Towns seek to keep more sales tax revenue (3/25/10)

Legislation would slice state’s collection fees

March 25, 2010

By Greg Elias

Observer correspondent

Lawmakers may cut fees the state charges for administering the local option sales tax, a change supporters say will restore fairness and boost revenue for Williston and other communities that collect the tax.

The 1 percent levy is tacked onto the state sales tax by Williston and 10 other cities and towns around Vermont. It is a major source of revenue in Williston, generating more than $2 million annually and funding about a third of the municipal budget.

But municipalities that have the tax don’t get to keep all the money. First, 30 percent is deducted for the Payment in Lieu of Taxes program. The PILOT program compensates communities that host state-owned buildings and land, which are not subject to property taxes.

Then the Vermont Tax Department charges a $10.80 fee to process tax returns. Most of the fee, which applies to each of the returns filed periodically by retailers, is deducted from sales tax revenue that would otherwise go to municipalities. Thirty percent of the fee is funded through the PILOT program.

The legislative delegation from Bennington County has pushed to reduce the processing fee, with support from representatives from other towns that levy the tax, including Williston. They assert it has become a moneymaker for the Tax Department.

“As you are well aware, local governments are struggling mightily these days to hold the line on taxes and at the same time maintain services,” states a letter from Sen. Richard Sears and other Bennington County legislators to Vermont Tax Commissioner Richard Westman.“They need and deserve every cent that should rightfully come their way.”

An analysis showed that the fee in the 2008-09 fiscal year was 24 percent above what it actually cost to administer the tax. So lawmakers proposed that the fee be cut to $8.24.

The issue is now being debated in the House Ways and Means Committee chaired by Rep. Michael Obuchowski, D-Rockingham. Legislators have tentatively agreed to compromise by reducing the fee to $9.24.

“It seemed an equitable thing to do,” Obuchowski said. “State government shouldn’t be making a profit off the work it does for towns.”

In a written response to lawmakers, Westman said it costs about $429,000 to administer the tax. Though automated billing and other measures have produced efficiencies, he said, collecting the tax is still expensive and time-consuming to administer.

Rep. Terry Macaig, D-Williston, who has attended hearings on the issue, said the change would produce about an extra $8,000 for the town, a tiny fraction of the $2.6 million the tax is projected to generate this fiscal year.

“It’s not a lot, but it’s better than nothing,” he said.

Ken Jones, policy analyst with the Vermont Tax Department, said the fee reduction will provide less than $10,000 in additional revenue for towns and cities that have the local option tax.

“These are pretty small numbers,” he said. “But this is more of a fairness question.”

Legislation reducing the fee is expected to be included in a miscellaneous tax bill that will likely be passed toward the end of the current session.

Obuchowski acknowledged that reducing the collection fee further squeezes state revenue at a time the state is coping with a massive budget shortfall. But he noted towns are also hurting and looking for anything that can maximize revenue.

“It’s a drop in the bucket but it’s indicative of the kind of digging going on out there statewide,” Obuchowski said. “It may seem like a little thing, but to towns it’s a big thing.”