Sales tax revenue continues downhill slide (8/20/09)

Aug. 20, 2009

Tax holiday hurts revenue, officials say

By Greg Elias

Observer staff

Local option sales tax revenue resumed its long decline during the final quarter of the fiscal year, dropping by 5.9 percent over the same period in 2008 and failing to meet even the town’s not-so-great expectations.

The new numbers, released last week, show Williston received $590,954 for the quarter ending June 30. Local option sales tax proceeds in the 2008-09 fiscal year were down by 4.4 percent over the previous year. (Figures do not include a payment from the state to offset a sales tax holiday.)

Town officials made conservative estimates for the tax when they assembled the budget. Town Manager Rick McGuire said the numbers could have been worse, noting that revenue came in just short of projections.

“I’d hoped for better … but you know it’s close,” he said. “You can’t ask for a lot more than that.”

The tax is a key source of revenue for Williston, funding about a third of the municipal operating budget. The town piggybacks the 1 percent levy on the 6 percent state sales tax.

Enacted in 2003, the levy initially allowed the town to dramatically reduce property taxes. Revenue from the local option tax increased in each of its first four years.

But then in January 2007 the state made rule changes that exempted certain purchases from the tax, most notably items bought in Williston but shipped elsewhere. Revenue for the town began to erode, falling by 22 percent over the next two years.

The town has since adjusted expectations. Officials assumed there would be no increase in sales tax revenue for the just-completed fiscal year.

Same-quarter revenue fell in the first two quarters, but rebounded to post a small gain before dropping yet again in the most recent three-month period. In all, the tax generated $2,360,442 for the fiscal year.

Sales taxes and other sources of government revenue are falling amid the economic slump, state officials said.

“There’s no denying that all of our revenue sources, including the sales and use tax, are being hit by the depressed economy,” said Susan Mesner, an economist with the Vermont Department of Taxes. She said sales tax revenue statewide dropped between 8 percent and 9 percent in June, and fell about 5 percent for the fiscal year.

“Which means we’re going the wrong direction on this,” she said. “We’re not out of the woods yet.”

Tax holiday hits town

This Saturday’s tax holiday gives consumers a break and boosts sales for local retailers, but officials acknowledge that it is costly for both the state and the handful of towns that charge a local option tax.

Mesner said the Tax Department estimates that the state lost $2.2 million in revenue last year due to the tax holiday.

The event lasted an entire weekend and extended for a week on purchases of energy efficient appliances. This year the holiday will be held on a single day this weekend and another day in March.

The Legislature budgeted $100,000 both last year and this year to help offset the impact of the tax holiday on towns that have the local option tax.

Officials used different methods to try to estimate just how much each town would lose, said Ken Jones, policy analyst with the Vermont Tax Department. But Jones said they concluded the most equitable way to divide the money was to calculate what proportion of total local option receipts were produced by each town.

State officials acknowledge that consumers time their purchases for the tax holiday to take advantage of the savings, making it difficult to know just how much tax revenue has been lost.

Jones and Mesner both said reasonably accurate estimates can be made for the state as a whole. But determining the impact of the tax holiday on individual towns is more difficult due to differences in local economies and other variables.

McGuire said the $22,000 in state reimbursement Williston received last year probably did not entirely compensate for lost revenue because so many people bought things on the tax holiday that they would have purchased days or weeks earlier or later.

“My gut feeling is that it was not enough,” he said.