Lawmakers have proposed suspending the six percent sales tax on software sold remotely – or "in the cloud."
If approved, the state would also refund taxes paid over the past several years to businesses that have been paying the so-called cloud tax since it went into effect in 2006.
Senator Tim Ashe sits on the Senate Finance Committee, which proposed putting the tax on hold through next year. Ashe says lawmakers need that time to sort out the complicated debate.
"I’m the youngest member of the Senate and some people look to me as the person who will be able to help clearly communicate what is cloud computing and what is taxed and what isn’t taxed based on this tax department bulletin," Ashe said. "After all the testimony, I’m as confused as anyone else in the state about what should and should not be taxed."
Lawmakers say it’s difficult to know what qualifies for the tax and what doesn’t. So Ashe says the Legislature needs to step back until issues are cleared up. "When you don’t know exactly how the tax is going to work, sometimes the best way to proceed is with extreme caution."
This week, the nonpartisan coalition Campaign for Vermont released a radio ad designed to draw attention to the cloud tax. The ad says consumers are going to have to pay the sales tax when booking airline tickets and making hotel reservations online.
"That’s not true," Representative Janet Ancel said. Ancel chairs the House Ways and Means Committee, which also recommends a refund and a moratorium that would only last for three months. Ancel says that the license to use online booking services would be subject to the sales tax for businesses, but "the person who’s making the reservation isn’t going to pay the sales tax."
"We do have Vermont businesses that use pre-written, online booking systems. They access it in the cloud. It’s the business that pays the tax, so I think that’s very misleading."
Republicans have tried to point out that it was the Legislature not the Tax Department that first instituted the sales tax, and even Governor Peter Shumlin has backed away from supporting it.
"I do feel that there are times where we are so worried about losing a little bit of revenue in this state that we fail to see the forest through the trees," Shumlin said.
Shumlin says one of the state’s biggest challenges is creating well-paying jobs for young people, so dropping the tax on the cloud, he says, is a real economic tool that Vermont could use to its advantage.