Vermont senators ponder sales tax on services

On Tuesday, members of the Senate Committee on Finance discussed expanding Vermont’s sales and use tax to cover services.

By David Flemming

Six months ago, the Blue Ribbon Tax Structure Commission recommended expanding Vermont’s “sales tax base to all consumer-level purchases of goods and services except healthcare and casual consumer-to-consumer transactions” while reducing the sales tax rate to 3.6%. Given the chance to consider the proposal, one senator appeared especially eager to consider it.

The idea of expanding Vermont’s sales and use tax to cover services has been kicking around for a long time. Last year the Vermont Tax Commission recommended doing so in its report to the Legislature, and 10 years before that the Blue Ribbon Tax Structure Commission did the same. The idea is to “broaden the base and lower the rate.” It sounds simple, but taxing services is generally looked at as a “third-rail” by politicians, and with good reason — nobody wants to pay more for, say, childcare or having their driveway plowed.

Michael Costa, who a decade ago served as director of the Blue Ribbon Tax Structure Commission, testified to the Senate Finance Committee on Jan. 18, and explained why not a lot of states end up taxing services.

When the Commission was looking at this, they had chatted with policy makers in Florida and Maine that had taken a hard look at this now, many years ago. (Those) fell apart in the same way. In the initial look at it, it allowed for a rather substantial (sales tax) rate drop and as things got more complicated, the rate would rise and then it would create this feedback loop. … Is the system coherent if you’re starting to toss out this service and toss out that service? A lot of states have settled on (a) services (tax) where you kind of tax people who aren’t going to complain about it too much, which is not really a coherent way to approach sales taxes.

Despite the obstacles, some of our senators seemed determined to find a way.

Senator Chris Bray, D-Addison, pondered, “If we included services, we were going to drop the rate more generally. There was enough revenue coming in, that it would lower the rate from 6 (percent) to 3 something. Now I don’t think we have that opportunity. … Was there ever any discussion about adding a tax on services, but not at the full sales tax rate? … So that it would be less jarring, but start to build a larger base?”

The quote above suggests that Bray thinks it would be easier to leave that rate alone for goods and just add a tax to services. Bray did elaborate later on, saying “the rate decrease would be so modest that we would get all the grief associated with expanding the base, and no appreciation for the drop if its only a point for instance (from 6% to 5% on goods). It makes it easier to engage your colleagues.”

So perhaps Bray is of two minds on this — recognizing how unpopular this would be with Vermonters and his Senate colleagues, while also hoping a broadening can happen.

Sen. Mark MacDonald, D-Orange, wondered if lobbyists were responsible for making deals to get their services exempted from the tax expansion. While certainly nobody lobbies to have their service subjected to a tax, it really wasn’t all that hard of a sell for the health care and education industries to persuade politicians that increasing the costs of these services via a tax would not play well with the public.

Costa brought up another good reminder: “Vermont’s in a pretty challenging tax environment …because it’s next to New Hampshire. And New Hampshire has a really different tax system. The specter of New Hampshire makes things a little more complicated.”

“Challenging” is putting it lightly. Vermont’s 6% sales tax compares terribly with New Hampshire’s 0% nonexistent sales tax. And a similar story for the income tax. The temptation to move over the border and pay no state income tax or sales tax should always loom large in legislators’ minds.

To watch the testimony, click here.

David Flemming is a policy analyst for the Ethan Allen Institute. Reprinted with permission from the Ethan Allen Institute Blog.

24 thoughts on “Vermont senators ponder sales tax on services

  1. Non-profits are the way to circumvents the democratic process and maintains almost complete control over the populous.

  2. A ploy, reduce the rate and then when Federal Dollars dry up raise the rate back to 6 on everything we use: I would get rid of the Vermont Unemployment Office !! With so many job open who need the office, just get a job!!

  3. Great post Jay,
    I think that what it all boils down to now is the clear human need for Freedom.
    Vermont is one of the least free states in the country and NH is one of the most free, and how that all is working is so clear when you study the results of each.

    How we define Freedom really matters too.
    Setting criminals free and being free to innovate, build and create are worlds apart..
    I think the flavor of freedom that Vermont chooses is really clear too.. but see the results of that.
    Your post lays it all out clearly.

    I mean we are supposed to be free people Jay as you know, and we are really looking at and suffering the effects and fallout of Not Being Free People.
    Think about what happens to anything that is restrained, stunted, not allowed to grow and thrive, even potted plants won’t do all that they could.
    Humans, particularly Americans because of our history, we need to be Free.

    Americans are actually very smart and good people and we can and will identify, adapt and solve things.
    BUT we need to be free to move around to do such things and we are not and therein lies the real issues.

    The people that you name, that voting bloc, those very people are also hellbent of caging us like animals and stripping our Freedom we need to get the heck out from under that of which they are doing- because that is what works for *them*, but look at how it’s working for us- and they work for *us* they seem to have forgotten.
    None if this is even legal.
    It’s not Constitutional, this all violates even our natural rights.
    But we are allowing this, by doing nothing we are consenting to being controlled illegally like this and look at the results.
    We need to learn and do.
    Vermont is so over regulated because of them, there are areas all over the state now where there is little else to do except for work for the government or the non-profits- that is just how they designed things to be by over regulating to such a degree that little else can get going and thrive.

    It seems to me that the answers are that we need to be set free. Whenever Republicans have any power, they should be working to cut the chains that bind us and we need to get at innovating, creating, building our way out of this.

    We need a Restoration, a Revival and then we need A Renaissance.

    Vermonters, these people have turned you all into free range humans that now live on a tax farm.
    Don’t consent!

    • “Americans are actually very smart and good people and we can and will identify, adapt and solve things.”

      I’m not as certain of this characterization as I once was.

