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March 28, 2012

Tax Storm Still Brewing for Vermont Tech Businesses

Local-cloudtaxVermont's tech "geekosystem," as Union Street Media founder and president Ted Adler termed it today, are still rallying to knock down a controversial tax on cloud computing.

I wrote about the debate — which pits the tax department against the state's up-and-coming software and technology industry — for Seven Days in mid-February. It's a complicated issue, as matters of tax law typically are, but the debate boils downs to this: Business leaders are balking at a new interpretation of Vermont tax law that applies a sales and use tax to software in the "cloud." That could include everything from doing your taxes with online software to logging on to an email service.

In 2010, the tax department issued a "technical bulletin" to clarify its interpretation of how cloud computing should be taxed. The department reasoned that software in the cloud wasn't all that different from software that customers used to buy at a store or download to a hard drive — and so they applied the same 6 percent sales tax to these products.

Tech industry advocates take issue on a few fronts. They think the tax could put Vermont at a competitive disadvantage with other states and would hurt small businesses, who increasingly use cloud computing in some form or another. They also take issue with the tax department's approach. The technical bulletin went into effect without any legislative oversight or public discussion. And it also applied to backward-looking audits, so some companies found themselves being penalized for not filing their taxes correctly for the past four years — despite the fact that the interpretation wasn't clarified by the department until 2010. 

These were the complaints that business leaders aired today at a press conference at's Burlington complex.

Adler was joined at the event  by Greater Burlington Industrial Corp president Frank Cioffi, CFO David Stetson, MyWebGrocer CFO Jerry Tarrant, Vermont Center for Emerging Technology president Dave Bradbury, and a handful of other business leaders, legislators and Shumlin administration officials. Tarrant worried about the "unintended consequences" of the cloud computing tax, while Bradbury called it "scary" and a "job and income killer." 

With everyone seemingly on the same page — cloud computing tax = bad! — the group looked to the road ahead. Opponents of the cloud computing tax are hoping a legislative fix might correct the situation, and two bills are currently under consideration in Montpelier.

Sen. Vince Illuzzi (R-Essex/Orleans) authored legislation being considered on the Senate side that would give cloud computing an exemption from taxation. Meanwhile, House Ways and Means is debating a possible moratorium on the tax. Rep. Heidi Scheuermann (R-Stowe) announced at this morning's press conference that she's been assured the issue will be addressed before the end of the legislative session.

"We are intending to make sure this legislation gets over the finish line," said Secretary of Administration Jeb Spaulding, who conveyed Gov. Peter Shumlin's support for revoking the cloud computing tax.


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