Unanticipated consequences

Friday October 5, 2012

Members of the Selectboard and town officials should be commended for their hard work and efforts on behalf of the residents of Brattleboro. The comments below are not meant as an endorsement or a condemnation of their efforts or of the improvements proposed for the municipal center/police/fire station.

However, the information below is to present a credible argument against implementing an additional sales tax to pay for capital improvements.

Historically, our local legislative representatives, as well as those in other eastern Vermont border areas, have been opposed to the state increasing sales taxes. In the 1990s, noted Vermont economist Arthur Woolf issued a report indicating that a differential in sales tax between contiguous states of more than 3 percent has the effect of exporting sales to lower (New Hampshire) sales tax states. Dr. Woolf updated this study published November, 2010, entitled: The Unintended Consequences of Public Policy Choices: The Connecticut River as a Case Study."

This study states that the "Vermont Sales Tax has dramatically changed the pattern of retailing activity in the counties that border the Connecticut River, leading to a significant loss of the retail market in the Vermont border communities." And he concludes his study stating that "sales taxes along with the bottle bill and Act 250 have contributed to a hollowing out of Vermont retailing along its border with New Hampshire. All of these policies may have been introduced for worthwhile purposes. But they had major unanticipated consequences -- essentially destroying what was once a thriving retail sector in Vermont’s Connecticut River Valley."

He sites that in the ‘50s and ‘60s, per capita sales, per local population, in stores selling goods now subject to sales taxes were essentially identical. By 2007, per capita sales in the border counties in New Hampshire were three times what they were on the Vermont side; and that, despite Interstate 91, which should act as an advantage to Vermont.

If there are any doubts concerning retail activity in this region, note where the development of shopping areas have occurred over the past 20 years. Walmart in Hinsdale and the Monadnock Marketplace in Keene are good examples; and farther north, numerous shopping malls in Lebanon attract a significant amount of customers from both sides of the river. One has only to travel to these locations and count the number of green license plates shopping in New Hampshire.

A "multiplier" effect: Exporting sales does not just occur with items where there is a sales tax differential. While Vermonters are shopping for goods in New Hampshire where there is a differential, they might decide to eat, or shop for a car (which must be registered in Vermont), or visit shops (clothing, shoes) where there is no difference in the sales tax. (We have not mentioned internet or mail order sales, but the effect of the differential is also relevant.) What does this all mean? Lower sales in Vermont, fewer jobs, lower sales taxes, lower payroll taxes, and yes, reduced commercial property values.

The financial health of retail businesses: Taxable retail sales in Brattleboro were $114,000 in 2007, $115,000 in 2008, $98,000 in 2009, $99,000 in 2010 and $99,000 in 2011 (Published by the state of Vermont. Figures from FY 2012 had not been published as of this writing).

Retail sales in Brattleboro, subject to sales tax, have declined during the past five years. Some of the decline can be attributed to the closing of the Home Depot store on the Putney Road. We understand that revenue at this store was around $10 million. But even excluding the closing of this business, sales in this category have declined.

What does a declining base of retail sales mean to Brattleboro? A reduction in jobs, related income, and taxes are obvious. But the implications get broader.

Commercial real estate values: An essential component of the value of commercial real estate is a function of the net income of a subject property. Standard cost data as well as logic indicates that retail businesses can pay only a certain amount of its gross sales as rent/occupancy costs. Lower sales translates into lower rents, lowering the effective net income of a commercial property, and ultimately the value of that property. Lower commercial property values ultimately reduces the tax grand list which means higher taxes for other properties.

Appearance: The appearance of commercial properties effect how residents and visitors feel about a town. In a community such as Brattleboro, the downtown is a vital showcase of the heart, soul and vibrancy of the community. An active commercial center is a good indication of the economic health and viability of the community. Significant investment in the Latchis, the new Co-op, as well as the exciting Brooks House project are encouraging. The town should not take any action which could have an adverse effect on existing businesses, or these projects.

Compromising position: For many years, communities along the New Hampshire border have insisted that the sales tax differential has been detrimental to their economic health. If Brattleboro were to implement a local options sales tax, what type of statement does that make to the state? "You’ve been against the increase in sales tax all these years, and now, Brattleboro, you’ve increased it more!" That does not add to the credibility of the community. In fact, Vermont border towns and local legislators should continue to try to lower the state sales tax.

In reality, we really do not know the precise effect of an additional 1 percent sales tax on sales. But we do know that it would increase the differential between Vermont and New Hampshire, and the probability that it will have an adverse effect on retail sales in Brattleboro is significant.

Philip Steckler has been a principal of Country Business, Inc., in Brattleboro since 1976. Since then, he has managed hundreds of business sales transactions throughout New England. He has been the President and an executive board member of The Brattleboro Area Chamber of Commerce, a board member of the State of Vermont Chamber of Commerce, and past President and current board member of The Brattleboro Regional Development Credit Corporation.


If you'd like to leave a comment (or a tip or a question) about this story with the editors, please email us. We also welcome letters to the editor for publication; you can do that by filling out our letters form and submitting it to the newsroom.

Powered by Creative Circle Media Solutions