Sales tax holiday hits town coffers (11/19/09)

Same-quarter revenue falls 8 percent

Nov. 19, 2009

By Greg Elias

Observer staff

Revenue from Williston’s local option sales dropped by 8 percent, a downturn likely driven by a tax holiday as much as the recession.

The town took in $546,855 for the quarter ending Sept. 30, figures released last week show. That’s $51,000 less than the same quarter a year ago.

The tax is a major revenue source for Williston, funding about 30 percent of the municipal operating budget. The 1 percent local option levy tax is tacked onto the 6 percent state sales tax.

Even though quarterly local option tax revenue was about $43,000 below budget projections, Town Manager Rick McGuire said offsetting factors help ease the fiscal pain.

“It’s not as bad as you think,” he said, pointing to an increase in rooms and meals tax revenue and a future payment from the state to municipalities to offset the tax holiday’s impact.

Still, the steep revenue decline is the largest quarterly drop in a year and a reminder that the sales tax is no longer a dependable cash cow for Williston. The levy, approved by voters in 2004, has allowed the town to greatly reduce the property tax rate.

Since local option tax rules were changed in 2007 to exempt purchases made in one town but delivered elsewhere, Williston has seen revenue steadily erode. In 2006, the tax generated just over $3 million; in 2008, the tally fell to $2.4 million.

It’s unclear how much of decrease in the most recent quarter is attributable to the sales tax holiday in August. The state estimates the holiday in 2008 reduced sales tax revenue by $2.2 million. But that holiday ran for an entire weekend, while this year’s was held on a single Saturday.

The state has set aside $100,000 to reimburse the seven Vermont towns that have enacted a local option tax. The Vermont Tax Department will dole out that money based on the proportion of the local option receipts generated in each town.

Last year, Williston received $22,000 from the state, likely considerably less than the town lost in revenue, according to McGuire. The state will not reimburse municipalities for revenue losses this time until the fiscal year’s second tax holiday in March.

How much the recession is impacting Williston’s local option sales tax revenue is anybody’s guess, although Vermont’s economy is obviously limping.

Ken Jones, policy analyst for the Vermont Tax Department, said sales tax revenue statewide was down 5.9 percent compared to the same period last year. General fund revenue, which includes all sources of revenue, has fallen 10 percent.

Williston economist Jeff Carr, in a report issued last week with fellow economist Tom Kavet, said it could be 2013 before the state recovers fully from the recession. They forecast state revenue will continue to decline in the fiscal year starting in July and Vermont’s unemployment rate will top 8 percent by the middle of 2010.

Locally, McGuire has moved to reign in spending, proposing for the first time in recent memory a municipal budget that freezes expenditures at the current year’s level.

He put a positive spin on the latest sales tax figures, pointing out that the revenue loss will be partially offset by an increase in rooms and meals tax of more than $6,000 compared to the same quarter a year ago.

McGuire also noted that two big-box stores, Linens ‘n Things and Circuit City, now vacant in the wake of their parent company’s bankruptcies, will someday be reoccupied and again generate sales tax revenue.

The Associated Press contributed to this report.