Roper: Push is on to expand Vermont sales tax to services

By Rob Roper

The Vermont Tax Structure Commission released its 180-page draft report to the Legislature, and one of the major recommendations it makes is to expand Vermont’s 6% sales tax, currently limited to goods and a few singled-out services such as ski rentals, to everything but health care, and to reduce the overall rate to 3.6%.

In addition to taxing things like haircuts, lawn care, auto maintenance, education, plumbing, carpentry, legal aid and education (the list goes on and on), current exemptions to the sales tax such as food, clothing and residential energy would also be taxed.

This is a terrible proposal.

Wikimedia Commons/Robert Lawton

Our prediction is that Vermonters who now cross the river to buy their TVs and toasters (not to mention liquor), will start getting their hair cut and nails done on those trips as well.

First of all, the service sector of our economy has been devastated by Covid restrictions. One can still sell goods through the mail or curbside if the government shuts down your store (not to insinuate that retail has it easy during the pandemic), but you can’t give someone a manicure or provide physical therapy at all under the same circumstances. Whacking these businesses as they try to re-establish themselves with not only the cost of a new tax but the logistical responsibility of collecting, accounting for and remitting the tax would be especially cruel.

Second, even in good times, lest we forget, New Hampshire has zero sales tax on goods or services. We’ve seen what Vermont’s competitive disadvantage in this area has done to retail businesses along the Connecticut River. Increasing our sales tax on services from 0% to 3.6% would create a similar giant sucking sound.

The Vermont Tax Structure Commission admits this: “[O]ur recommendation to broaden the base and lower the rate would mean that there would be a slight decrease in demand for the roughly 50% of purchases of goods and services that are not currently subject to the sales tax.” But, they argue that this would be offset by increased demand for goods where the tax is lowered from 6% to 3.6%. This is flawed logic.

As noted before, New Hampshire’s sales tax is zero. Vermonters are already conditioned to jump the border to purchase goods with zero sales tax — it’s “free.” Lowering the Vermont rate by 1.4% is not going to influence that dynamic. However, raising the tax on Vermont’s service sector from “free” to 3.6% while simultaneously competing with a free alternative just spitting distance away will not end well for Vermont’s service sector. (Recommended: check out this article on the behavioral impact on consumer behavior of free.)

Our prediction: all that will happen is that Vermonters who now cross the river to buy their TVs and toasters (not to mention liquor), will start getting their hair cut and nails done on those trips as well.

But, isn’t it unfair to businesses that sell goods to slap them with a tax but not businesses that sell services? Sure. But let’s not remedy that by equally spreading misery, and rather work to eliminate the Vermont sales tax altogether. If Alaska, Delaware, Montana, Oregon and New Hampshire can do it, so can we.

Rob Roper is president of the Ethan Allen Institute. Reprinted with permission from the Ethan Allen Institute Blog.

Images courtesy of Public domain and Wikimedia Commons/Robert Lawton

8 thoughts on “Roper: Push is on to expand Vermont sales tax to services

  1. New Hampshire here I come. Buy a $1000 TV save $60. Go out for dine out and support a small business owner.

  2. Comrades, Necessary to remove any last vestiges of free enterprise system in order to achieve goal of the Party.

  3. All I can think of is that they are trying to kill Vermonters who cannot afford any of this. One more set of things to tax. I think they do this because they are losing revenue due to RUNNING PEOPLE OUT OF THE STATE!!!! How F’ckng stupid can they get. I think there is no hope for this place, none.

  4. People will pay for big ticket services in cash to avoid the tax. Now the state is not only out thier projected sales tax, but unemployment, payroll, worker’s comp, ECT. And

  5. Bob,

    In boot camp, in the US Army, we had a saying:

    If it does not move, pick it up
    If it does move, salute it.

    That is like TAXATION IN VERMONT

    Wherever an economic activity takes place, TAX IT until it DIES ON THE VINE, because the VT Legislature wants to ensure a NEAR-ZERO, REAL-GROWTH Vermont economy FOREVER, the same as in Russia, Venezuela, Cuba, etc.


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