Report: Vt. sales tax hurts business on NH border

By John Curran
Associated Press / November 16, 2010

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MONTPELIER, Vt.—A new report measuring the impact of Vermont's sales tax on business says the 6 percent levy continues to stunt commercial growth along the state's eastern border because shoppers flock to neighboring New Hampshire to avoid paying it.

The sales tax, first adopted during a fiscal crisis in 1969 and steadily increased to its current rate, raises about $250 million for the state annually.

But its enactment -- and New Hampshire's unwillingness to adopt a sales tax -- has cost the state about $540 million in retail sales and about 3,000 jobs in just over 40 years, according to the report issued Tuesday by five business groups.

The groups -- the Beverage Association of Vermont, the Vermont Chamber of Commerce, the Vermont Grocers' Association, the Vermont Retail Association and the Vermont Wholesale Beverage Association -- say they're not lobbying for repeal or reduction of the sales tax. They only want to inform Vermont lawmakers should they be presented with proposals for new taxes.

"Stores in New Hampshire used to come over and talk to us about `How do you do this? How do you make it work so good?'" said Jack Fraser, a co-owner of Dan and Whit's General Store, in Norwich, close to the New Hampshire border. "This turned 100 percent the other way now. That gap is so gross."

The group's study, which cost about $10,000 to produce, was conducted by economist Arthur Woolf, of Northern Economic Consulting Inc.

The study, called "The Unintended Consequences of Public Policy Choices: The Connecticut River Valley Economy as a Case Study," used U.S. Census retail data and found:

-- Retail sales per capita in counties along the Vermont-New Hampshire border were nearly identical through the 1950s and 1960s, but since Vermont's adoption of a sales tax, commercial growth on the Vermont side has slowed, comparatively. In 2007, per capita retail sales in New Hampshire's border counties were $18,000, compared with $11,000 in Vermont counties across the river.

-- In 2007, sales in New Hampshire border counties rose by nearly $2,000 per person, compared with $1,000 per person on the Vermont side.

-- The presence of the region's major north-south highway, Interstate 91 in Vermont, hasn't been enough to bring stores and shoppers to the Vermont side of the border, even though interstates tend to attract retail activity.

-- Even stores selling goods that aren't subject to the sales tax have suffered because of consumer perception that everything is cheaper in New Hampshire.

The study acknowledges that other factors -- Vermont's bottle deposit bill and strict land use provisions enacted in Act 250 -- may also be to blame, but it says the sales-tax disparity between the two states has been the principal driver in the trend.

Betsy Bishop, president of the Vermont Chamber of Commerce, says the groups know they can't realistically seek a repeal of the sales tax now, given the state's looming $112 million budget deficit for the 2012 fiscal year.

"We need to pay attention to our tax policies and what happens, what the consequences are going forward," she said. "We are urging the Legislature not to do anything that would exacerbate that divide."

Any expansion of the sales tax -- either to items now not subject to it or an across-the-board increase -- would be bad news for the retailers, she said.

On Wednesday, state Attorney General William Sorrell is set to release the findings of a "healthy weight initiative" and is expected to recommend a penny-per-ounce excise tax on sugar-sweetened drinks including soda, iced tea, sports drinks, energy drinks and flavored water.