When South Hero decided to implement a local option tax, no one anticipated it would take two years.
“We had to go through a lot of hoops,” said David Carter, the selectboard chair. “It was very complicated.”
Now town and state officials said they’re confident that the town is in the final stretch of securing the state’s approval — a far more complex process than they had anticipated. Last week a House committee took up H.554, which would authorize the town’s charter and allow the local option tax to go into effect.
In March 2022, residents of the Grand Isle County town voted 389-209 to approve a 1% local option tax on meals and alcohol sales. When it headed to the Legislature for approval last year, local officials learned that state law required that the change be made in the town’s charter.
However, like most towns in Vermont, South Hero didn’t have a charter.
Only 62 Vermont cities and towns have charters, said Ted Brady, executive director of the Vermont League of Cities and Towns, though 45 incorporated villages and a few other types of municipal entities also do.
So the town set about creating one, and last August voters approved the charter proposal, 380-220. Earlier this month, state Reps. Michael Morgan, R-Milton, and Josie Leavitt, D-Grand Isle, introduced a bill to grant state approval to the charter and the tax.
The bill is now in the House Committee on Ways and Means where Carter and Morgan plan to give testimony on Wednesday, and may hit the House floor this week. If it wins approval from both chambers, South Hero will finally be able to implement the local tax at the beginning of the coming fiscal year.
South Hero has a population of about 1,650, no industry except tourism, and a town budget of under $2 million, officials said.
“It’s very difficult for a town like this to provide residents with some of the amenities that other towns have because we don’t have any industrial tax base,” particularly when property taxes are already high due to the state education tax, said Ross Brown, the vice chair of the South Hero selectboard.
The local option tax is one way municipalities in Vermont raise additional revenue. According to data on the state’s website, 23 communities collect a 1% local option sales tax, 25 have implemented a 1% local option meals, room and alcoholic beverage tax and three municipalities have only a 1% local option rooms tax.
A number of factors made it an “unusually complicated” process for South Hero, including the fact that the town did not have a charter in place, said Rep. Michael McCarthy who chairs the House Committee on Government Operations and Military Affairs, which recently heard testimony on the matter.
“We had a lot of conversation with them last year about what they needed to do,” he said. “And now they have gone through the process of having a local vote and having their charter approved by the local voters and then having that charter package certified by the Secretary of State,” he said.
With 10 venues selling meals and alcohol — seven of them seasonal — the tax is expected to generate just about $40,000 for South Hero’s municipal government per year. The state collects the tax, keeps 30% for the state education fund and returns 70% to the town, officials said.
The tax has to be collected for a specific purpose so South Hero officials chose recreation and municipal building upkeep because it is considering building a new park. The town’s annual recreation budget is about $30,000, Brown said.
“We went forward with assuming it would be an easy way to get the tax and it turned out that it was much more complicated than we knew,” Brown said. “It’s just been a process but it looks like we’re on line here.”
Rep. Morgan, who worked with Carter on the bill, gave testimony in support of it at the House committee last week. Although he told the committee that it’s been a struggle to get to this point in the process, he told VTDigger in an email that “the charter should flow smoothly at this point.”
Legislators are also considering charter requests from Essex and Essex Junction this session.
