MONTPELIER — The debate over whether Montpelier should implement a local option tax on rooms, meals, alcohol and retail sales can be boiled down to one simple question.
Should the city continue to fund its budget almost exclusively with property tax revenue, in which increases largely hit the wallets of city residents, or should businesses and residents of neighboring communities be asked to contribute more money to help pay for city services?
Set aside all of the claims that a local sales tax will destroy Montpelier’s downtown by driving customers and businesses away.
While fear is a strong motivational tool, there’s no empirical, or even anecdotal, evidence to suggest that this will actually happen.
Thousands of communities across the country have implemented local option taxes, and there’s been no example presented of any town having been destroyed by doing so.
The decision to implement these proposed local option taxes is about whether it makes good policy for Montpelier to do so.
Proponents of the local option taxes argue that asking businesses, out-of-town workers, tourists and neighboring communities to contribute is fair.
According to data presented by City Manager William Fraser, since 1985 the portion of the municipal budget paid for with residential property taxes has gone from 54 percent to 66 percent.
And the portion of the budget paid for by the business community has gone from 31 percent to 25 percent.
The reason for this shift is largely attributed to the fact that residential real estate has gone up in value faster than commercial real estate.
The argument is that a local sales tax — which would apply to all taxable goods that city businesses purchase, such as bags, cups, heating oil and light bulbs — would help take the pressure off residential property tax payers and put it on business owners.
Business owners argue that this is going to hit their bottom line and that they won’t simply be able to pass this expense on to their customers.
The 1 percent additional sales tax on customer purchases will be paid by the customer, just as the current state tax of 6 percent is. It’s the added expense for supplies and equipment that has business owners most upset.
If the point of implementing a local option tax is to shift some of the municipal tax burden away from residents onto the business community, doing so will undoubtedly cost businesses money.
But if the city continues to rely on property taxes for its funding, the burden of the municipal budget likely will continue to hit the pocketbooks of homeowners much harder than owners of commercial real estate and businesses.
And what about people from neighboring towns? Should they be asked to pay something toward keeping Montpelier running?
Some argue that they shouldn’t, that it’s unfair to ask people in places like East Montpelier, Middlesex, Calais, Plainfield and Cabot to help pay for the services Montpelier offers. Obviously, supporters of the new taxes think those users of downtown Montpelier should contribute.
Opponents also argue that sales taxes are regressive and will therefore harm the poor more than anyone else.
It’s hard to make the case that a 1 percent consumption tax in Montpelier would unduly harm the poor.
For starters, food and clothing are exempt from any sales tax in Vermont, including a local sales tax.
And now consider how much a 1 percent local option tax would cost a shopper annually.
If someone were to make $10,000 of taxable purchases in Montpelier in one year, an average of $192 a week, it would cost that consumer $100 in additional sales tax annually.
Anybody spending that much money in downtown Montpelier likely isn’t poor.
But now consider an increase in property taxes, which affects everyone in Montpelier who owns a home or pays rent.
Some folks argue that renters don’t pay property taxes. That’s not true.
Landlords factor property taxes, as well as other expenses associated with maintaining the property, into the rent.
So consider what happens if property taxes increase by $100 every year. In 10 years, that’s an additional $1,000 in property taxes. That money comes out of every homeowner’s pocket and is added to rent by landlords.
If the new tax revenue really does offset increases in property taxes, for Montpelier residents, who will also be paying the sales tax, it will likely be a wash. The city estimates that the local option taxes will save about $100 on the average property tax bill.
So when voters go to the polls March 6 to decide on this, it’s ultimately a question about who should be paying, and how much, for city services.
There really is no wrong answer.
This story ran in the Times Argus on Feb. 25.