Panel Says Don’t Tax Cloud Computing

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A legislative study committee has recommended that lawmakers oppose taxing computer software that’s accessed over the Internet.

The committee, which included members of the business community, debated whether a cloud computing tax will hurt innovative companies or cost the state much-needed revenues.

In the end, the committee voted 4-3 that Vermont should not tax software that’s accessed remotely, or from the cloud, as it’s called.

Tom Torti is president of the Lake Champlain Regional Chamber of Commerce and was a strong voice on the panel against the tax. Torti says a cloud tax could have a chilling effect on the state’s efforts to attract new information technology companies.

"If over the long term we’re trying to raise money, bring young people here, grow businesses, why take one of the pieces of economic development mosaic off of the table?," he says. "I think we may lose $2 million in the short term but we’re likely if we can grow this sector, may make $10 million of more in the future."

Last year, the state Tax Department began to apply the 6 percent sales tax to cloud purchases. It also sent retroactive bills to businesses. But then the Legislature stepped in and imposed a moratorium on the tax until July of next year.

If approved, the committee recommendation would essentially make the moratorium permanent.

Two legislative leaders, Senate President John Campbell and House Ways and Means Committee chairwoman Janet Ancel, voted for the tax.

Ancel, a Democrat from Calais, says the state will lose more and more revenue over time if the cloud is not taxed.

"I think most of us agree that whatever the figure is, it’s likely to grow even over the relatively short term, even over say five years or so. So it would be a loss of revenue, and that’s something we need to account for," she says.

The committee also rejected for now the idea of lowering the sales tax rate, eliminating exemptions and broadening the base to include more services.

The panel’s draft report says it was concerned about the effect that would have on businesses competing with companies in New Hampshire, which doesn’t have a sales tax.

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