Middlebury eyes 2020 tax holidays to help merchants during rail project

MIDDLEBURY — Middlebury officials will lobby the Legislature for a series of tax holidays during the summer of 2020 to provide a boost to downtown merchants during what’s expected to be the most disruptive period of the major rail bridges project.
The Middlebury selectboard on Tuesday unanimously authorized a local citizens’ group to seek community and legislative support for what would be four tax holidays of four days each (Thursday through Sunday) during a 10-week period in 2020 of intense construction on a concrete tunnel to replace the Main Street and Merchants Row rail overpasses.
During each of the four holiday periods, the state’s sales tax (on purchases of up to $2,000) and rooms and meals tax would be waived at all Middlebury businesses, according to a proposal drafted by Neighbors Together, a local group formed to rally support for the downtown during the anticipated three-years rail bridges project. Workers this spring began drilling a drainage system to serve the downtown rail bed.
Middlebury, for its part, would be asked to waive its own 1-percent local option taxes on sales, rooms and meals during the tax holidays. The town uses that local option tax revenue to pay down debt on the Cross Street Bridge.
“We’ve been looking for ideas like this,” said Middlebury selectboard Chairman Brian Carpenter. “I don’t see a reason why we shouldn’t endorse the activities Neighbors Together is doing to try and put a plan in place that drives business activity. We have enough proof that tax holidays would drive business wherever that holiday is.”
Neighbors Together member and Addison Independent columnist Eric Davis is taking the lead in exploring the Middlebury tax holidays. He presented the selectboard with some statistics on estimated financial impacts of the proposal. His findings included:
•  Lost tax revenue to the state would amount to between $400,000 and $500,000.
•  Middlebury would lose a combined total of around $62,000 in local option tax revenue over the 16 tax-free days. But because the state retains 30 percent of the local option taxes collected, plus a small fee, the estimated local effect of the proposed tax holidays would be about $41,000. The difference of $21,000 would be an additional financial impact on the state, he noted.
Davis believes the benefits to Middlebury merchants of the tax-free holidays would outweigh the lost tax revenue for the state and Cross Street Bridge fund, which currently carries a surplus of more than $1 million.
“The tax holidays could have a much greater impact in terms of economic development, both during the 2020 construction season and in the longer-term,” Davis said.
Vermont implemented statewide sales tax holidays on Aug. 22, 2009, and March 6, 2010, during the administration of Gov. James Douglas, a Middlebury Republican. Supporters hailed the tax reprieves as a valuable economic development tool that increased receipts at many Vermont businesses. But lawmakers have been reluctant to back tax holidays since 2010 in the wake of declining revenues.
Rep. Fred Baser, R-Bristol, is a member of the House Ways & Means Committee that helps formulate the state’s tax policy. He provided sobering news for Middlebury officials given recent and past history on the topic of tax holidays.
“As far as I know, there is no precedent for one community to receive an exemption on rooms and meals, and sales tax,” Baser said in an email. “Our committee discussed the possibility of a statewide holiday; the last time this occurred was in the Douglas administration, but our chair had little appetite for pursuing this measure.”
Baser also wonders if granting tax holiday(s) to a single community might set a precedent that could open the floodgates to similar requests from other towns.
“If we make one exception can we decline other requests in the future?” he asked.
Baser also noted all sales tax revenue and 25 percent of rooms and meals tax revenue are customarily tabbed for Vermont’s education fund. Lawmakers have been under great pressure to contain increases in public education taxes.
Still, Baser applauded Middlebury for being proactive.
“There will be economic hardship during the peak of the railroad construction project and it is a clever idea to offer an incentive for people to come into town,” he said. “More thought and information is required.”
Davis acknowledged Baser’s concerns, but believes Middlebury can still make a good case.
State economists, Davis noted, are projecting higher state revenues next fiscal year, on the heels of a $55 million surplus recorded for current fiscal year. He also pointed to better-than-anticipated response to incentives of $5,000 to $10,000 for out-of-staters who agree to relocate to Vermont and telecommute to their jobs.
The takeaway, according to Davis: The state’s relatively healthy revenue forecast could better allow it to sacrifice a little for a community facing major economic hardship by no fault of its own.
“What’s going to be happening here in Middlebury in 2020 is going to have a very serious impact on some of the businesses,” Davis said, “and there are some businesses for whom the difference of not having a tax on four weekends of the year might make the difference in their survival for the longer term.”
Davis also said he doesn’t believe other communities will line up behind Middlebury for tax holiday requests if they can’t prove a similar economic hardship caused by a major state road project.
Davis and his Neighbors Together colleagues want to continue their research into tax-free holidays and then get feedback from the community and lawmakers. The group’s ultimate goal is to formally pitch the four Middlebury holidays during the 2019 legislative session as part of the state’s miscellaneous tax bill.
“Neighbors Together would work with businesses in town, and the lodging industry in particular, to try and market Middlebury and things going on in town during those four holidays,” Davis said. “Our objective in all of this is to provide incentives for people to shop, stay and dine in Middlebury during the construction period.”
And he believes the benefits of the tax holidays will reverberate beyond the rail bridges project.
“I think this is a good idea of trying something to provide incentives for people to shop, dine and stay in Middlebury with the hope it will lead to a stronger Middlebury and a stronger economy — not just in 2020, but for many years after that,” Davis said.
Reporter John Flowers is at [email protected].

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