Sales tax revenue falls again11/20/08

Numbers may reflect economic downturn

Nov. 20, 2008
By Greg Elias
Observer staff

Local sales tax revenue fell 11.8 percent in the third quarter, another ominous sign that national economic woes may be hitting home in Williston — though other factors likely contributed to the decline as well.

The town received $598,258 from the local option tax during the months of July, August and September. That’s $80,463 less than the same period in 2007.

Williston relies on the tax to fund about a third of the municipal budget. The new sales tax numbers have Town Manager Rick McGuire concerned but still hoping for a rebound in the near future.

Revenue from the sales tax “continues to be very weak, but we’re hoping it won’t go down a lot more,” he said.

There is evidence that the latest slide in local sales tax revenue mirrors numerous negative developments in the national economy and may foreshadow an even larger drop in coming months.

The numbers predate the announcement last month that Linens ‘n Things was going out of business and last week’s bankruptcy filing for Circuit City. Both chains have stores in Williston.

Proceeds from the statewide sales tax are also falling, a change from earlier this year when Vermont enjoyed rising revenue even as Williston’s sales tax numbers declined.

“Right now, we’re in the middle of a typical economic downturn,” said Jeff Carr, president of Economic & Policy Resources in Williston. “With the economy down, it’s not surprising that you see downward pressure on sales tax revenue.”

Consumers have stopped using credit to purchase big-ticket items like appliances and flat-screen televisions, Carr said. Some of Williston’s largest retailers sell such items.

Since 2002, Williston has collected a 1 percent local option tax that is tacked onto the state’s 6 percent sales tax. The levy has allowed the town to significantly reduce reliance on property taxes to fund municipal services.

But changes in state rules in 2007 apparently wounded Williston’s cash cow. Vermont now levies the sales taxes based on a purchase’s destination, so Williston and the other towns with a local sales tax receive no revenue when items are shipped elsewhere. Since the rule change, local sales tax revenue has fallen in six of seven quarters.

Williston has slightly raised the property tax and increased its budget reserves to deal with the declining sales tax revenue. The town currently has about $1 million to cover shortfalls or unexpected expenses.

Another factor in this quarter’s sales tax decline was a pair of tax holidays in July. The state has promised rebates to towns with local option taxes. McGuire expects Williston to receive about $10,000.

McGuire suspects that the town’s revenue losses may have been much larger, theorizing the tax holidays siphoned off sales that would have occurred before and after the holidays.

Though local sales tax revenue was already falling, it appears that the latest decline may be tied to the national recession.

The U.S. Commerce Department reported last week that retail sales fell 2.8 percent in October, the largest single-month decline on record.

The state saw a 3.6 percent drop in sales tax revenue for the four-month period ending Oct. 31, said Susan Mesner, an economist with the Vermont Tax Department. The state this week plans to revise downward its forecast for all revenue sources.

The most recent drop in Williston’s sales tax proceeds points out its pitfalls as a revenue source, Carr said.

When times are good, local residents enjoy bargain-priced government services, he said. When the economy declines, other types of taxes must be raised or services cut at the worst possible time.

“This is the dark side of funding public services with a cyclically sensitive source of revenue,” Carr said.

The Associated Press contributed to this story.