[V]ermont’s House gave preliminary approval to a clean water funding plan that includes a new $6 million sales tax on cloud software.
In a vote of 124-14, lawmakers gave preliminary approval to S.96, a bill that directs new funds to federally mandated pollution reduction projects across the state.
The funding plan involves taking 4% of the rooms and meals tax from the education fund — about $7.6 million — and permanently dedicating it to fund clean water projects.
To replace the money from the education fund, House members moved to levy a tax on cloud software: software programs stored and accessed by users over the internet. Fiscal analysts said the new tax would generate about $6 million in revenue.
Lawmakers say that with other revenue proposals — including a sales tax on veterinary supplies and a tax on third-party online marketplaces like eBay, Amazon and Etsy — the plan will fill the gap in the education fund.
Vermont used to levy a sales tax on cloud software users, but repealed the tax in 2015.
At the time, few states were taxing cloud software. Now, 17 other states have introduced similar taxes. Lawmakers said they are now less concerned the new levy will hurt business.
“We feel that this is the time to move to tax that prewritten software no matter how it’s delivered,” said Rep. Janet Ancel, D-Calais, chair of the House Ways and Means committee, who proposed the tax.
Since 2017, lawmakers have faced renewed pressure to find new ongoing sources of clean water funding, when Treasurer Beth Pearce estimated in that Vermont needs to raise an additional $25 million per year to meet federal pollution reduction requirements.
Earlier this year, the Senate passed S.96 without a funding source, leaving it up to the House to come up with the roughly $8 million needed to meet long-term pollution reduction goals.
The House’s funding plan received broad, bipartisan support.
House Minority Leader Pattie McCoy, R-Poultney, said she was in favor of the plan.
“Personally I look at it as a modernization of the tax structure, not another tax,” she said.
Some lawmakers however, raised concerns about diverting money from the education fund.
Taking some of the rooms and meals tax out of the education fund puts property taxes at risk of going up in the future, argued Rep. Cynthia Browning, D-Arlington.
If the revenue proposed to replace the lost meals and rooms tax were to come in lower than projected, property taxes would need to go up to pay for education expenses.
But proponents of the clean water plan felt comfortable with the plan, and fiscal analysts project the education fund will see an additional $14 million next year, given the proposed revenue sources on the table.
At a press conference on Thursday, Gov. Phil Scott expressed concerns about the cloud tax, and the “aggregate amount of revenue being proposed” by the Legislature this year.
In total, he said it looks like lawmakers are proposing some $40 million in new taxes that were not in his proposed budget.
“It has its issues and we want to be more welcoming in this state,” he said of the cloud tax. “That sends a message to many other states that we’re just another high tax state.”
Scott had proposed his own clean water funding plan which relied on existing estate and property transfer tax revenues. Democrats rejected the plan over concerns about diverting money from elsewhere in the budget. Ironically, their own proposal has been criticized as a diversion of revenues from the education fund.
With the funding S.96, combined with federal money, and other clean water funding sources, such as the capital bill and the budget bill, the state is poised to spend more than $50 million on water cleanup initiatives next year.