Editorial: Local option tax requires clarity

Posted

The Bennington Charter Review Committee's discussion of whether to pursue a 1 percent local option tax — possibly on sales, possibly on rooms and meals, or both — raises some interesting questions and possibilities for the town.

Raising revenue, much of it from visitors to the area, from sales and/or rooms and meals, could help ease the burden by property owners at tax time.

A 1 percent hike would raise the sales tax to 7 percent from 6 percent, and the rooms and meals tax to 10 percent from 9 percent. Those are not outlandish rates, given what some larger communities charge for hotel and meal taxes.

The discussion might naturally start at the charter level, thanks to state law, but it surely must not end there. We think any decision on adding a new revenue stream needs to be made as a top-down, holistic study of the town's revenue picture. And it needs to come with a clear picture of how those tax dollars would be used.

There's already some ground being staked out over the best way for Bennington to proceed, if it chooses this path. Some see the rooms and meals tax as the best way to focus on visitors to the region and the sales tax as affecting local residents more directly. Others are concerned that raising the meals and room tax would negatively affect the hospitality industry here.

While we understand that concern, we're not convinced that visitors are likely to turn down a room at a local inn because the tax on a $200 a night stay suddenly increases to $20 from $18.

The truth is there's no way to exclude locals from a local option tax of either sort. Maybe area residents don't stay at area hotels, but they sure dine at local restaurants, and they shop at local stores.

For such a tax to be fair, whatever additional money comes of out local pockets ought to balance out on the property tax bill, one way or another. Otherwise, it risks becoming regressive — hurting the very people who can afford it the least.

The good news is that if properly administered, local option taxes can help ease the property tax burden.

Take Manchester, which has had a 1 percent local option tax for years. Even though the state keeps a portion of the revenue, Manchester's local option tax helps the town fund a full-time police department, a broad range of recreation programs and a one-third share of the operating expenses for its remarkable community library, while its property tax rate remains among the lowest in the state.

Presently, Manchester's local option revenues are healthy, with meals and rooms tax revenues growing faster as the hospitality business in the Northshire expands. But what goes up must come down, and after the Great Recession started in 2008, Manchester saw a decrease in local option revenue as would-be visitors changed spending habits in the midst of financial crisis.

That has to be kept in mind as Bennington considers its options.

If there's one thing taxpayers dislike more than the taxes themselves, it's surprises. And depending on revenue that might disappear with the next recession would be a most rude surprise indeed. As we've seen recently in state government, when you use one-time revenue to keep taxes low one year, you must pay up the next.

So how could Bennington wisely use a local option tax?

Capital expenditures such as roads, sidewalks and equipment come to mind. Money set aside in a rainy day fund for the next weather disaster or emergency infrastructure repair would be sound policy. Earmarking funds for yearly human service agency requests might also make sense.

What that revenue should not be is a spending spree.

Our experience is that tax increases are easier to explain if it's clear to the taxpayer knows what it's buying and understands why it's needed. Fail to provide that clarity, and the suspicious taxpayer naturally starts to wonder where the money went and why he or she is paying.

That clarity is what's needed if Bennington is to pursue this path. It could be of great benefit to the majority of residents, as it is in Manchester, if done correctly.


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