BRATTLEBORO — Should the town implement a 1 percent local-option sales tax (LOST) on top of the existing 6-percent Vermont state sales tax?
Would this measure bring in a solid revenue stream to remove some pressure from property owners and renters? Or would it drive customers further toward online and sales-tax-free New Hampshire shopping?
These are some of the questions the Selectboard is considering as its members work through the fiscal year 2020 budget season and face the realities of funding the town's operations.
And these are some of the questions that members at Representative Annual Town Meeting will consider as part of a discussion of the issue.
The Selectboard's work is challenged by the town's large and aging infrastructure that previous town officials had, in some cases, neglected to the point of near-ruin.
During the last few years, Town Manager Peter B. Elwell has tried to steer the Selectboard toward the goal of better fiscal planning, a more proactive approach to caring for the town's capital needs, such as municipally-owned buildings, structures, and major vehicles like fire trucks and dump trucks, and relying less on property taxes for funding this new approach [“Can Brattleboro plan ahead for big purchases?” and “Too many projects, not enough money,” News, Nov. 28].
In a budget-related memorandum Elwell wrote to the Selectboard in November, he noted the progress they have made on the latter goal.
For FY20, revenues “other than property taxes and use of the fund balance are proposed to increase by $119,054 [which is] more than a penny on the Town's municipal property tax rate,” wrote Elwell.
It's not quite enough.
“Despite this progress, the proportion of the General Fund revenues provided by current year property taxes will increase from 84 percent in FY19 to 86 percent in FY20,” Elwell wrote in his memo.
Brattleboro is not alone. Elwell described this situation as “normal in Vermont” but “still a significant continuing concern” because of state-imposed restrictions on municipal revenue sources.
Although there is dissent on implementing the local-option sales tax, all Selectboard members agree property taxes place a burden on many owners and renters, and could adversely affect the town's social and economic health.
The Selectboard has recently held lengthy discussions - and made brief mentions during a variety of other agenda items - about the cost of living in Brattleboro.
During the Nov. 20 Selectboard meeting, the board talked about the lack of owner-occupied and rental housing in town, affordable and market-rate, its effect on the area's diversity in population and economic health, and what, if anything, they are empowered to do about it [“In Brattleboro, housing costly and hard to find,” News, Dec. 5].
Board Vice Chair Brandie Starr pointed out the effect rising property taxes have on low-income renters. “Taxes might adjust here and there, but they don't come down,” she said, and noted that increasing property taxes drives rents up - and they stay up.
Starr, a case manager with Groundworks Collaborative, which runs the Morningside Shelter, the seasonal warming shelter, and the Drop-In Center, said that because people who are impoverished often don't have the money to move to a town with cheaper rent, they are stuck in place even if they can't afford to stay, “and they'd end up on my doorstep,” she said.
Housing vouchers are scarce, and they don't cover all costs of living, Starr said, and cautioned, “if rents keep going up, a disparity will become even more visible between the haves and the have-nots.” She urged her colleagues to “open our eyes to other revenue sources.”
Other revenue options?
What other revenue sources exist for the town?
Raising fees won't go very far. Increasing entry and usage costs for the pool, the skating rink, and burial plots in town cemeteries, won't fund a proposed FY20 General Fund Expenditures budget of $17.8 million.
And it won't do much to bring down the proposed tax rate increase of $36.90 for each $100,000 of property value.
Town officials have repeatedly said residents don't want them to cut services, a premise affirmed by the 2018 Representative Annual Town Meeting when members voted to increase the social-services fund, give Brattleboro Area Skatepark Is Coming more money than the group asked for to develop a skateboard facility, and authorize $950,000 for an aerial ladder truck and a second sidewalk snowplow.
Vermont is among 39 states that prohibit towns from passing laws that aren't specifically cited in state statute - among them, sales taxes.
When, in early November, Elwell noted revenue in town from the state rooms, meals, and alcohol tax “has been significantly increasing in the past few years” - the town collected $421,000 as its cut of these state taxes during FY18 - some board members saw an opportunity and wondered if it is time to revisit the LOST.
State statute allows certain municipalities to collect a 1-percent LOST. Towns can apply the LOST to the 9-percent rooms and meals tax (which Brattleboro has done since 2007) and to the 6-percent sales tax (which Brattleboro Town Meeting members have rejected three times since 2009).
Many items are exempt from sales tax. Some major consumer exemptions include medication, motor-vehicle and home-heating fuel, motor vehicles, food, and funeral charges. The state tax department's website has more information.
If the town puts a LOST into effect, Brattleboro will not receive the entire 1 percent of the tax its merchants collect. The Vermont Department of Taxes keeps 33 percent for processing.
There was some discussion about whether Brattleboro could declare itself, through a charter change, the collecting agent for this tax, which would circumvent the state tax department and its fees.
Elwell disabused Selectboard members of this possibility, noting that a few towns levy a separate sales tax in addition to the LOST and they are the agents for the former tax but not the latter.
In Vermont, 13 towns currently collect a LOST, including some of the state's largest cities, like Burlington, and some nearby towns, like Dover and Wilmington.
Town officials and voters have considered the LOST for sales tax before. Sometimes the Selectboard has placed an article on the Australian ballot to gauge public support, and sometimes they haven't. It's not required, noted Assistant Town Manager Patrick Moreland.
Would LOST provide $650K to town coffers?
