Vermont: How to Fight an Eroding Sales Tax Base
- Jan 23, 2013 | Gail Cole
The Blue Ribbon Tax Structure Commission (BRTSC) was tasked with examining the Vermont tax system and recommending improvements for the future. It was assembled in the spring of 2009 and issued its final report in January of 2013.
The commission found that "sales tax revenue in Vermont and nationally has not kept pace with the economy … due to the erosion of the sales and use tax base." Three causes were listed:
- People now purchase more services than goods;
- States have trouble collecting taxes from remote sellers; and
- The number of sales tax exemptions has increased.
In Vermont, 65% of revenue generated by the sales tax goes toward the General Fund. The remaining 35% is dedicated to the Education Fund. Like other states, Vermont feels it when sales tax revenue declines.
BRTSC considered the following recommendations to broaden the sales tax base:
- Decrease the sales tax rate from 6 percent to 4.5 percent.
- Tax most goods and services equally;
- Eliminate most exemptions, except for food and prescription drugs;
- Remove soda from the food exemption; and
- "Move as aggressively as possible with other states to collect tax revenue due on Internet purchases."
The commission does not unanimously recommend taxing services because of a desire to remain competitive with New Hampshire (where there is no sales tax), and because of the challenges of collecting sales tax from remote sellers (including sellers of services, like cloud services). However, it does unanimously endorse moving toward collecting remote sales tax. It considers Vermont well poised to collect sales tax from remote sellers if and when Congress passes legislation to allow states to do so. Vermont has been a full member of Streamlined Sales Tax since 2007.
The Blue Ribbon Tax Structure Commission makes one thing clear: "Vermont should move as aggressively as possible to reconfigure its sales tax for the twenty-first century." In its final report, BRTSC admits its suggestions are bold, but thinks they "would set Vermont on a sustainable path." (BRTSC report, pp 49-51)
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