A sprawling tax bill passed last week by the Vermont House of Representatives is unlikely to make it through the Senate, according to President Pro Tempore Becca Balint, D-Windham.
The bill, S.53, began in the Senate as a sales tax exemption for menstrual products.
In the House, lawmakers added on a slew of major tax changes: restructuring corporate taxes, enacting a sales tax on cloud-based software and services, and establishing exemptions for military pensions. In all, the bill would raise $2.6 million in fiscal year 2022, then $6 million and $7 million in the ensuing two years, according to the Joint Fiscal Office.
The House voted 96-44 in favor of the bill on Friday and sent it to the Senate, where it faces a grim future. The Senate has long opposed a cloud tax and carveouts for service members’ retirement pay.
On Monday, Balint described the bill as a “tax Christmas tree adorned with many baubles.”
“Perhaps they wanted to distract us with shiny objects and gaudy decorations?” Balint wrote in a statement to VTDigger. “We would have been much happier with our original bill.”
She underscored that, in the past, Senate leaders have not supported a 6% sales tax on internet cloud services. “I don’t believe our position has changed, although we have not yet surveyed the chamber,” she said.
The House bill would remove a sales-tax exemption for software programs stored and accessed by users over the internet. It would also impose a sales tax on cloud “infrastructure” services, such as data storage, networking and website hosting.
Among the products that would be taxed are those offered by TurboTax, Dropbox, Mailchimp, and website hosts such as Squarespace and WordPress.
In addition, the legislation includes complex policy changes that Balint says the Senate would not have time to fully vet before the Legislature adjourns for the year in mid-May.
Among those is a proposed change in how the state determines tax liabilities for corporations that operate in Vermont and other states. Under the proposal, a company’s taxes would be based only on in-state sales. Currently, corporate taxes are calculated by considering the amount of sales that companies generate in Vermont, by how many employees they hire and by the property they own in the state.
The House bill would also raise the corporate tax minimum for at least 10 corporations with more than $300 million in Vermont sales each year. Those businesses are paying only $750 in taxes — the current corporate minimum tax. The bill would require them to pay a minimum of $100,000 each year.
That minimum would amount to $6,000 for corporations with Vermont sales between $5 million and $300 million, and $2,000 for those with sales between $1 million and $5 million. Companies with less than $100,000 in Vermont sales — the vast majority of businesses in the state — would pay at least $250.
The corporate minimum tax change would raise an estimated $4.23 million per year, according to the Joint Fiscal Office.
The bill would also exempt from state taxes the first $10,000 that veterans receive each year in military retirement pay.
“We will not be concurring with the House’s work, but perhaps we can arrive at a slimmed-down version,” Balint wrote Monday. “If we run out of runway, it is not a must-pass bill for this session. We have next year to get it done.”
The House-Senate dispute could result in an end-of-session negotiation between the two chambers. The House Committee on Ways and Means has been bullish on the corporate tax changes, while the Senate has been adamant about repealing the sales tax on menstrual products.
Rep. Emilie Kornheiser, D-Brattleboro, vice chair of the House Committee on Ways and Means, said Monday there is always room to negotiate.
“We’ll keep on talking to the Senate Finance Committee about where their priorities are and where our priorities are,” Kornheiser said.
Sen. Ann Cummings, D-Washington, who chairs the finance committee, said Monday her panel might take some testimony on corporate taxes, but “it’s doubtful” S.53 in its current form will move out of the Senate this session.
“I’ll probably ask to have it tabled and then we’ll bring it up next year when we’re ready to take some action on it,” Cummings said.
She expressed reservations about a tax exemption for military pensions.
“I don’t know how I can give a tax exemption to military pensions and not give it to the state first responders who also retire early and put their lives on the line,” she said. “To me, it opens up a can of worms where you’re starting to pick favorites.”
Cummings said the one change likely to win approval this year is the sales tax exemption on menstrual products. That measure would remove Vermont’s 6% sales tax on products such as tampons, panty liners and menstrual cups. It will likely be tacked onto this year’s miscellaneous tax bill, H.436, according to Cummings.
“The Senate stands by its position that we want to stop taxing menstrual products. It’s the right thing to do, and it’s long overdue,” Balint told VTDigger. “We hope the House will agree to language that is much closer to the bill we passed.”
