What one business manager calls “inevitable” — a higher state sales tax — may be in the works as Connecticut legislators look to close a budget deficit and minimize cuts to state aid to towns.
Retailers oppose a Democratic proposal to raise the tax half a percent, to 6.85 percent. Just as Connecticut is trying to promote growth, a higher tax on the sale of items ranging from clothes to computers would slow economic activity, the retailers’ lobbyist says.
“We’re telling them that to raise taxes at this time would not be a good idea,” Tim Phelan, president of the Connecticut Retail Merchants Association, said Wednesday. “It would hurt consumers and would hurt retailers.”
Retailers understand the trouble legislators face as they try to close a stubborn budget deficit, “but we hope they can find other ways,” he said.
Rose Hawthorne, manager at Bridgewater Chocolate Retail Store in West Hartford, is resigned to the prospect of a higher sales tax, the second increase in six years if enacted. The sales tax was 6 percent before it was upped to its current 6.35 percent.
“It’s kind of inevitable,” she said. “If we have to do it, everybody has to do it.”
“It does tend to creep up and then if people get concerned, that well, this is getting pretty expensive, something that used to be an inexpensive gift is starting to creep up, of course that’s going to affect us,” Hawthorne said.
The General Assembly is struggling to close a budget gap projected to reach $3.5 billion over two years and minimize state aid cuts to towns.
Gov. Dannel P. Malloy, who has criticized efforts to close the budget gap with higher taxes, has said he is “not in favor’’ of the sales tax increase proposal.
Kevin Sullivan, commissioner of the state Department of Revenue Services, said critics have a point when they ask if repeated tax increases are healthy for the state’s economy and business climate.
“To the degree that Connecticut can take the fourth large tax increase in 20 years, I think that’s a fair question,” he said.
The legislature and Malloy raised taxes in 2011 and 2015, but rolled back initial increases two years ago. An income tax increase was enacted in 2003 during the administration of Gov. John Rowland.
Sullivan said taxing items that are now nontaxable is preferable “to some degree” to the House approach that would raise the sales tax across-the-board in which “you can say everyone pays more.”
Retail sales include car and auto parts, furniture and furnishings, electronics, gasoline sales, clothes, sporting goods and other items. In 2015, the most recent full year for which data are available, the retail sales tax raised $1.8 billion in revenue.
Accounting for other transactions — the sale of electricity and gas to utility customers, professional services and other goods and services — the sales tax raised more than $4 billion in revenue, or about one-fifth of total state spending in 2015.
“Pressure from rising internet competition is adding to retailers’ nervousness at the prospect of a higher sales tax.
“I think they should tax the internet,” said Elizabeth Hicks, owner of Play It Again Sports in West Hartford. “It would make it a fair playing field.”
Still, a state sales tax approaching 7 percent is “significant,” she said.
Connecticut’s 6.35 percent sales tax is No. 32 in the U.S., higher than Massachusetts, at 6.25 percent, but lower than Rhode Island, which charges 7 percent, according to the Tax Foundation, a Washington, D.C., research organization.
New York’s 8.49 percent sales tax is the ninth highest in the country, the Tax Foundation said.
Hicks, the owner of Play It Again Sports, said Connecticut needs to be cautious in raising the cost of doing business. She pointed to the departure of the corporate headquarters of General Electric Co. and Aetna Inc.
“They’re driving people out of the state,” she said.