BOSTON — The Senate approved a $1 per pack cigarette tax increase yesterday, part of a $472 million tax hike that would be the largest in the last six years.
The Senate voted 31-6 for the tax bill, which would raise $175 million through higher cigarette taxes and $297 million from closing so-called corporate tax loopholes.
Sens. Steven A. Baddour, D-Methuen, and Susan C. Tucker, D-Andover, voted for the bill, which passed the Senate while Sen. Bruce E. Tarr, R-Gloucester, voted against it.
The House passed the cigarette tax hike last month along with similar corporate tax changes. The House and Senate need to reconcile their differences before sending the bill to the governor, who supports the corporate tax changes and said he's open to the cigarette tax increase.
Massachusetts would have one of the highest cigarette taxes in the nation, $2.51 a pack, if the bill becomes law. The tax would also affect cigarettes already in wholesalers' inventories as of July 1.
The Senate added a provision, which the House will have to approve, ending state control of tobacco prices, a move pushed by local Republican and Democratic senators to ease the impact of the measure on border communities.
Eliminating the price floor, which dates back to 1945 and was meant to guarantee tobacco companies and retailers a profit, would allow convenience stores to charge less for cigarettes, offset at least some of the $1 per pack increase, and compete against New Hampshire stores, Baddour said.
"It negates any price increase and protects the stores on the New Hampshire border," said Baddour.
"It will allow mom and pop stores to play with their prices," said Tucker.
The Senate tax hike was passed yesterday as lawmakers and the governor look for revenues to close a gap between spending and revenues of at least $1.3 billion for fiscal 2009.
It would be the biggest tax hike since 2002, when lawmakers halted a voter-approved rollback of the state income tax to 5 percent. That move cost taxpayers between $500 million and $540 million, according to reports at that time.
The Senate bill includes a tax cut for businesses.
The corporate income tax rate would drop from 9.5 percent to 8 percent over three years beginning Jan. 1, 2010. The House bill would have initiated the reduction in 2009, meaning the state would take about $80 million less.
Baddour said the tax cut would benefit most North of Boston businesses and is what people should focus on.
"It's about cutting taxes, cutting taxes, cutting taxes," Baddour said.
Republicans questioned whether the state needs to raise any taxes, and pointed to a report Monday that the state collected more than $2.7 billion in April, a 17 percent increase compared to a year ago. The lion's share of the increase reflected 2007 tax payments, and Patrick administration aides say it is not indicative of the health of the economy.
Still the GOP moved unsuccessfully to change the bill's name to "An Act to Promote Economic Stimulus in New Hampshire, Rhode Island and other States in the Union."
"It is not a sound means to improve the state budget by penalizing the employers that create jobs for 40 percent of the work force," said Tarr, a Gloucester Republican.
According to Tarr, if taxes were going to be raised, Democrats should have steered some of the $472 million toward local aid.
"It's unacceptable ... that not one penny went to cities and towns," Tarr said.
Supporters say closing loopholes ends certain tax practices that businesses claim are legitimate but that the governor, House and Senate Democrats say are abusive.
"It brings more fairness to the corporate tax code and could mean a rate reduction for many businesses," Tucker said.
The Senate bill would:
r Require corporations call themselves one type of company on both their state and federal taxes. Lawmakers contend the state loses money when businesses claim a status on their state taxes that is different.
r Force businesses to report all of the income of all of their operating units as a single entity, preventing businesses from shifting their income into units based in lower-cost states.
Edward Mason may be contacted at emason@gloucestertimes.com.
