In its newest 30-second television ad, a Republican super PAC warns Vermonters that Montpelier is on the verge of enacting a major expansion of the sales tax. Really though, it’s probably not.
It’s true that a number of prominent Democrats have voiced support for a plan that would lower sales tax rates by expanding the scope of things to which the sales tax applies. That would mean assessing a sales tax on services provided by auto mechanics, plumbers, lawyers, hair dressers and the like.
Supporters of the idea say the economy has evolved since the sales tax came into being in 1971, and that the sales tax needs to reflect those changes in order to remain a sustainable source of revenue. In 1971, Vermont consumers spent equally on goods and services. Today, about 70 cents of every consumer dollar is spent on services.
Critics, meanwhile, say the move would quicken the pace of consumer migration to New Hampshire, a state that levies no sales tax. For service industries on the border especially, according to opponents, a sales tax on landscaping, carpentry, realty and other common services would be devastating.
Whatever the merits of the plan – endorsed in early 2011 by the Blue Ribbon Tax Commission, a three-person panel appointed to examine Vermont’s tax code – it doesn’t look to have legs in Montpelier. Not this year at least.
That’s according to House Speaker Shap Smith, who said this morning that until he hears broader consensus among lawmakers, the idea will likely remain on the backburner.
“My sense is that it’s not the kind of thing we’d want to do if there isn’t broad agreement, and I don’t see broad agreement at this point in time,” Smith said.
The issue of the sales tax – specifically whether or not to impose a sales tax on “cloud computing” – is the subject of a summer study committee that met as recently as a couple weeks ago. We didn’t go.
In its formal findings, the Blue Ribbon Tax Commission proposed expanding the sales tax to include a wide range of services, then lowering overall rates from 6 percent to 4.5 percent.
As Senate President, Peter Shumlin was largely responsible for creating the panel, and appointed one of its members (Smith and then-Gov. Jim Douglas appointed the other two members).
But Shumlin gave the sales tax expansion a pretty cool reception when it came out. As the governor likes to note, often, he can see New Hampshire from his legal residence in Putney. And it doesn’t look like Russia.
Tayt Brooks, treasurer for Vermonters First, cited explicit support for the sales-tax proposal from Smith as the basis for the new commercial. In a press release announcing the ad, Brooks links to VTDigger story by Anne Galloway in which Smith, according to Galloway, “said he wants to lower the sales tax to a nominal amount … and expand the assessment to services.”
In the story, published after end of the legislative session back in May, Galloway also reports that Senate President John Campbell is a vociferous advocate of expanding the sales tax to include services.
“Campbell said comprehensive reform of the sales tax issue is ‘not only important but also essential.’ Last year, Campbell was outspoken about his opposition to the sales tax expansion proposal from the commission,” Galloway wrote.
Smith, who hadn’t seen the ad, seemed less bullish on the idea today. While he does have concerns about the slow erosion of sales tax revenue, Smith said he also is “sensitive to issues that have been raised about expanding the sales tax to services, and they are legitimate concerns.”
While he doesn’t anticipate movement on the sales tax next year, Smith said he does hope to move ahead with changes to the state’s income tax code. Right now, Vermont is one of only nine states nationwide that taxes residents based on their “taxable income,” as opposed to “adjusted gross income.”
This system requires Vermont to levy much higher tax rates in order to raise the same amount of money as states that use AGI. By simply switching to AGI, Smith and others have said, Vermont could lower income tax rates over night without negatively affecting revenues.
“My preferable focus would be to look at the question of whether we could lower income-tax rates and make the income-tax system simpler,” Smith said.
And as to the issue of sales taxes: “I think there are going to be lot of different issues the Legislature is going to be facing next year, and I wouldn’t put this in top five,” Smith said.