As more Vermonters shop online during the Covid-19 pandemic, revenues from state taxes on internet sales have doubled in recent months.
Between March and September, about 10% of the state’s sales tax revenue — around $27 million — came from internet sales, according to the Vermont Department of Taxes.
Over the same period in 2019, the state received only $13 million in revenue from taxes on online sales.
“All we can do is speak to what the numbers show and they show that the online sales are going up,” said Vermont Tax Commissioner Craig Bolio.
“So it meets the anecdotes that you hear from folks saying that they’re shopping more online,” he added.
Tom Kavet, economist for the Vermont Legislature, said that from the “get-go” of the pandemic, internet retailers have “done really well.”
“To the extent you can sell your product remotely, whether you’re in Vermont or outside, that’s been beneficial,” Kavet said.
“There had been a long-term shift toward more and more internet sales, and the pandemic has accelerated that,” he said.
Across the U.S., the Covid-19 pandemic has driven a surge in online shopping. Online sales were up 37% in the third quarter of 2020, compared to the third quarter of 2019, according to the U.S. Department of Commerce.
In recent years, a major U.S. Supreme Court ruling and changes to tax policy have allowed Vermont and other states to collect more revenue from online sales.
In 2018, the court’s ruling in the case South Dakota v. Wayfair, cleared the way for states including Vermont to collect taxes on internet sales from companies that do not have a physical presence in-state.
And in 2019, Vermont and many other states passed laws requiring e-commerce marketplaces like Amazon, eBay and Etsy to collect and remit sales tax from third-party vendors who use their platforms to sell their products.
But some business leaders note that the boost in online sales hasn’t translated into a boost for many of the brick and mortar businesses that are struggling amid the pandemic.
Charles Martin, a lobbyist with the Vermont Chamber of Commerce, points to the fact that state officials estimate that even after the state distributed aid to struggling businesses in recent months, there is still close to $700 million in unmet need from companies who have lost revenue during the pandemic.
He said the boost in online sales helps state coffers but “doesn’t necessarily represent the health of the industry.”
“I’m happy that the state’s able to get that revenue, but I just really would caution anybody who would use that as a point for, ‘We’re actually not doing that bad,’ because Main Street is having a pretty hard time with it,” Martin said.
Recent state revenue reports have shown tax dollars coming in millions ahead of financial projections, a development the Scott administration has attributed to the dollars that the federal government has been pumping into the economy in response to Covid-19.
The reports have also been released after state officials downgraded revenue forecasts in August to adjust for massive losses expected from the Covid-19 pandemic.
In August, the state’s emergency board, the panel that sets revenue forecasts, estimated that the state’s general fund will lose $180 million in the current fiscal year and that the education fund will lose $63 million.
The revenue report for October found that overall, state revenues came in about $18 million, or 10%, above expectations.
Sales tax revenues specifically were about $9 million above expectations last month.
In addition to e-commerce, Kavet said that there are several sectors that are doing particularly well during the pandemic including businesses that sell recreational equipment, home improvement stores and grocery stores.
Kavet said the “main reason” tax revenues have been running ahead of expectation is the massive infusion of federal dollars “showered upon” the state since the pandemic hit in March.
This money came from federal initiatives such as the Paycheck Protection Program, which has provided businesses with loans, and the Coronavirus Relief Fund, which gave Vermont $1.25 billion to respond to the pandemic — much of which was poured into the state economy.
“So there’s been a big shift in where people are spending money, but they’re still spending a lot of money and what’s really supercharged this is all the federal transfer payments that have occurred since March, and are occurring now,” Kavet said.
Vermont Secretary of Administration Susanne Young cautioned in October’s revenue report that while revenue has come in at a rate higher than forecast in recent months, she doesn’t expect the trend to continue.
“Lingering effects of the strong economy prior to Covid are carrying into the early part of the 2020 fiscal year, however we are braced for more sobering fiscal results immediately ahead of us,” Young said.
“Our revenue is still substantially below the pre-Covid revenue forecast for the state, and difficult and uncertain economic circumstances lay ahead due to the pandemic,” Young added.
State leaders are hoping that another round of federal assistance will soon reach Vermont to carry the state through the remainder of the Covid-19 crisis.
But so far, gridlock in Washington has inhibited further pandemic relief, which could mean more trouble for the local economy.
“Without additional federal support, there could be a pretty significant downdraft in the months ahead, particularly if the pandemic continues to worsen,” Kavet said.
