Sales tax revenue better than expected

By Greg Elias
Observer staff

Sales tax collections in Williston rebounded in the second quarter of 2007, easing fears that state rule changes had sent a major source of local revenue into a permanent freefall.

Williston received $689,491 from the local option tax in the quarter ending June 30. The 1 percent levy is tacked onto the Vermont’s 6 percent sales tax.

The latest figures represent a 10 percent drop from the same quarter in 2006. But that is less than half the decrease seen in the first quarter, when same-quarter collections fell by 22 percent.

Town Manager Rick McGuire said the new figures give him guarded hope, although he emphasized that numbers from additional quarters are needed before a solid trend emerges.

“There’s a drop-off, and it is large, but it may not be quite as bad as it first appeared to be,” he said.

Starting January 1, the state of Vermont altered rules that determine what goods and services are subject to the statewide sales tax and their piggybacked local options taxes. The changes exempted some items that were formerly taxed and began taxing others.

The state also changed rules governing when the local option tax is charged, with the levy now based on the purchase’s destination. Items bought in Williston but shipped or delivered elsewhere are no longer subject to Williston’s local sales tax.

The changes are part of a nationwide effort to standardize collections. The goal of the Streamlined Sales Tax Project is to convince Congress to pass legislation requiring taxes on Internet sales, thus capturing additional revenue for states and municipalities.

Michael Wasser, policy analyst with the Vermont Tax Department, said the smaller decrease in local option tax collections in the most recent quarter represents a more accurate picture of what is really going on. He said the previous quarter’s figures were inaccurate because not all the sales tax returns from merchants were processed when the numbers were reported.

On a statewide level, sales tax collections continued to rise, increasing in the latest quarter by roughly 5 percent over the same period in 2006, Wasser said. But in Williston, state sales tax revenue fell by around 3 percent during the quarter.

He speculated that a downturn in the housing market may have in part caused the local drop in state sales tax revenue, with people buying fewer home improvement products and perhaps cutting back on other purchases at Williston’s many retailers.

As for the local option tax, Wasser said both changes in sourcing rules and the new exemptions for clothing and beer are likely reducing collections in Williston.

Town officials had expected a decrease in local option tax revenue when the new rules were enacted. The 2006-07 budget assumed that revenue would remain level despite the fact that proceeds had risen steadily since the town started collecting the tax in 2002.

But officials were startled by the larger-than-expected first-quarter drop. The decrease was especially remarkable because same-quarter revenue had increased all but one time over the past five years.

In June, the Selectboard decided to raise the property tax rate by an additional penny and withdraw money from budget reserves to make up for the anticipated drop in sales tax revenue in the coming fiscal year.

Now town officials will be watching closely what happens over the next four quarters, which comprise the 2007-08 fiscal year. A yearlong drop in sales tax proceeds could force the town to cut spending by hundreds of thousands of dollars, raise property taxes or further draw down budget reserves. Revenue from the local option tax funds about 40 percent of the town’s budget.

Wasser said it will take about a year to accurately assess the impact of rule changes on local sales tax revenue.

“You won’t really get the full picture until you get 12 months accounted for,” he said. “But there will be a loss.”