Sales tax is the worst of revenue options

In any election year, state revenues are among the hot topics being discussed. This year is no different. With our lingering debate over how to fund public education at the state level and a heightened sensitivity due to a $300 million projected deficit in the state’s next two-year budget, voters are asking questions about revenue sources and the candidates are responding. Unfortunately, some candidates are responding with the suggestion of a state sales tax without a full examination of the effects of implementing the tax.

We in New Hampshire have built a thriving segment of our economy on the lack of a sales tax. Retailing is the cornerstone of New Hampshire’s economy. In 2003, there were 9,097 different retailers in the state, that’s 20 percent of the private businesses. In that same year, 137,000 people were employed in retail trade, that’s one out of five employed people in the state. New Hampshire’s total annual retail sales reached over $25.5 billion in 2003, showing a growth of 3.5 percent.

An estimated 15 percent to 20 percent of all retail sales in New Hampshire come from out-of-state shoppers whose primary reason for coming to New Hampshire is to buy goods. That figure increases to nearly 50 percent in border towns. As an economic engine, our no-sales-tax status is exactly what a state needs — the ability to draw out-of-state residents across the border and entice them to leave their money here.

Retailing also builds the property tax base, provides jobs and creates the perfect opportunity for people entering the workforce to learn about business.

Lets examine the evidence:

• New Hampshire’s average weekly wage in the retail sector is approximately 5 percent higher than the national average.

• Retail employment grew faster in New Hampshire (10 percent) than the national average (6.3 percent) from 1999 to 2000.

• Household retail sales in New Hampshire in 2000 were $50,031, well above the New England average of $37,480 and the United States’ average of $33,113. Its not New Hampshire households that are doing all this shopping, but the cross-border influx.

• Per capita income in New Hampshire border towns is higher than the towns on the other side of the line in Massachusetts.

Retail sales of goods to people who make day trips solely to shop for those goods is enormous, and they come because we offer the same product they can get in Massachusetts or Maine or Vermont, or even Connecticut, but without the sales tax.

What would happen to our state with a sales tax? Cross-border sales would virtually disappear. The burden of a sales tax in New Hampshire would not be spread evenly (fairly) across the state, as the economic base that has been built to support the out-of-state retail sales in border towns will be for naught, people will lose jobs and property values will be diminished.

The sales tax is regressive, unfairly targeting lower-income individuals. If you make $100,000 a year, or $5,000 a year, you would still pay the same amount of sales tax on a $100 television set. Sales tax proposals typically do exempt a number of items. Nonetheless, a sales tax will still take a higher percentage of income the lower the income is. Pressures on those families will increase, as will demands on state and local services to support them.

And when the shoppers stay home to make their purchases, what happens to the employees who serve them food when they come and the rooms and meals tax they pay to the state? What happens to the tax they pay when they gas up? The liquor purchases they make while they are here? What will replace the business tax revenue that the state will no longer see because better than 25 percent of retail sales will disappear?

Loss of jobs along the border, a higher tax burden on lower income individuals, loss of other state revenues, and declining property values in border towns. Is that a good trade-off for “solving” the education funding dilemma?

Nancy C. Kyle is president of the Retail Merchants Association of New Hampshire.

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