That six pack of beer will cost you 6 percent more on Jan. 1 while that $300 parka bought at the local ski shop will cost 6 percent less.

Those are two of the changes that will take place on Jan 1. when Vermont joins 19 other states that have signed on to the Streamlined Sales Tax Project — a multi-state compact aimed at simplifying sales tax compliance as a way to stem the loss of billions of dollars in uncollected Internet-related sales tax revenues.

But the tax changes aren't going over well with those in the beverage business, who say the tax on brew that was passed three years ago caught them by surprise.

"I'm damn mad about it," said an exasperated Joe Coloutti, who owns Terrill Street Discount Beverages in Rutland.

In Vermont, the Joint Fiscal Office estimates the state will lose $22.5 million next year in uncollected e-commerce and catalog sales tax revenues. However, even when the law takes effect in January the state will recoup only a fraction of that amount — $3.1 million.

Sara Teachout of the Joint Fiscal Office said that the reason for the huge gap is that e-commerce tax collections remain voluntary on the part of Internet retailers.

The law authorizing joining the Streamlined Sales Tax Project (www.streamlinedsalestax.org) passed the state Legislature in 2003 as part of Act 68, the statewide education funding law. Lawmakers delayed the effective date of joining the multi-state compact until Jan. 1, 2007.

Mike Wasser, a policy analyst with the state Tax Department, said Streamlined Sales Tax member states are counting on their efforts to persuade Congress to pass a national law mandating state sales tax collections on Internet and catalog sales. But before Congress takes action, Wasser said states needed to be on the same page and devise uniform definitions on what could be taxed as well as simplify the sales tax compliance system for businesses operating across state lines.

"Internet sales are growing at a clip of 25 percent per year and it's eroding various states revenue bases because a lot of those Internet sales are going untaxed," Wasser said.

Those lost revenues, Wasser said, mean there is less money Vermont and other states have at their disposal to fund programs.

He also said allowing e-commerce retailers to continue to escape collecting the state's 6 percent sales tax "is putting the brick and mortar retailers in Vermont at a competitive disadvantage."



Ripple effect

But the Streamlined Sales Tax will have a ripple effect beyond Internet sales tax collections. While each state sets its own sales tax, Vermont had to make changes to its sales and use tax provisions to meet uniform standards among the member states. It also effects the four cities and towns that have a local options tax.

The changes include:

Retail beer sales are taxable as "alcoholic beverages," the same as wine.

Shipping and delivery charges are taxed as part of the purchase price.

The purchase of canned software is taxable whether as a CD or downloaded electronically.

All clothing and footwear is tax exempt, regardless of price. (Under current Vermont law, only clothing and footwear items priced more than $110 are taxed, amounting to $1.7 million a year in sales tax revenue, according to the Joint Fiscal Office.)

Cash discount at the time of the sale reduces the sales tax on the purchase price (which is currently not allowed).

The current sales tax exemption on the first $20 of a landline phone bill is eliminated.

Vermont could have avoided the tax on beer if the Legislature had decided to eliminate the tax on wine. But under the Streamlined Sales Tax, it's either all or nothing, meaning the state could not pick and choose which alcoholic beverages to tax. The exception is hard liquor sales in Vermont. Hard liquor isn't taxed because all liquor stores are state run.

Wasser of the state Tax Department (www.state.vt.us/tax) added that Vermont is the only state with a sales tax that has an exemption on beer.

"Generally, there's a public policy reason for taxing beer because it contributes to health care costs,' he said.

The Joint Fiscal Office estimates the state will take in $7.7 million each fiscal year once the tax on beer takes effect.

It's a tax, however, that doesn't sit well with those in the beverage business.

Coloutti of Terrill Street Discount Beverages said the tax hits those who can least afford it.

"The poor working guy, he hasn't got a prayer," he said. "He doesn't know who to complain to; he doesn't have the resources to fight something like this."

That sentiment was echoed by Roger Block of the Beer King on Crescent Street who said news of the tax blindsided him.

"I'm so frustrated with Montpelier," Block said, referring to lawmakers. "It's just another example of Montpelier being out of touch."

And for stores that border sales-tax free New Hampshire, the tax is just another blow that puts them at a competitive disadvantage, Coloutti said.

Giles Moreau of M&M Beverage owns several stores, including Discount Beverage on Route 9 in Brattleboro, just across the border from New Hampshire.

"In the case of Brattleboro, I'm probably going to lose some but I really can't put my finger on how much," Moreau said.

But if the sales tax increase on cigarettes is any barometer, he said the loss in beer sales could be significant.

While Moreau doesn't like the tax on beer, he said the effort to go after uncollected tax on Internet purchases makes sense.

"If you're getting it from out-of-state … you pay no taxes, so that puts companies in Vermont at a little bit of a disadvantage and the state is losing out on the tax revenue," he said.

Jim Harrison of the Vermont Grocers' Association agreed with Moreau that going after lost Internet sales tax revenue was a good idea. But Harrison said the flip side is that the state gives up some flexibility to decide what to tax and not to tax – the tax on beer being a primary example.

"The challenge when you do that is you sort of cede some of your ability to influence how things are defined and what things are taxed at the local or state level and you cede that to a group of tax administrators (Streamlined Sales Tax Governing Board)," said Harrison, the association's president.



Option tax

For the option tax cities and towns of Burlington, Manchester, Williston and Stratton the law will bring additional changes. Those towns will no longer be able to collect a local sales tax on clothing but will be able to tax telecommunications services that are currently not taxed.

More significantly, the option tax on Jan. 1 becomes "destination based." It means the destination of the purchase, not the point of sales origin, determines whether the local option tax applies.

The law has no effect on in-store "walk-out" sales. But will be a major change for stores in non-option tax towns, requiring those stores to collect the tax when delivering merchandise to customers who live in any of the four option tax localities.

Contact Bruce Edwards at bruce.edwards@rutlandherald.com.