Vermont eyes tax on the cloud
MONTPELIER — Add the “cloud” to the growing list of items for which Vermonters could soon be required to pay sales tax.
While current law already calls for a 6 percent surcharge for the online purchase of remotely accessed software — think TurboTax — the state Tax Department had forgiven unpaid debts accumulated by Vermont companies whose businesses involved the sale of those products.
In what looked to be a phasing out of the tax altogether, lawmakers last year created a one-year moratorium on the cloud tax, to allow for a summer study to gauge its impact on the technology sector.
But while Gov. Peter Shumlin in January called on lawmakers to grant a permanent exemption for the cloud, the House is unwilling to give up the $2.3 million in revenue the assessment is projected to raise next year.
It’s just one more controversy in a House-passed tax bill that has created a divide between lawmakers and the Shumlin administration.
Rep. Heidi Scheuermann, a Republican from Stowe, offered an amendment to the miscellaneous tax bill last week that would have prevented the moratorium from expiring. She said hundreds of Vermont businesses — from restaurants that use cloud-based software for recordkeeping, to the software providers that sell it to them — will see the cost of business rise if lawmakers don’t protect them from the reinstallment of the 6 percent tax.
Scheuermann called the assessment a “shortsighted tax policy” that will thwart economic development in an emerging sector.
“While it may raise ($2.3 million), it sends a terrible message to the technology industry and small business,” Scheuermann said. “And it will only result in less economic activity.”
A summer study committee made up of four legislators, Tax Commissioner Mary Peterson, and two private sector executives voted 4-3 in December in favor of repealing the cloud tax. The legislators on that committee — the chairwoman of the House Committee on Ways and Means among them — voted 3-1 to keep the tax, while Peterson and the executives all voted to eliminate it.
“Let us listen to them just once,” Scheuermann said. “Let us do one thing in this Legislature that actually encourages economic activity and growth.”
Rep. David Sharpe, ranking Democrat on the House Committee on Ways and Means, said Vermont’s ongoing revenue struggles stem largely from its past willingness to grant so many exemptions and loopholes, often to the private sector. Granting exemptions in emerging sectors especially, he said, could exacerbate the state’s revenue problem down the line.
“As our economy moves more and more to the Internet, we have already lost a lot of sales tax revenues from Internet sales,” Sharpe said. “I want to know how many of you would vote for an additional penny on the sales tax to replace the revenues we’re losing from exemptions, or 2 cents or 3 cents, because that’s the path we’re going down.”
Anyway, Sharpe said, the cloud tax isn’t imposed on companies creating and selling the software, but rather the Vermonters buying it.
But Rep. Paul Ralston, a Middlebury Democrat and entrepreneur who started the Vermont Coffee Company, said the cloud tax is of greater symbolic significance than lawmakers give it credit for. To the businesses that would be affected, he said, the tax is less about the money than it is about the message.
Ralston said this is one area where Vermont can actually earn a favorable distinction among prospective businesses comparing tax codes.
“This is about whether companies will locate and grow here,” Ralston said. “This is our opportunity to make a good first impression.”
Ralston said the issue needs more study anyway. The Committee on Commerce and Economic Development on which he sits, for example, took no testimony this year on whether the assessment would be good or bad for the tech sector, Ralston said.
Ralston noted that in their rationale for removing sales tax exemptions on soda and candy — provisions in the same bill that contained the cloud tax — House lawmakers touted the benefits of denting consumption of those unhealthy products.
“Taxes do change behavior,” Ralston said. “This tax will change behavior, and I urge you to consider that when you think about your vote.”
The amendment failed by a 37-vote margin, and the cloud tax now heads to the Senate as part of the broader tax bill.
Opponents of the cloud tax will face similar difficulties there. Senate President John Campbell, a member of the cloud tax study committee, voted in favor last December of allowing the moratorium to expire.
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