Burlington Business Association

Business Taxes in Burlington

Report prepared by the Burlington Business Association, May 2006

Burlington businesses benefit from the many city services provided in Burlington, and they pay for them through significantly higher taxes than in other Chittenden County communities. No other community charges all of these taxes, and those that use some of them do so at lower rates:

Property taxes: Commercial property is assessed at 120% of fair market value for municipal taxes (not education taxes).

Machinery & Equipment Taxes: Business personal property valued over $2,500 is assessed at 120% of value and taxed at the same rate as commercial real estate.

The Effective Tax Rate (equalized rate) for non-residential property in Burlington is the second highest in Chittenden County – only Winooski is higher. (See Table A) This is the combined municipal and education rate, and applies to commercial apartments as well as to business property. (To put this in perspective, the effective residential (homestead) tax rate paid by Burlington residents ranks 12^th out of 21 taxing districts in Chittenden County.)

Table A: Chittenden County Effective Tax Rates 2005 (Combined Municipal & Education) Source: http://www.state.vt.us/tax/pdf.word.excel/pvr/reports/2006/TaxRates_Effective_TownsByCounty.pdf

Note: The Burlington Non-Residential rate does not include the 120% assessment for municipal taxes on commercial property and machinery & equipment. The effective rate with the 120% is 2.18434.

Tax District	Homestead: Total Effective Tax Rate	Rank: out of 21 Districts, hi to low	Non-Residential: Total Effective Tax Rate	Rank: out of 21 Districts, hi to low
Bolton	1.8838	5	1.9197	5
Buels Gore	0.7815	21	1.1569	21
Burlington	1.7238	12	2.0453	2
Charlotte	1.7137	13	1.5869	18
Colchester	1.726	11	1.958	4
Essex Jct	1.7306	10	1.6216	17
Essex Town	1.7594	8	1.692	16
Hinesburg	1.9107	4	1.8028	12
Huntington	1.9557	2	2.0387	3
Jericho	1.6273	16	1.7273	15
Jericho ID	1.6214	17	1.7804	14
Milton	1.5338	18	1.7962	13
Richmond	1.742	9	1.8837	6
Shelburne	1.8357	6	1.8045	11
South Burlington	1.9118	3	1.836	9
St.George	1.426	20	1.4996	19
Underhill	1.6647	15	1.8195	10
Underhill ID	1.7111	14	1.8666	7
Westford	1.7983	7	1.8613	8
Williston	1.4641	19	1.4453	20
Winooski	1.9622	1	2.195	1

Gross Receipts Tax: Burlington restaurants, bars, amusements and lodging pay a 2% gross receipts tax on meals, rooms, alcohol, tickets. Compare to Williston’s (and South Burlington’s proposed) 1% rooms & meals local sales tax. No other community in the county has this tax.

Downtown Parking Assessment: All commercial property in the Downtown Improvement District is assessed an additional 8 cent property tax (on the 120% assessment value) to pay for the two hours of free parking in City garages, which benefits all garage users including residents and employees. The Downtown Improvement District includes all of the Central Business District plus Waterfront property west of Battery Street and south to Maple Street.

Common Area Fees: Properties located on the Church Street Marketplace are assessed common area fees based on first floor area to pay for all of the expenses of maintaining and administering the Marketplace. This includes services like snow plowing, lighting and street cleaning that the City provides at no additional cost for the rest of the Central Business District.

Franchise Fees: In addition to these business taxes, there are franchise fees paid by both businesses and tax-exempt organizations on electricity, use of the public right of way (cable), etc.

Impact of Reappraisal

The City Administration has blamed most of the increase in residential property taxes after reappraisal on a “shift” from commercial property, with the implication that businesses are paying less than before reappraisal, and not carrying their fair share of the tax burden.

In fact, half of commercial properties experienced a tax increase in excess of 22% this year (FY 2006), on top of a 21% increase the prior year (FY 2005). Residents’ taxes also increased significantly this year, but that followed a 1% decrease the prior year.

