The House Ways and Means Committee is finalizing a bill that would increase revenue to the state by nearly $5 million by collecting taxes more aggressively.
The committee worked on the bill, which does not yet have a number, on Thursday with Kaj Samsom, the commissioner of the Tax Department for Gov. Phil Scott.
Scott has said repeatedly that he does not support increasing taxes or fees and will veto any budget that contains new taxes or fees.
“It does not raise taxes or fees, and the Tax Department has worked with us on this (bill),” said Rep. Janet Ancel, D-Calais, the chair of Ways and Means. “I have not gotten resistance on it.”
Ancel said the state has up to $150 million in uncollected taxes on its books. She said about $50 million of that is uncollectible but that it is good practice to go after the remaining $100 million before seeking new sources for taxes.
The Legislature’s Joint Fiscal Office estimated Thursday that the collection provisions in the bill would increase revenue by nearly $4.98 million in fiscal year 2018, while an administrative provision in the bill would mean a slight cut in spending.
Most of the new revenue, just under $3.18 million, comes from directing the Tax Department “to use new and existing strategies for collections to close the tax gap.”
One of those existing strategies is called a bank levy, according to Ancel, which allows the Tax Department to get money directly from someone’s bank account. She said the Legislature passed a law allowing bank levies and the garnisheeing of wages two or three years ago, and the department has been working on guidelines for how it can perform bank levies.
“They say they’re ready to do it,” Ancel said. “They’re fine with it.” She said the department would likely use it cautiously and more likely with business income, but doesn’t want to take money from a business account that is used to pay wages.
Samsom said Thursday the department supports the bill’s instruction to use the bank levy to increase tax collection. “You’re giving us authority in this bill to kind of take something over the last hurdle,” he said. “I think it will help with some of our more egregious collections deficiencies.”
An estimated $1.8 million comes from further collection of the use tax, which Vermonters are required to pay when they buy an item like a washing machine or television in another state, do not pay sales tax on it in the state where they bought it, and then use it in Vermont.
Ancel said the Tax Department will use various strategies, including public education and outreach to get more people to pay the use tax. She said some owe use tax when they buy items such as books with a major online retailer that does not collect Vermont sales tax. Until recently, one of those retailers had been Amazon.com, but it says it collects the tax now.
Another provision in the bill would help the Tax Department collect income taxes from small businesses, such as artisan craft businesses, that take online payments through tools like PayPal.
Ancel said that when a business takes credit cards and makes more than $600, the credit card company sends a document called a 1099K to the business and the Tax Department reporting how much income the business received.
But companies like PayPal has to send the document only if the business collects more than $20,000 or has more than 200 transactions, she said. The bill would require companies like PayPal to issue the 1099K in the same circumstances as a credit card company.
“If people aren’t paying what they owe, those of us who do pay what they owe are making up the difference, so it’s really a tax shift,” Ancel said in an interview. “I think everyone should want people to pay what they owe.”
Samsom told the committee: “Rather than raise taxes, you’ve compelled me to do more.”
Savings, sunsets and studies
The bill books $127,000 in savings, spends $100,000 on a tax exemption, extends a special health care fund for one year, and orders a special commission on funding water quality cleanup.
The $127,000 comes from transferring the duty of collecting Vermont’s employer assessment — a fee on companies that do not provide health insurance to employees — from the Labor Department to the Tax Department.
The Labor Department requested the change, and the Tax Department says it has the software to collect the employer assessment. The Joint Fiscal Office estimates the savings would grow to $254,000 a year by fiscal year 2020.
The $100,000 annual expenditure is a permanent extension of a sales tax exemption on parts and equipment for airplanes. The governor’s original budget asked the Legislature to permanently extend this tax exemption, saying that letting the tax break expire would cause “many aviation businesses” to leave the state.
Rep. Cynthia Browning, D-Arlington, advocated Thursday for making sure the airplane parts exemption would not be extended to drones and helicopters. Rep. Sam Young, D-Glover, and other members of the committee agreed with Browning.
The bill extends for one year the health information technology fund, which was scheduled to sunset at the end of fiscal year 2017. The bill extends the fund through fiscal 2018 and asks the Agency of Human Services for a study on the issue.
The bill permanently repeals the sunset on a 0.2 percent clean water surcharge on the property transfer tax. The bill also orders the Vermont state treasurer to convene a clean water working group to find revenue sources to fund Lake Champlain cleanup.
Adjusted gross income
The bill would require the Tax Department to change the look of Vermonters’ income tax return forms, but not change the amount they have to pay.
The bill would require Vermonters to use their federal adjusted gross income amount on their state tax return, instead of the taxable income. (The adjusted gross income number is higher than the taxable income number.)
From there, the tax return form would require the filer to claim deductions, such as the standard deduction and any personal exemptions, but add other income sources that are already taxable under Vermont law.
