Vermont H.782 enacted in April 2012 made several changes including creating a 7-member Study Committee to "examine the sustainability of the sales and use tax in the context of Vermont’s changing economy." The committee seems to have come about due to controversy over taxation of cloud computing (see BloombergBusinessweek article of 4/2/12).
Per the legislation: "The committee shall study how to make the Vermont’s sales and use tax more sustainable and equitable in light of Vermont’s changing economy. Specifically, the committee shall consider:
(A) the taxation of software, platform, and infrastructure as services accessed remotely;
(B) the taxation and sourcing of sales of tangible personal property made via the internet; and
(C) the feasibility of taxing services more broadly than under current law."
The report is due to the legislature by 1/15/13.
- A study of any state's sales tax base is generally a good idea because of our changed ways of living and doing business. Personal consumption today consists of a lot more than tangible personal property. It includes services, intangibles and items purchased over the Internet (rather than at the local store). While not specifically mentioned, the committee should also consider digital goods.
- The committee should also look at how it can stop applying sales tax to business purchases to avoid pyramiding of the tax.
- Services to be taxed should not include ones used by businesses. Time should be given to implementing any new tax on personal services so that the affected business and the state tax agency have time to get procedures and processes in place. A few years ago, Michigan enacted legislation to start taxing specified services in two months. The legislation was then repealed on the first day. Many view that as evidence that sales taxes on services are doomed to fail. What is doomed to fail is legislation that is not allowing for an effective implementation process. I'd also suggest providing a refundable income tax credit for some portion of the costs the service businesses incur in getting ready to collect the sales tax. I have more on this here.
- The committee should take some steps to ensure that its work will be of use. Too often, tax commissions diligently study the tax system and its problems, get public input, develop recommendations and issue a report. The report then sits on a shelf. For details on some suggestions, click here.
- Broaden the base AND lower the rate.