VGA Opposes taxes that hurt businesses

On April 15th, the very day many Vermonters’ are trying to pay their end of year tax obligations, the Vermont Senate Finance Committee voted to increase the cigarette tax by $1.00 per pack, making Vermont more than $20.00 carton higher than New Hampshire. Here’s why we oppose this tax increase:

The Importance of Buying Local Stemming the Loss of Retail Business Across Vermont’s Borders

There has been significant focus across Vermont in recent years on the importance of buying local – supporting local agriculture, shopping in Vermont’s downtowns and ensuring vibrant, locally-based businesses. The Vermont Agency of Agriculture runs a comprehensive “Buy Local”.

Despite Vermont’s focus on buying local, the tax policy continues to push consumers across the border to New Hampshire for many of their retail purchases. A recent study by Dr. Art Woolf of Northern Economic Consulting illustrated this negative impact. Some of the study’s key findings include:

  • Before 1969 (when Vermont implemented its sales tax), per capita retail sales in the two regions were identical. Today, Vermont’s per capita sales are 60% of New Hampshire’s.
  • Inflation-adjusted per capita sales in Vermont were actually less in 2007 than they were thirty years earlier, while they had doubled in New Hampshire.
  • By 2007, per capita retail sales in New Hampshire’s border counties were $18,000 compared to $11,000 on the Vermont side of the river.
  • Over the 2002 to 2007 period, which includes Vermont’s most recent sales tax rise from 5% to 6%, per capita sales in New Hampshire rose by $2,000. In Vermont the increase was half that—$1,000.
  • Every time Vermont has increased its sales tax rate, the retail sales gap between Vermont and New Hampshire has widened.
  • If Vermont had maintained the pre-1970 status quo with New Hampshire, there would be 3,000 more retail jobs and $540 million more retail sales in Vermont’s border counties.
  • The economic damage imposed by the sales tax continues to worsen.

Our local Vermont retailers, including convenience stores and grocery stores, are, perhaps, the best example of buying local. These business owners support community non-profits, hire Vermonters and promote Vermont products. We can’t continue to implement policies that hurt these businesses and drive consumers across the border to New Hampshire.

Bill MacDonald, owner of the Waits River General Store on Route 25 in West Topsham, VT noted recently in testimony before the House Ways and Means Committee on March 11, on another proposed increase in a sales tax, “The thought of a retailer being able to ‘eat’ such an increase in cost is ludicrous at best. We all run on razor thin margins of 1 to 3 % already…We are 13 miles from the New Hampshire Border. 5 miles from the nearest store, 15 miles from the nearest grocery store, 16.5 Miles from the nearest Wal-Mart in VT and 28.5 miles from the nearest Wal-Mart in NH. Care to guess where most of the people of my village do their grocery shopping? Want to know why? It certainly isn’t because their sodas, milk and meat are any better than mine, and I’ll put my bananas, lettuce, tomatoes and sweet potatoes up against anyone’s.”

And policymakers should also adhere to the principle of “First, Do No Harm.” The Governor’s proposed budget for FY 2012 relies on an additional $3 million in projected revenue from increased cigarette sales taxes, mostly due to New Yorkers crossing the border to New Hampshire. Any increase in the tobacco tax could jeopardize this projected revenue, as well as the slim margins of local store owners.

Dana Franklin, owner of the West Addison Store, recently wrote an opinion piece for vtdigger.com on a proposed $1 increase in the cigarette tax. “My question to you (my legislators) is this. Can we afford, especially in this economy, to do anything that will drive commerce out of this state? Shouldn’t we be doing whatever we can to make people want to come here even more? It’s hard to grasp the concept sometimes that lower prices/taxes create larger outcomes but as a retailer I have learned that the hard way over the years.

“Example: I try to keep the lowest gas price in a 20-mile radius even though I don’t have a lot of other stations to compete with within a 6 mile radius. Once in a while I’ll lose track of what other gas stations are priced at. Within two days my sales will drop by at least 25 percent if I’m a few cents higher than my competition. This is called price sensitivity. Lost gas sales or lost tobacco sales which are low margin items result in lost in store sales which are where we make our profits.”

Example of lost sales and state tax revenue:

VT $66.4 Million Gross State Cigarette taxes paid to state, NH $229.6 Million Gross State Cigarette taxes paid to state (Source: Bill Orzechowski & Rob Walker, The Tax Burden on Tobacco, vol. 45 (February 2011)

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