Legislative Session: Some Frustrations, Some Disappointments, Some Progress

There’s an often quoted saying that one should never watch legislation or sausage being made; the process for both can be off-putting when attempting to enjoy the results. The 2012 Legislative session was what many would euphemistically describe as “spirited.” The final days were long as nerves grew short, but even at its most chaotic the process held together: compromises were made, decisions were rendered, and another session came to a close with the fall of the gavel.

GBIC entered the Statehouse in early January knowing that there were going to be two major issues that required immediate attention: ensuring the continued viability of our State’s economic incentive program (the Vermont Employment Growth Incentive), and rectifying a seemingly small taxation issue regarding secondary packaging equipment that was about to have huge implications for one of Vermont’s most beloved and highly regarded brands, Green Mountain Coffee Roasters.

What wasn’t known ended up being the most contentious and frustrating issue of our time in Montpelier. In late November of 2011, we learned that Vermonters were being charged sales and use tax on Software as a Service (SaaS). SaaS uses a cloud computing platform to provide software services to an end user, and the Tax Department had determined via Technical Bulletin that these services could, and should, be taxed as tangible personal property. Companies under audit were being assessed taxes plus penalties reaching back to 2006, and were understandably confused and shocked at the new interpretation. In late 2011, we had assumed that this issue was fairly cut and dry; it had an administrative solution in the form of correcting the Technical Bulletin, and it was a clear example of a misinterpretation of intent.

But seemingly straightforward solutions have an odd way of zigging when you expect them to zag. The issue piqued the interest of the Legislature and once it arrived under the golden dome, it became open season on the Cloud Tax. As is most often the case, the issue found champions and detractors on both bodies of the Legislature. A relatively simple issue that appeared complex on the surface became further obfuscated in the heat of committee room discussions. As testimony continued to come in, the issue moved away from the implementation of a new tax to how do we deal with an economy that is moving away from tangible goods and into a service-based model. It’s a valid concern, but one that unfortunately begs the question, and glosses over the way the tax originated.

Despite strong appeals from Vermont employers and information being provided up until the Conference Committee rendered their recommendation, Vermonters were left with a compromise of second best that failed to address the underlying lack of transparency. A one-year moratorium was applied to the collection and remittance of Cloud Taxation, and any retroactive payments collected (a number that was conspicuously vague throughout the process) will be returned upon appeal. Unfortunately, whether it was intended or not, by passing a moratorium the Legislature tacitly implemented a service tax that never was intended to be levied.

Over the next year GBIC will continue to work to clarify the issue and correct it moving forward, but until that time Vermont will have instituted and codified a broad-based tax on a growing service technology sector.

By the end of the session, the secondary packaging issue was generally regarded to be a no-brainer and with the exception of some posturing and point-making, it was included as a component of the “must-pass” miscellaneous tax bill. The VEGI program always raises a few more hackles. Economic incentives have sometimes been a point of contention among legislators, and this session was no different. After sunsets were proposed and eliminated, the program gutted and restored, there was compromise made that ensured the program’s near-term future with a five year extension on the sunset. Not the complete victory that we would have wanted, but an important action that will allow employers to make greater and more significant investments in Vermont.

And then it was over. The doors closed, the papers were filed, and legislators went home for another year.