Middlebury to decide on future of M&E tax

MIDDLEBURY — Middlebury residents will be asked to eliminate the town’s machinery and equipment (M&E) tax over six years. Economic development officials say the move would in the short-term slightly boost residential property tax rates, but in the long-term help the community recruit and retain businesses.
Selectmen voted 5-0 (with board members Don Keeler and Craig Bingham absent) on Tuesday to put the M&E question to a public vote, possibly on Town Meeting Day next March. Middlebury is one of the few remaining communities in the state to have an M&E tax, which currently generates $258,000 — or 4.4 percent of the town’s total tax revenue.
Local officials have wanted to eliminate the M&E tax for years, seeing it as a major disincentive for entrepreneurs considering Middlebury as a place to do business. Middlebury businesses each year pay the tax based on the value of personal business property.
But eliminating the tax has been easier said than done; foregoing $258,000 in revenues would create a hole in the municipal tax collections. Selectmen have not been keen on asking residents to fill that void.
Selectmen appointed an ad hoc committee earlier this year to take a closer look at the M&E tax; advise whether it should be eliminated; and if so, how that could be accomplished.
Committee members Robin Scheu, executive director of the Addison County Economic Development Corp.; National Bank of Middlebury President G. Kenneth Perine; and Middlebury town assessor William Benton gave an overview of the committee’s findings, including:
• M&E revenues have declined for four consecutive years, a trend that is expected to continue due to depreciation laws and declining capital expenditures.
• In 2012, declining capital expenditures at one local business alone (Agri-Mark/Cabot) will result in a 23-percent loss in total M&E revenue.
• Currently, 70 accounts — or 14 percent of those who pay the M&E tax — account for 89 percent of the M&E revenues.
“It’s a very small group that pays the vast majority of the tax,” Perine said. “It feels like it is an exercise in bureaucracy and not efficiency.”
Scheu said the panel first considered whether the town could immediately cease levying the M&E tax on new machinery and equipment purchases.
“We learned that that was not an option,” she said.
Committee members ultimately recommended that Middlebury launch a six-year phase-out of the M&E tax. In year one, current M&E filers would be exempt from paying the tax on $50,000 in machinery and equipment value. That exemption, committee members said, would reduce the total number of M&E taxpayers from the current 493 to 70.
In years two through six of the plan, the towns would decrease base values annually by 20 percent, so that the M&E tax would be gone by the end of 2015.
Officials acknowledged that residential property taxpayers would probably have to pick up at least some of the slack from the lost M&E revenues. Middlebury Business Manager Joe Colangelo said the estimated loss of $63,000 in revenues in year one would amount to roughly nine-tenths of one cent on the tax rate. That translates into an increase of $20 on the annual property tax bill of the owner of a $200,000 home. The estimated annual impact on that same homeowner in each of the ensuing five years of the phase-out is expected to be around $10, according to committee members.
Those figures do not reflect growth in the grand list that could further blunt the impact eliminating the M&E tax could have on the residential property tax rate.
“I think all of us as board members are concerned with the absorption of the revenues here, realizing as we struggle with budgets, we try to retard the growth in taxation, which is already too high, and that this makes it that much harder,” Middlebury selectboard Chairman John Tenny said. “At the same time, we balance that with the issue of needing to be competitive and to be welcoming to businesses that are struggling, and frankly, being fair.”
“Obviously, the hope is that this would have the effect of raising revenues by creating economic activity,” Selectman Victor Nuovo said.
Scheu said phasing out the M&E tax should help her efforts in attracting new businesses to Middlebury. She said the move could make the difference for a business seeking to put down roots.
“I think this is going to send a very positive message,” Scheu said. “I am working with some existing businesses and some businesses that are looking to move to Middlebury … It will only be seen as positive.”
Benton, the town assessor, said Middlebury could easily begin implementing the M&E phase out for fiscal year 2001 as long as it is approved by next spring.

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