The Effect Of Taxes Exemplified By Small Business Closures

Government Turns Vermont Business Owners’ American Dream Into Nightmare

May 8, 2014 by Watchdog.org 

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This article, written by reporter Bruce Parker, was originally published by Watchdog on May 8.

When Dave and Eileen McKnelly bought the Newbury Village Store in picturesque Newbury, Vt., the former New Hampshire couple thought they had made it.

Photo courtesy of the Newbury Village Store

“We came here to fulfill our dream, the American Dream, to raise and provide for our three children, be part of a community and make a positive impact,” Dave McKnelly told Vermont Watchdog.

But the owners of the 175-year-old country store say Vermont’s business environment may now force them to close the store for good, turning their lifelong dream into a nightmare.

“With the taxes we’ve been encountering this year, one of the serious options my wife and I looked at is Dec. 31 we’re going to close the store,” McKnelly said.

McKnelly said policies by Governor Peter Shumlin’s administration have forced costs to escalate far beyond what his business can manage.

“It’s not just the minimum wage increase — it’s the increased payroll tax, increased Medicaid, increased workers’ comp fees and increased unemployment fees,” McKnelly said.

Not only would a mandatory wage hike force McKnelly to pay an additional $100 or more per week to minimum-wage employees, it would require him to give raises to higher-wage workers as well — labor costs he said he can’t afford.

“For me to be able to raise my revenues to a point where I can offset the minimum wage increase is daunting,” McKnelly said.

In addition to labor-related costs, the Newbury resident said a single-payer health plan tax hike looms for his store.

“With Shumlin’s new budget proposal, one of the line items he’s proposed is to help pay for the single-payer medical program. So it means my payroll tax is going to increase 12 percent per employee to pay for that — and my employees are going to pay between 5 and 6 percent.”

Situated on the Vermont-New Hampshire border just 35 miles from Dartmouth College, Newbury Village Store serves customers with backgrounds ranging from farming and academia to logging and professional services.

Despite the store’s broad appeal, McKnelly said new taxes are forcing Vermonters to cross the border to buy goods.

“We live in a border town with New Hampshire, which doesn’t have a sales tax. They have a minimal cigarette tax and beer tax — so they’re my major competition,” he said.

New Hampshire’s 0-percent sales tax is a threat to Vermont businesses.

Not only does Vermont have a 6 percent sales tax for most items, tobacco and alcohol get taxed at extremely high rates — and customers notice.

According to McKnelly, cigarettes that cost $8.64 in Vermont cost $5.65 across the river in New Hampshire. The price difference explains why the Newbury Village Store sells $1,500 of tobacco products a week while competitors across the border sell $25,000.

“I’ve often joked that if I could shut this place down, pick it up, and move it across the river to New Hampshire, I could literally look at the entrance to my backyard and I’d be doing great,” he said.

Some businesses are moving to New Hampshire.

“Trout River Brewing Company is looking to close down in Vermont and go to Lebanon, New Hampshire, because of the tax base,” McKnelly said. “Other companies are shutting down and moving across the border as well.”

Although McKnelly gave his testimony at the statehouse this year, lawmakers didn’t seem to be listening.

“Governor Shumlin thinks the state of Vermont is doing phenomenal. My comment to him was if you continue to impose taxes on small and medium-sized businesses, we’ll be forced to close down or go across the border.”

The problem with Montpelier, McKnelly said, is that lawmakers don’t notice when small businesses close shop or lay off employees — yet closings and layoffs quickly add up.

“If you take all of the little retail stores in the state of Vermont, and you look at all the people they employ and the taxes we pay, if they all decided to close down their stores, the state would go belly up in about a week. We employ a majority of the people in the state of Vermont.”