This is based on the 328 properties classified as “commercial.” The median increase in value for these properties was 120.47%. The commercial/residential category increased more; industrial property and utilities less. Utilities had a decrease in taxes and in payment in lieu of taxes.

Table B on the next page is an example of a commercial property with an increase in value through reappraisal close to the median increase of all commercial properties. The property tax increased 25.3%, which is due to the combined effect of reappraisal and the approximately 11% increase in property taxes assessed for FY 2006.

Table B. Auto supply business on Pine Street – Taxes before and after reappraisal
Increase in Property Value	125%
	FY 2005	FY 2006
Property Value before and after reappraisal	226,400	509,400
Municipal Tax (including 120% Assessment)	2,871	3,851
Education Tax	5,162	6,215
Total Property Tax	8,032	10,066
% increase in property taxes		25.3%

Also, as noted by Steve Allen of Allen & Brooks, for the last several years until the reappraisal was completed, commercial property owners have been subsidizing residential properties, by paying a disproportionately high level of taxes. The reappraisal brought them back to an equitable situation where all properties are taxed based on market value (the 120% notwithstanding). Also, higher expenses in the form of taxes have a direct impact on commercial property values. The value of commercial property is based upon its income producing potential. Thus, to the degree that expenses increase, income and therefore property values can decrease.

Rather than just to a “shift” in tax burdens from commercial to residential property, the reason that residents’ taxes are so high can more accurately be attributed to a combination of factors: the high cost of city services, the increase in the State’s tax for education, and the high demand for housing that is driving up the fair market value of Burlington residences and apartments. Also, part of the increase in taxes for both residents and businesses in FY 2006 was due to the 11% increase in City revenues raised through non-revenue-neutral portions of the property tax.

As shown in the notes above, Burlington businesses are currently paying their fair share through a combination of taxes at rates significantly higher than in other Chittenden County communities.

Local Option Sales Tax

BBA Board Position January 2006

Prior to the vote in March to authorize a 1% Local Option Sales Tax in Burlington, the BBA Board of Directors was asked if they would support the tax. A discussion was held at their January 26, 2006, meeting and it was determined by unanimous vote that they were opposed to the tax. This vote was based on issues involving sustainability, competition and timing.

The Board heard arguments both for and against the tax. The strongest argument for the tax is that the City is facing serious financial challenges and will have to make cuts in services that will affect residents and businesses.

But a Local Option Sales Tax will not solve the City’s financial problems. Rather, it could delay the making of tough choices that are needed for Burlington’s finances to be more sustainable. On a short-term basis the sales tax would help fill gaps in the budget. But unless there are major reductions in spending now, the rate of growth in the budget will absorb all of the sales tax revenue within three years, and the City will again be looking for new revenue sources.

There are difficult decisions on the horizon to balance the budget, but we should also be thinking about the resources necessary to support new, strategic initiatives by the City that strengthen us – building a stronger business or tourism environment. New taxes should help us move forward strategically, not just fill an historically created need.

Another argument for a Local Option Sales Tax is that revenues can rise with the economic health of the economy and have the potential for annual growth at rates higher than the property tax base. A portion of a sales tax is paid by nonresidents who enjoy and use city services but pay no share of municipal taxes. And the one percent local tax in Williston appears to have had little negative impact on sales in that community.

However, a Local Option Sales Tax in Burlington could put our economy at risk. The growth of taxable sales in Burlington has been inconsistent from year to year (see Table C below), and much slower than in surrounding communities over the last 16 years.(see Table D below) That’s due to the rapid growth of big box stores in Williston, and the location and growth of many other kinds of businesses in South Burlington, Williston, Essex, Colchester and Winooski. Williston’s retail stores specialize in sales of discounted goods on which an additional one-cent sales tax probably is not a serious consideration. Burlington’s retail base is a more traditional mix of stores including many still locally owned. These include stores specializing in furniture, jewelry, gifts, art, music, books, tires, automotive parts, garden supplies and more. These retailers are all subject to intense competition from surrounding communities that are easily accessible to consumers and have plenty of free parking.

