Chester mulls a local option tax; neighboring towns already have them and like them

By Shawn Cunningham
© 2025 Telegraph Publishing LLC

The Chester Select Board is nearing its deadline to decide whether to put before the voters in March a 1 percent local tax that would be in addition to the current state sales taxes charged on rooms and meals and served alcohol.

We thought it would be interesting to look at how the tax works, how much it generates and how those funds are used in other area towns. We also asked some business owners if they thought the additional tax has had any effect on their customers or bottom lines.

All of Vermont is under a general retail sales tax of 6 percent, but there are exemptions that fit broadly into the category of necessities, including food and clothing. Some medical and health purchases are also exempt from sales tax. Click here for lists of items that are exempt and not exempt from sales tax.

The state also has a 9 percent tax on rooms and meals. That includes stays in hotels, motels and inns. For a short-term rental like an Airbnb there’s an additional 3 percent tax, bringing the tax on staying in one of those to 12 percent. The meals tax is 9 percent and 10 percent for alcohol served and consumed on premises. All of the revenue from those taxes goes into the state’s coffers.

But any town that adopts a local option tax on these levels increases these rates by 1 percent, of which a jurisdictions keeps three-quarters.

Who pays the tax and who gets the money?

In a nutshell, the customer pays the tax, whether it is the state sales tax or the state tax plus that 1 percent local option tax.

For example, the check for a $20 lunch at a diner in a town with no local option tax will include state sales tax of 9 percent, bringing the total to $21.80. In a town with a local option tax, that same lunch will be 20 cents more, with a total sales tax of 10 percent or $2.

In both cases, the customer pays the check and the business remits the tax money to the state of Vermont. But the town with the local option tax gets three-quarters of the additional tax and the state keeps one-quarter. In this small example, that’s 15 cents coming to the town. That doesn’t seem like much, but Chester has estimated that the income from an added 1 percent rooms and meals tax including on-premises alcohol, would generate between $60,000 and $80,000 each year.

Chester is proposing to use that money to fund the activities of the town’s Housing Commission, which has the task of facilitating the construction of affordable housing in the town.

Proponents assert that additional homes could house those who want to live and work in Chester and would add value to the grand list, which would cushion property tax rates.

Some opponents believe that a tax is the wrong way to raise the funds for housing development and they have suggested taking the money from the town’s economic development fund, which lends money to help businesses start and expand in Chester.

Others are concerned that the tax would make the town — and thus its businesses — less competitive.

Jen Greenfield, co-owner of the Snowdon Chalet Motel in Londonderry, said she has never encountered any pushback from guests about the additional 1 percent. She also added that the method of collecting and sending the added tax to the state is the same as the 9 percent tax.   The one “pain” Greenfield said she encountered was adding the new tax to the websites of online travel agencies like Booking.com or Expedia.

Kristin Nelson, who recently opened the Coffee Barn at the intersection of Routes 11 and 100 in Londonderry, added that customers don’t remark about the added tax and that handling the extra remittance to the state is a minor administrative chore.

How do other towns use the local option tax money?

Many neighboring towns have approved a local option tax, some limited to rooms and meals others encompassing all  retail sales. These include Ludlow, Springfield and Londonderry. A little farther afield, Manchester and Woodstock have also adopted the additional tax.

Here’s a list of the municipalities in Vermont who had adopted a local option tax.

While some of these use the tax revenue for specific initiatives, most also put money toward lowering property taxes. Londonderry Town Treasurer Tina Labeau told The Telegraph that money that comes from that town’s rooms/meals/alcohol tax – about $40,000 last year — goes directly into the general fund to offset property taxes.

Springfield Town Manager Jeff Mobus said that the town had budgeted for revenue of $125,000 for the initial year of the tax, but after the first-quarter’s income of $40,000 they were updating the year’s expected revenue to $160,000. The funds are not specified to any use except to reduce the town’s tax rate.

Manchester assessor Gordon Black says he’s a “huge proponent” of the local option tax, which helps to pay down the property tax while allowing the town to give greater support to organizations like the library and the business association. Black estimates it would take hundreds of new houses to increase the grand list enough to raise the $1.5 million in revenue that the local option tax brings in. He also pointed to Bennington which has voted down the local option tax more than once. “They have a large Walmart there with a parking lot full of New York plates,” Black said, noting that Bennington pays for the infrastructure – roads, police etc. – that make that possible but won’t tax to recoup those funds.

Woodstock’s finance director Robert Densmore said that at first the tax revenues went toward specific initiatives but the town is now considering using it to replace older infrastructure, including work on the sewer treatment plant.

How is the tax voted and can it be repealed?

The Chester Select Board has been asked if the tax could be repealed or if the article that the public votes on could include a “sunset” provision that would eliminate the tax after a certain number of years. According to Town Manager Julie Hance, if the Select Board puts it on the ballot, a special article – like the local option tax would — be voted from the floor at the in-person portion of Town Meeting. That would be on Monday March 2, 2026.

Hance has asked town attorney Jim Carroll to see if the article can have a sunset provision that would include a date when the tax would no longer be collected. According to Hance, the current draft article includes such a provision. In addition, registered voters can raise a petition to repeal such articles by getting the signatures of 5 percent of the registered voters on the town’s checklist or approximately 125 signatures.

The Select Board will look at a draft town meeting warning that will include the tax article at its Jan. 7 meeting and it has has until its Wednesday, Jan. 21 meeting to decide whether to put the local option tax article on the warning. The deadlines reflect both the public notice period required by state statute and lead time needed to print the town’s annual report with the warning in it.