Moreland supplied information about the anticipated income from a LOST. He used Brattleboro taxable sales figures - about $95 million - from FY17, “the last year of complete data,” he said.
The town's share of a LOST would have yielded the town, after the state took their cut, “a rough net of $650,000 in revenue,” said Moreland.
“There's reason to believe this number could rise in the future,” Moreland noted. In the June U.S. Supreme Court case South Dakota v. Wayfair, Inc. the court decided 5–4 that states can collect sales tax on purchases made from out-of-state sellers - including vendors through mail order and online - even if they have no physical presence in the state. The law took effect on July 1.
How could this potential $650,000 in annual revenue affect Brattleboro property owners? Moreland offered a comparison.
Moreland's data shows that for FY19, property tax revenues are $14.9 million. For FY20, the projected revenues from property taxes are $15.3 million, reflecting a 2.9-percent increase ($424,509).
If the town were to implement a LOST for FY20 and used revenues only to offset property taxes, it would bring down the money needed from property taxes to $14.7 million - by Moreland's projections, $209,634 or 1.4 percent less than FY19's revenues from property taxes.
Wessel: Now is the time
Selectboard Clerk Tim Wessel is in favor of implementing the LOST - and, he told his colleagues, now is the right time to do so.
Wessel said he is still waiting on complete data from the state, but he believes other towns have had success with the LOST. And Brattleboro has had success with the LOST on the rooms and meals tax.
He noted the rooms and meals tax, which also includes alcohol sales, is at a higher rate than the sales tax, even with the LOST added. The rise in tax collected through the rooms and meals tax, Wessel said, “is a real good measure of the health of some disposable income [...] by families and individuals.”
Wessel said, “I want everyone to understand that this adds a penny [per dollar] to the sales tax that is already being charged.” He noted no new items will be taxed by the LOST.
Finance Committee member Franz Reichsman asked Selectboard members and Town Manager staff if studies have been conducted, and if data exists on whether, and how, the LOST would affect the local economy.
He also asked “at what point is there a tipping point” as sales taxes rise.
“I've been against this every single time,” said Selectboard Chair Kate O'Connor, who is employed as the executive director of the Brattleboro Area Chamber of Commerce.
With any sales and use tax, including rooms and meals, “we don't really know who's paying it” and who has the expendable income to, for example, eat in restaurants, she said.
“There is a fear” for merchants, said O'Connor, and she knew that even before she began working with the Chamber of Commerce in 2013.
“It's a lot of perception [that] we're high-tax,” she said.
O'Connor would support the measure only “if it goes to property tax relief” and not to a special project, she said at the Nov. 27 special Selectboard meeting. To do so, she said, “would be taxing Brattleboro people more.”
Wessel and Starr agreed with O'Connor, and all want to ensure that the town uses this revenue only to offset property taxes.
But there's only so much control that current board members can have on the actions of future Selectboards. Assigning the use of revenue collected by the LOST is “the same as any other aspect of the budget,” said Elwell. “You propose the budget to [Representative] Town Meeting and they either approve it or not,” he added.
If RTM doesn't approve the budget, they can change it, “but they can't direct [the Selectboard] on how to implement the change.”
Former Selectboard member urges resolve
Former Selectboard member Dick DeGray noted the hard and controversial work that he, his colleagues, and the town's administrative staff completed on the LOST proposal during previous years.
He cautioned board members to tread deliberately. “If you're not willing to commit to moving this forward, I would ask you to pull it off the table,” said DeGray.
DeGray disputed the belief that an extra 1 percent on the sales tax would drive potential customers from shops in town.
DeGray's spouse, Missy Galanes, owns The Vermont Shop on Main Street. The online retailer Amazon.com “is doing more damage to Main Streets in this country than any other business going today,” said DeGray, who added that New Hampshire, with no sales tax, “isn't the threat.”
Wessel agreed.
“To me, the idea that someone is okay with paying six pennies on the dollar over here in Brattleboro, Vt., now will suddenly say, 'Seven cents? That's it, I'm going to New Hampshire!' is ridiculous,” he said.
Wessel said local merchants who rely on local patrons “have already lost the people that care so much about the 0-percent sales tax in New Hampshire. There's not going to be any major change in that area.”
Vermonters who purchase goods in New Hampshire are obligated to pay Use Tax. Though such taxes are difficult to enforce, Act 73, passed in 2017, “requires vendors to report to the Department of Taxes certain transactions on which no sales tax was paid,” according to the state Department of Taxes website.
Starr put the subject in a positive light and noted most working people won't be affected by the LOST. Instead, it gives visitors “a wonderful opportunity to support the town they love so much,” she said.
“Vermont has a very high reliance on property tax, and less reliance on income and sales taxes,” said Wessel. “The time is right to make a small, relatively painless shift away from our property taxpayers, who are paying a lot, and to people who come into town.”
“This is largely who will be paying this tax - and pay an extra penny on the dollar,” he added.
Wessel called the LOST “the last remaining tool that we have” to raise town revenue, “and it's important we do that.”
Representative Town Meeting to weigh in
At the Nov. 27 meeting, the board voted 3–1 to place an article on the Representative Town Meeting agenda asking members to decide if the town should implement the LOST.
Board Chair Kate O'Connor cast the sole dissenting vote, explaining that she didn't believe there was enough time for public comment.
The Selectboard will discuss the LOST in the coming weeks. Elwell agreed to bring additional materials, including comparison charts, to help the public understand “what the impact of this would be.”