Local sales tax revenue continues decline

New numbers show 9 percent drop

Aug. 21, 2008
By Greg Elias
Observer staff

Local sales tax revenue resumed its long, slow slide in the second quarter, with proceeds down 9 percent over the same period last year.

Williston received $627,980 from the local option sales tax for the quarter ending June 30, according to Rosemary Hebert of the Vermont Tax Department. That’s $61,511 less than the same three months in 2007.

The latest numbers mean the tax failed to meet even the town’s downsized revenue expectations. The town budgeted $2.65 million in sales tax revenue for the fiscal year ending June 30, according to Town Manager Rick McGuire. The tax brought in $2.47 million.

McGuire, who had yet to receive the latest sales tax figures on Monday morning, did not want to comment until he had time to analyze the new numbers.

Williston voters approved the 1 percent sales tax six years ago. It is tacked onto the 6 percent state sales tax.

The tax initially was a boon for the town, allowing it to reduce the property tax rate to a fraction of its former level. At its peak, the tax funded about 40 percent of the municipal budget.

But starting in January 2007, the state enacted new rules designed to capture Internet sales. The changes are part of a multi-state initiative to standardize collections and thus convince Congress to pass legislation subjecting Internet sales to state sales taxes.

Among the changes Vermont made was a rule that required items purchased in one place but delivered elsewhere to be taxed based on their destination. That apparently hurt Williston, which has several chain retailers that sell appliances and other large items that are often shipped to customers in other towns.

Since the changes were enacted, same-quarter revenue has dropped in all but one of the six subsequent quarters. The lone exception occurred during the first three months of 2008, where revenue rose slightly over the same time a year earlier.

But state officials have said they think that upward blip may have been a statistical anomaly caused by problems associated with reporting and calculating the tax when the rules first went into effect during the first quarter of 2007.

It is unclear if the declining national economy has impacted local sales tax revenue. Retail sales dipped by 0.1 percent in July, according to the U.S. Commerce Department.

It was the first decline since sales fell by 0.5 percent in February. Analysts attributed the recent drop to falling auto sales.

In Vermont, however, sales tax revenue for the state as a whole has risen in the last few quarters. Numbers for the most recent quarter were not immediately available, but previous periods had increases around 5 percent.

The next quarter could bring an even larger decline in local sales tax revenue. The state offered a sales tax holiday on items costing $2,000 or less on July 12-13 and made purchases of energy-efficient appliances exempt from both state and local taxes from July 12-18.

“I wouldn’t say we are concerned, but we’re certainly going to be following it closely,” McGuire said of the potential impact of the tax holiday on local revenue.

He noted that the sales tax holiday legislation includes a provision for reimbursing municipalities for revenue losses.

The Associated Press contributed to this story.