The Senate Finance Committee is considering an extension of the sales tax that would go into effect over the next two years.
Sen. Tim Ashe, D/P-Chittenden, says the proposal would extend the sales tax to soda, candy and bottled water starting July 1. The tax would generate about $12 million for fiscal year 2016.
In all, Senate Finance is looking to raise $35 million through changes to sales and income taxes. That’s the same target figure the House used to fill a $113 million spending and revenue gap for the fiscal year 2016 budget.
In fiscal year 2017 the sales tax would be applied to consumer services.
The sales tax for all goods and services would be lowered from 6 percent to 4.75 percent when the consumer services sales tax is implemented on July 1, 2016, Ashe said.
All services, and soda, candy and bottled water, are now exempt from the state’s 6 percent sales tax.
Ashe said broadening and lowering the sales tax is an important way to recover lost state revenues that have been lost because of shifts in consumer behavior and Internet sales.
“For four months we’ve been saying we want to have a map for the next two years so we don’t have to come back and make crisis financial decisions the next year knowing we’ll have another gap next year even if we solve this year’s budget construct” Ashe said.
Ashe said the sales tax on services would go into effect in the next fiscal year because “you can’t just flip a light switch.” The sales tax expansion, he said, involves administrative changes, tax department rulemaking and education programs for the public that take time to implement.
A 2010 Vermont Blue Ribbon Tax Structure Commission report recommended extending the state’s sales tax to counteract shifts in consumer habits. The sales tax has eroded over time as Vermonters spend more money on services than goods. Internet sales have also undermined the state sales tax.
Business to business services would not be taxed, Ashe said.
The sales tax proposal is part of an omnibus tax bill, H.272, which also includes changes to the income tax, that Senate Finance will vote on later today.
Ashe has also proposed a cap on mortgage deductions (to be determined, but between $12,000 and $15,000); a 3 percent minimum income tax; the elimination of charitable deductions and the creation of a 5 percent income tax credit for donations of over $5,000 made in Vermont.
The House proposal, H.272, raises $20 million through caps on all itemized deductions, and $15.5 million through the elimination of a deduction for state tax refunds.
Read the story on VTDigger here: Senate Finance considers extension of sales tax to services and candy, soda, bottled water.