  4. The Mass Formation that Dr.Malone teaches us about extends to much more than just the Covid Subject.
    We are being controlled and destroyed by the Mass Formation Thinkers, Worshippers, Believers, Creators, Followers.
    The very minds that created and believe in all this Covid BS, these people that are attempting to forcibly hold us into this failed scamdemic world and economy, I mean don’t you think that their way of thinking extends into how they look at *everything*?
    We need to talk about this!

    This looks more like a Vermont Evacuation Plan..

  5. Absolutely Amazing. With the billions of federal taxpayer dollars Vermont is receiving currently, these
    socialists aren’t yet sated with revenue. The sales tax on services isn’t a new idea by any means, but needs to be squashed yet again. To begin taxing completed services is an invitation to bankrupt Vermont business along it’s eastern border with NH and stifle the economy statewide. Even at “mere”
    3.6%, the loss of tax revenue will have these socialist hogs clamoring for increasing the rate, yearly.
    Clearly as has been said for decades- the solution is not more government, it’s less government.
    Proven fact: Increasing tax rates decreases revenue over time.

  6. Don’t forget that NH with almost double the population has half the state employees!!! Its funny how older soon to retire folks can do the job, but with these younger people it takes 2-3 to do the same job. How about some higher expectations/requirements for state employees if they are gomna leach off the tax payers the rest of their lives. Lets pass some accountability bills and get the states spending and budget in check. We are indesprate need of common sense in the state house. All these people do is waste time on creting bills for things that aren’t an issue, and spend moneys we don’t have!!! If they aren’t will to tax the crap out of the upper class then stop spending the money!! Look at it in a very simple way, if they keep taxing those without money, its gonna all be put on the upper class eventually to pay for everyones welfare. Chew on that progressive/libs

  7. If this nonsense passes, and it probably will, there will be a giant sucking sound following the exodus of VT’ers to N H and other states that have a grip on reality, and a feel for the taxpayers and their families.
    This crowd in charge of VT business now, could not care less, their views and ideas are more important than any of ours, they are superior ones to usn’s, in all respects, and our job is to bow down to these meatheads, and while landing on our knees, have our wallets in hand and fork over everything in there, because they know what is best for us. This concept has been in place since Deane Davis was governor, only gotten worse and worse. Business and industry pretty well whittled to nothing in the last 30-40 years, more bureaucracy per capita than any state in the nation and they keep piling it on. Please tell me where and how we are better off than when Dick Snelling was Governor. We are worse off,,,, much worse and getting worser. There are no Dick Snellings in this state left to pick up the pieces and set the state in a direction that makes sense. The looney left is all that we can come up with; God help us in our time of need.

  8. Tax the services of our representatives first at 2x anything they propose for the rest of us.

    Does that work for them?

    Tax Porn.
    Tax Lobbyists
    Tax NGO

    Don’t want to tax your friends huh?

    • TAX ——- PAC’s 90%——-
      Tax the HO’s and Pimps too…..oh what that’s the government again huh?

      Don’t want to tax your best friends? Huh.

      See Republicans should get behind all these tax proposals, because they KNOW heavy taxation kills the goose. That’s the point in above taxation.

  9. I run a small gym. my members have been paying sales tax forever. any conversation or request to have this changed…well because gosh doesnt it make sense to try to be as healthy as you can be? and isn’t it more health care than “recreation”..oh yea I like most gyms have “machines” somehow that makes it taxable. It’s wrong and so wrong…yet massage, dance classes, yoga, you name it no tax…
    I am a Native Vermonter who’s leaving as soon as possible…….anyone interested in a gym with building? let’s talk!!!

  10. And more record keeping for service businesses which would then have to be submitting service tax payments. No thank you. I’ll close my business before I do this. Enough already! Just stop spending money on stupid stuff and we’d not need higher taxes. And btw, “climate change “ isn’t due to human activities so you can eliminate all the spending to “fight it”. It’s a natural cycle and bankrupting us to fight it is insanity.

  11. Those folks are totally disconnected from reality.

    MORE government spending, when it would be more desirable to have LESS government spending?

    The WHEEZING Vermont economy needs LESS government, not MORE government

    They should be discussing:


    That would partially counteract the Biden 7-plus percent inflation price increases.

    Vermonters have to go the polls EN MASSE in November 2022, to vote out those SOCIALIST, SPEND-CRAZY folks

    • Willem, why would our legislators and other elected officials discuss anything else when they have carte blanche to do whatever they choose to do?

      After all, as also noted above, 40% of Vermont’s workers are employed in the heavily tax subsidized government, health and education sectors, while only 27% of NH’s workers are employed in those segments.

      Add to this that more than 20% of Vermont’s economy is non-profit with more than $13 Billion in non-taxable assets. This amounts to more non-profits per capita than any other state, double the national average. Three out of four of the State’s largest employers are in fact non-profits.

      This demographic represents a significant (unimpeachable) voting bloc. Indeed, the fox is guarding the chicken coop. And the only thing that will stop the fox is when all the chickens are eaten or otherwise fly the coop.

      Lastly, keep in mind that this sector of Vermont’s population, by nature, deflects responsibility for its actions, hiding behind the vail of the collective (otherwise called the tyranny of the common). Its participants rationalize their policies in the usual fashion – they are just following the law, following orders.

      If that sounds familiar, it should. Think about the Nuremburg Trials after WWII. There is also the prospect of how far people will go when following orders. Read up on the now infamous Milgram Shock Experiments. Today we are giving more and more credence to law breakers than we are the victims of their transgressions.

      What do we do about this? Frankly, I don’t know. But elections aren’t likely to resolve our dysfunction. Based on what we now know, elections are more likely to exacerbate our dystopian malaise until the entire system collapses on itself and the survivors (whoever they are) rise Phoenix-like from the ashes

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