Sales tax revenue continues to decline

March 6, 2008

By Greg Elias
Observer staff

Local sales tax revenue continued to slump during the holiday shopping season, dropping by 23 percent over the same quarter last year and finishing 2007 with the lowest annual total since Williston started collecting the levy.

Proceeds for the quarter ending Dec. 31 totaled $692,273, recently released figures from the Vermont Tax Department show. That's down $202,101 from the same quarter in 2006. For the calendar year, the town received $2,511,946, more than a half-million dollars less than the previous year.

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 greatly reduce reliance on property taxes to fund the municipal budget.

But changes last year in state rules apparently hurt municipalities that levy the tax. Starting on Jan. 1, 2007, Vermont exempted clothing and began to tax beer and Internet sales.

Perhaps more significantly for Williston, the tax is now based on a purchase's destination. The town now gets no revenue from items bought here but shipped elsewhere.

In the current fiscal year, Williston raised the property tax rate by a penny and used budget reserves to fund the anticipated sales tax shortfall caused by the rule changes. Town officials are projecting proceeds will fall again in the fiscal year starting July 1, likely resulting in another small property tax hike and further withdrawal from reserves.

"There's about a $250,000 difference projected," said Susan Lamb, Williston's finance director. "So it has to come from somewhere."

Same-quarter sales tax revenue fell in each quarter of 2007. The downturn was especially remarkable considering that same-quarter revenue had risen in all but one of the previous 14 quarters. Sales tax proceeds, which vary considerably from quarter to quarter within a given year, did hit their high point in 2007's final three months.

The current national economic downturn does not appear to be affecting local sales tax collections. Sales tax proceeds statewide were actually up during the fourth quarter, with increases for each of the three months ranging from 3 percent to 5 percent, according to George Phillips, policy analyst with the Vermont Tax Department.

Sales taxes are problematic revenue sources for local governments, said Jeff Carr, president of Economic & Policy Resources Inc. in Williston.

"When the economy slows, then tax revenue slows," he said. "And that usually comes at the worst possible time for the community."

Another issue is that residents get used to receiving services they don't pay for, Carr said, noting that most sales taxes in a regional shopping destination like Williston are paid by non-residents. At its peak, the local option tax funded more than 40 percent of Williston's municipal budget; that number in the coming fiscal year is an estimated 35 percent.

Carr said residents should ask themselves if it is wise to receive "a dollar's worth of services for 60 cents in property taxes."

Williston Town Manager Rick McGuire disputed Carr's assessment. He said the town has in fact used sales tax proceeds to defray expenses — additional police officers and fire trucks, for example —
associated with being a regional shopping destination.

Carr, who is also chairman of the Essex Selectboard, said that town learned about the dangers of relying on one big revenue source when the IBM plant was reappraised at a fraction of its former value. That caused a big boost in property taxes for everyone else.

He said Williston should consider investing some sales tax revenue into economic development efforts instead of using it all to reduce property taxes.

McGuire said the town has plans to fund infrastructure that would help maintain a healthy commercial sector — and keep sales tax revenue flowing. He pointed to Taft Corners' designation as a growth center and a proposal to build grid streets as two such measures.

"In the long run, it will maintain the vitality and the viability of our businesses," he said.