Because Vermont sales tax laws are so complicated, to do their job correctly, cashiers at Pinky’s on State, a deli and gift shop in downtown Montpelier have to conduct a “mini-audit with each customer,” Pinky’s co-owner, Nancy Martel, told a four-person panel from the Vermont Department of Taxes, during the department’s recent listening tour on tax concerns. The mini-audits, she said, can take up to three minutes each, a real concern during a busy lunch-hour rush.
The main problem for a business like hers, she said, is some items are taxed some of the time but not always. “Chips are not taxed if sold alone but are taxed if sold with a sandwich. If they are part of your meal they are taxed. If you are having them for a snack, they are not taxed. Cookies are taxed if served on a tray, not taxed if taken out with a paper bag. Candy is taxed unless sold in bulk. How are they paying? Are you with the state or a municipal office? You are not taxed, unless you are paying with a private credit card. The list goes on and on,” she said.
Martel’s comments came during the Montpelier listening session, one of five scheduled by the Tax Department.
Jackie Folsom, the lobbyist for the Vermont Fairs & Field Days, told the panel her members face similar inconsistencies. All but one of her 14 members is a nonprofit, and most sales are not taxed. Bingo was not taxed for the first five days but a recent change in the rule taxed bingo starting day six. That inconsistency has been addressed, Folsom said, but only because the problem was discovered by the president of the Caledonia County Fair. “One stroke of the pen can create huge problems” for her members, she said.
The listening tour is a result of legislation that was passed last session that ordered the tax department to set up “a working group of interested stakeholders to examine ways the department can improve outreach and education to small business taxpayers.”
“We are eager to hear from businesses across Vermont about how we can help them navigate the sometimes complex Vermont tax code,” said Tax Commissioner Kaj Samsom. Feedback from these sessions will be included in a report due to the legislature which will include specific recommendations for taxes on small businesses.
Sen. Ann Cummings, of Washington County, pushed for the legislation. “Over the past few years, we have had several incidences of small, local businesses being audited and assessed thousands of dollars in back taxes. These have usually been sales-and-use or rooms-and-meals taxes. These business are generally owned by good, law-abiding people who thought they were doing the right thing,” she said.
“As chair of the finance committee, I have two concerns: Are we writing tax laws that are not clear, or are we failing to communicate changes in the tax code to affected businesses. The tax department posts changes on its website. Unfortunately, small-business owners, who frequently work 24-7, don’t think to check the website. Act 73 (the tax legislation) asked the tax department to look into the issue and come up with recommendations.”
Jeffrey Dooley, the Vermont taxpayer advocate at the tax department, agreed that sales tax rules are complicated. What the state learns from the tax hearings, he said, should help the State determine where changes need to be made.
In late August or early September, after the hearings are completed, Dooley said, the department plans to set up the committee, probably with eight to ten members. The legislation does not prescribe how big the committee should be nor who should be included. The department is reaching out to various stakeholders, such as the Vermont Chamber of Commerce, and has already received requests from interested parties who want to be in the focus group. The committee will have until November 15 to complete its report.
“Instead of just guessing about what businesses need, we decided to go out and listen,” Dooley said. Despite only two months to complete the report, he is confident the focus group will get the job done.
Betsy Bishop, president of the Vermont Chamber of Commerce, said the fact-finding tour makes sense. “Anytime government can listen to its customers, that’s a good thing.” Part of the reason for the tour, she agreed, is because some Vermont tax rules are confusing, and sometimes new guidance is issued that surprises small businesses. Another example is the taxation of bark mulch, which was dependent on whether it was sold loose or in bags. “That was confusing to many businesses selling that product, and it was eventually addressed by the Legislature,” she said. According to Bishop, other, similar tax issues have been addressed.
The main task of the committee, as defined by Act 73, is: “to identifying complex areas of the law that could be simplified to enhance voluntary compliance.” The legislation also tells the department to improve its customer outreach and education, and recommends guidelines to forgive tax penalties and interest under certain circumstances.
Although the attendance was light at the first two hearings, 12 speakers in St. Johnsbury and six at the Montpelier hearing, Commissioner Samson said he is pleased about what he has learned. He said topics of discussion have ranged from sales taxes to property taxes, and much more. The department is also accepting written comments by e-mail and regular mail (contact information is on the department’s website).
“I am looking forward to hearing the recommendations and acting upon them,” Cummings said.