking forward to the day the new tax goes into effect. "The problem is people are going to ignore newspaper stories they read or forget what they've read, and profess to be horrified, come August 1," she said. "Unfortunately, August 1 is also changeover day, and a Saturday, so you've got three problems rolled into one. It's just going to make for a frantic day, amongst all the complaints."
Dave Richardson, owner of Tony's Market in Oak Bluffs, said he doesn't think the new sales tax on alcohol will have much of an impact on his sales. "I can't see that people will buy less or drink less," he said. "If we were across the street from a store in New Hampshire or Vermont where there's probably already a price difference and now there will be even a greater one, it would be different. People would make a decision with their feet."
Local tax options
Other provisions in the FY10 budget give communities several options for local taxes, with all of the funds staying in each community that votes to adopt them.
The local option tax increase permits cities and towns struggling to find new revenue sources to assess a 0.75-percent local tax on meals and increase a local room occupancy rate tax from four percent (4.5 percent in Boston) up to six percent (6.5 in Boston).
Raising taxes locally presents a dilemma for Island town leaders, who must weigh the merits of creating new revenue sources to bolster their dwindling coffers against the impact of tax increases on the cost of doing business in their towns.
In Edgartown, Oak Bluffs, and Tisbury, where the majority of Island restaurants and lodging is located, town leaders and managers say they plan to give the local option tax increase on meals and rooms careful consideration, and ask for comment from businesses and voters.
At a July 14 Tisbury selectmen's meeting, selectman chairman Tristan Israel suggested that his board get comments from the local business community, Tisbury's finance and advisory committee, and other Island towns before making a decision on the new local tax options. "If we were going to raise the room rate tax in Tisbury and Oak Bluffs, for example, that would put more pressure on the rates that might put us at a disadvantage," Mr. Israel said. "A lot of business on the Island is brought in by inns and hotels, and we have to consider whether this would be detrimental to them."
Tisbury finance director Tim McLean said this week that the town collected $160,000 in room tax in FY09 at four percent. At six percent, the town would have collected an additional $80,000, for a total of $240,000.
"We haven't discussed the subject of the new, local tax options much yet, because we would like to hear from the board of trade and see how they think it will affect their constituency," Edgartown selectman chairman Michael Donaroma said in a phone call yesterday.
It may be that imposing the extra taxes may affect the Cape and Islands adversely, Mr. Donaroma said, when compared to a Massachusetts town that has the same base year-round. "If tourists decide to cut back in the two months we need them because of these extra taxes, it's going to hurt us more than anybody," he said.
The Oak Bluffs selectmen had an informal discussion about the local tax options at their meeting on July 14 and considered holding a public hearing on the subject before making any decisions.
"I think whatever is done, it would be wise if we did it Island-wide, and I quite frankly don't know what the discussions are in other towns," Mr. DiOrio said in a phone call Tuesday. "Although, you know, having said that, I've never heard anyone call for a room reservation and say, what is your tax. So I'm not sure it's going to affect people one way or another."
Mr. DiOrio said that increasing the room tax in Oak Bluffs would amount to around $98,000 in additional revenue, and a meals tax would bring in $130,000 to over $200,000, depending on which formula the Department of Revenue decides to use.
Yesterday, Oak Bluffs town administrator Michael Dutton said that he asked the town's Financial Advisory Committee to look at the local tax options and make a recommendation. "My guess is we'll probably not see it on a September town meeting warrant but may very well see something to that effect at on the special town meeting warrant in April," he said.
In regard to local taxation of poles and wires located on public ways, Mr. McLean said it would not really generate any new revenue. "We would put a value on wires and poles, which will factor into the calculation of the tax rate and will just spread the burden out a little further," he explained.
Although assessors must assess poles and wires of centrally and locally valued corporations whose equipment is located on public ways in FY10, the state has not yet provided them with any guidelines. Tisbury assistant assessor Ann Marie Cywinski said the Island County Assessors Association will discuss the subject next week.
Local tax process
A new local sales tax on meals or new rate on the local room occupancy tax may be imposed on the first day of the calendar quarter that starts 30 days after a city or town votes acceptance.
For example, a town would have to vote to adopt the meals tax or increase its room tax no later than August 31 in order to impose the additional excise starting on October 1.
Mr. Dutton said about a dozen Massachusetts towns already have had town meetings or town council meetings and voted on the local tax options, so that they can start collecting next quarter.
Boston may soon join the list. The State House News Service reported Tuesday that Mayor Thomas Menino is expected to file a plan for new meal and hotel tax hikes with the City Council before its next meeting on July 29.
