The “Cloud Tax” will once again be up for debate this year. For those of you who don’t know what I’m talking about, and haven’t been paying attention to this tedious debate over the last few years, let’s peel back the layers of misunderstanding and loaded rhetoric. No one is proposing that we start “taxing the internet”, just for the record.
H.146 seeks to treat the purchase of software via the internet as a service, rather than a product so that it is exempt from the sales tax. This would save companies from paying sales tax when they purchase software licenses and download the applications on everything from Microsoft Office to the Adobe Suite. The legislative Joint Fiscal Office had this estimated at $2.3 Million worth of sales tax revenue in FY2014.
Viewed through the lens of economic development, this is always pitched as a way to make Vermont look “open for business” as it was in the most recent legislative update from Rep. Corey Parent. That sounds great. Why tax the internet? Let’s keep it free and cheap, and have Vermont be a place where tech companies can go and thrive without a pesky 6% charge every time they pay for a software bundle.
When I was a small business owner, I often went down to Staples and grabbed pens, paper, and other supplies. I forked over 4 cents to the Transportation Fund and 2 cents for the Education Fund with every dollar I spent. Back at the office I downloaded Quickbooks and other software, not to avoid the 6% tax, but because it was much more convenient. The last time I did this was during the Cloud Tax moratorium, so I didn’t pay any sales tax. Had I bought that same product while I was in a brick and mortar store, I would have paid the sales tax.
Let’s put aside the fact that the sales tax pays for roads and schools for a moment. Is it fair to call the same product that used to come in a box on a CD a service now that it’s available online? That’s the real question that legislators should be asking when H.146 is debated in the Commerce & Economic Development committee.
Viewed through the lens of Main Street fairness the Cloud Tax debate gets more difficult. I know folks who are upset that their customers walk into a shop to browse and then buy online. These customers avoid helping our brick and mortar stores pay their lease and the tax that educated the kid at the counter and paid for the road to get the product there. That’s why Congressman Welch and others support taxing online sales to level the playing field. We should think hard about how this bill that allows companies like MyWebGrocer and Dealer.com to save thousands of dollars each year, plays into the online tax avoidance that many Vermonters, of all political stripes have called “unfair”.
As we increasingly live in a world in which internet sales are the norm, but many of the products we purchase online depend on educated people and transportation infrastructure to deliver them, we need to look at debates like this more closely. Otherwise, we may be contributing to the shuttering of brick and mortar stores, like the Staples that just left Saint Albans, all in the name of “economic development”.