Also, the sales tax is not just applied to consumer goods in retail stores. It will also be levied against goods and services that are essential to businesses in Burlington such as:

· leased equipment

· building and cleaning supplies

· printing

· telecommunications

· energy (electricity, natural gas & oil except that used in manufacturing).

Currently Burlington has a small sales tax advantage over Williston, and we are on an even footing with South Burlington. Other taxes on Burlington businesses – real estate tax, machinery and equipment tax, franchise fees, gross receipts tax – are all higher. (See the summary above of “Business Taxes in Burlington”.) The City should not take for granted that businesses will continue to stay and locate in Burlington, and should be very cautious about adding another tax to their burden.

During the Fall of 2005 the “super committee” of the City Council and administration made strong recommendations for how to control and reduce spending over the long-term. Now is the time for those tough choices to be made, and the groundwork laid for a sustainable future.

Table C: Burlington & Chittenden County Taxable Retail Sales 1999 - 2005
Source: State of Vermont Department of Taxes Sales and Use Statistics Reports
http://www.state.vt.us/tax/statisticss&umult.shtml
	Current Year Taxable Retail Receipts ($'s)	Prior Year Taxable Retail Receipts ($'s)	Period to Period Change
*Period: 7/1/2004 through 6/30/2005 – (Updated February 28, 2006)*
Chittenden County	1,458,189,303	1,372,164,606	6.27%
Burlington	269,816,852	261,643,007	3.12%
*Period: 7/1/2003 through 6/30/2004 (Updated September 15, 2005)*
Chittenden County	1,372,164,606	1,236,195,715	11.00%
Burlington	261,643,007	255,916,973	2.24%
*Period: 7/1/2002 through 6/30/2003 (Updated January 3, 2005)*
Chittenden County	1,236,195,715	1,256,403,125	-1.61%
Burlington	255,916,973	232,079,414	10.27%
*Period: 07/01/2001 through 06/30/2002 (Updated January 2, 2004)*
Chittenden County	1,256,403,125	1,204,312,998	4.33%
Burlington	232,079,414	230,500,046	0.69%
Period: 07/01/2000 through 06/30/2001 (Updated January 6,2003)*
Chittenden County	1,204,312,998	1,226,946,208	-1.84%
Burlington	230,500,046	244,543,296	-5.74%
Period: 7/1/1999 through 6/30/2000 (July 13, 2004 Report)*
Chittenden County	1,226,946,208	1,181,964,506	3.81%
Burlington	244,543,296	298,881,941	-18.18%

* Exemptions include:

Clothing (effect. 12/1/1999) and footwear (effect. 7/1/2001) with a purchase price of $110 or less [1]
[1] NOT exempt are special clothing or footwear designed primarily for athletic activity, protective use, and not normally worn except for the athletic activity.

Table D: Changes in Taxable Retail Sales from 1989 to 2005:

	1989 Taxable Retail Sales ($'s)	FY 2005 Taxable Retail Sales ($'s)	Change over 16 Years
Vermont	2,938,680,272	4,867,669,067	66%
Chittenden County	794,129,368	1,455,783,193	83%
Burlington	350,959,649	269,761,800	-23%
So Burlington	166,386,716	300,030,082	80%
Williston	64,844,668	405,786,369	526%
County % of Vermont	27%	30%	11%
Burlington % of County	44%	19%	-58%
So Burlington % of County	21%	21%	-2%
Williston % of County	8%	28%	241%
Source: Vermont Department of Taxes website & Bill Smith; summary & analysis by Nancy Wood. 2005 Retail Sales are preliminary numbers as of 9/15/2005 from the State of Vermont Department of Taxes Sales and Use Tax Statistics Report for the period 7/1/2004 through 6/30/2005. Minor differences from Table C are due to the fact that this table has not yet been updated with the February 28, 2006 figures for FY2005.
Note: Taxable Sales affected by changes in exemptions during this time period, such as the exemption of clothing and footwear under $110.

May 2, 2006

Nancy E. Wood, Executive Director

Burlington Business Association

110 Main Street, #3B

Burlington, VT 05445

NancyWoodBBA@aol.com

802-863-1175