Business owners weigh in on 'fat tax'

by Sandra Miller
Back Bay Sun
Just when we all needed to drown our sorrows in orange soda, cocktails and fudgy things, the governor seeks to raise $121.5 million starting April 1 through a “fat tax” - by hitting the Bay State’s sweet tooth and eliminating the sales tax exemption on all candy, soda, sweetened beverages, and liquor.

To boost state revenues and head off additional budget cuts, Gov. Deval Patrick’s so-called “sin taxes” would include adding five-cent deposits to juice and water bottles, which would add $20 million to the state’s coffers; increasing the meals tax by 1 percentage point, to 6 percent; increasing the hotel tax by 1 percentage point, to 6.75 percent; eliminating the 5 percent tax exemption on sales of alcohol, soda, and candy; and adding bottle deposit fees to noncarbonated beverages like sports drinks, water, and juices. So far, he’s not touching doughnuts, bakery items and cookies. New Jersey and New York have a 6 to 7.5 percent sales tax on candy and soda.

Other tax hikes include Registry of Motor Vehicles (RMV) fees, and deleting a tax exemption for telecommunications companies. Republicans panned the budget for its tax increase proposals. Members of the Mass. Republican Party said the move would “strangle the economy … With unemployment nearly 7 percent and 17,000 people laid off last month, the absolute last thing we need is to increase taxes.”

So will a meals tax increase be met with an increase in restaurants’ empty seats? Will it just encourage people to decrease spending, to stop the weekend getaways or eating out one night a week? Local business owners weighed in.

“This is NOT the climate to increase taxes in our industry,” said Babak Bina, who owns Bin 26 Enoteca, Lala Rohk and the new Bina restaurant and market in downtown.
“I hope they won’t raise the tax,” said Lucia Ristorante’s manager Peter DiNardo. “From a business point of view, nobody’s too happy about it. I’m not sure what the best thing is to do.”

Liquor store owners already lose many to those who save money and can buy bottles without deposits over the border. Frank Anzalotti, executive director of the Massachusetts Package Store Association, said that consumers will just buy their alcohol in New Hampshire. But for neighborhood package stores, they don’t have that kind of customer.
Beacon Hill Wine & Spirits owner Gene Beraldi said his business would be able to take the tax hike, but he also thought about all the things he and other small business owners will now need to start collecting taxes. For example, many businesses may have to hire bookkeepers, he pointed out. He recently set up his computer, and now he’s aggravated that he’ll have to figure out a new system to compute the taxes.
“We’ll be fine,” Beraldi said. “I think this is how you help the community, to help the most amount of people, even if it costs me a few customers. But I’m probably one in 10 who feels this way. You’re taking a guy like me who doesn’t pay a sales tax, and now I have to set up my business for this. I guarantee most people don’t have bookkeepers but will need to hire one to do the sales tax. They didn’t give us much time. I just got a new computer, and now I have to redo it to calculate the taxes.”
Beraldi is also not looking forward to his sales going from, say, an easy $12.99 to $13.24 with tax. “That’s going to make a lot more change,” he pointed out.
Beraldi also wondered if the tax increase would mean having to hire more state workers, which could negate a lot of the money raised. “The biggest problem in the liquor business is you have money in hand,” he said. “They spend the money before they pay the sales tax, so there better be a new committee to hire to watch over this.”
Taxing candy? That’s going too far, said one Back Bay candy vendor, who wasn’t sure why his chocolate store needed to be included in the Sin Tax category.
“I can see the rationale behind the idea, even though it seems a little harsh to bunch us in with alcohol and tobacco, from the point of view as a health impediment,” said Teuscher Chocolates owner Stefan Bieri, who is predicting that the tobacco and liquor lobbyists will successfully work against the proposal. “A lot of our chocolates doesn’t contain a lot of sugars, so you choose your level of poison. We have anything from 37 percent cocoa to 99 percent cocoa in terms of chocolate bars.”
Bieri counter-proposed a hike in the gas tax. “It cuts down on road use and maintenance and pollution,” he said.

sidebar:
Hotel owners sound concern but not alarm
by Sandra Miller
A few area hotel owners and managers expressed concern but not alarm at the proposed tax hike, as long as it went toward a good cause.

“I think this is a really difficult time for the commonwealth,” said Beacon Hill Bistro and Restaurant owner Peter Rait. “While I realize people are objecting to hotels and restaurants being singled out, I believe it’s up to us to make sure things like education won’t be suffering. We have to think about the long term, not the short term. I don’t think a 1 or 2 percent change in tax is going to change the level of clients we get, or change whether a person is going out for dinner.”

“Taxes are never something business people support, but I don’t think this is unreasonable,” said Liberty Hotel chief Richard Friedman. “I think it will have a minimal impact on business.”

His hotel only opened last year, so he couldn’t say if revenues were down compared to last year because of the economy. However, he proposed the governor should use some of those taxes that hotels raise toward tourism promotions.

“I think it’s the fair thing to do,” said Friedman. “More visitors are what the state so desperately needs, which will have a multiplier effect. But that takes more money. There’s no question tourism is off. Massachusetts has relatively low tourism funding, compared with other states. Each dollar of tourist promotion has a dramatic effect. They come, they buy stuff, they eat, they hire taxis, they go to retail stores, they hire people. There’s a huge domino effect.”

Boston hotels feeling the effects of the downturn are predicting fewer business travelers and tourists. PKF Consulting, a national hospitality data analysis firm, forecasts that revenue per available room locally will drop this year to $96.68, down 6.5 percent from 2008’s $103.45.

Paul Sacco, president of the Massachusetts Lodging Association (MLA), said 35 percent of the current hotel tax goes toward tourism, so if more taxes are raised by upping taxes, that’s more tourism dollars.

“We obviously support any money going to tourism from hotel taxes,” said Sacco. “But increasing that is not reasonable. If, in fact, the statewide tax is increased, the portion that will go into the tourism fund will proportionally increase.”
“The MLA would prefer any efforts to mitigate this crisis does not include occupancy tax increase,” said Sacco. “However, that said, we understand the commonwealth is in need of budgeted dollars, which will result in the pursuit of increased revenue, which will, in turn, increase occupancy taxes.“

But before that happens, not only should the state extensively research this tax increase; it should also look into taxing corporate and vacation rentals, which currently aren’t taxed for some reason, said Sacco. He’d also propose keeping a cap on local occupancy taxes, which can go as high as 4 percent if a town chooses to add a tax on top of the state occupancy taxes. “There’s your 5.7 percent tax, then there’s the local option tax that can go up to 4 percent, so in some areas it’s 9.7 percent,” said Sacco. “Our feeling is if there’s a tax increase, it should be on a statewide basis, and kept to a minimum.”