 Vermont PBS in cooperation with Orca Media and the Vermont Press Bureau presents Capital Beat, the Week in Review, from the Vermont Statehouse. Here's host Neil Goswami. Welcome everyone to Capital Beat. Thanks for joining us. I'm Neil Goswami with the Vermont Press Bureau. It is tax season and as you at home get ready to prepare your income tax forms, we are here to talk with Janet Ansell, representative from Calis and the Chairwoman of the House Ways and Means Committee and Representative Sam Young, the Vice Chairman of the Committee, all about taxes. Great. Thank you both for joining us. Thank you. It was this week that you had a, what I think was an interesting conversation in your committee about the sales tax and the impact of online sales on the sales tax. Amazon began collecting the state's 6% sales tax this month and you got some facts and figures about what Amazon will likely collect and remit back to the state and what other retailers online will be doing. So before we get into those specific numbers, I just want to talk a little bit about the challenges you've faced with online retail and what the state has done to address it. This has been a problem that our committee has been struggling with for actually years now. It's clear that, in fact, the trend lines are kind of astonishing. The number of sales that have moved to remote, what we call remote sellers, whether it's catalog or online, sellers who don't have what's called physical presence in the state are not under the constitution required to collect taxes on our behalf. And as more and more sales go to these remote sellers, our sales tax base is eroding. So we've been working for years to try to get our arms around that problem and find a way to collect the money. And one of the early efforts had to do with the Streamline Sales Tax Project, which Sam is our representative on, representing Vermont. And that worked to an extent. There were also efforts in Congress to try to give states the permission to require sellers to collect the tax. Those faltered. And so more recently, we adopted last year a provision that required remote sellers to notify people who buy stuff through them how much they bought so that they would know how much they have to report in use tax. And I don't know if it was that or a number of other things, but one of the breakthroughs for us was that Amazon agreed to collect voluntarily on our behalf starting in February. Do we know at all, for either of you, why Amazon voluntarily decided to collect? Well, you know, we have some guesses why. I think their business model may have evolved. They have physical presence in more and more states as time goes on. They may also be looking at a legal challenge that's coming out of South Dakota. Which looks like it might have some chance of success. These notice provisions may be a piece of it. I haven't talked to them directly since we did the affiliate nexus bill a few years ago. So we'd be guessing, but we do know that they agreed to collect for other states that where they don't have physical presence. And for people watching, physical presence means a store or a warehouse or a business office in the state. Representative Young is our resident expert on the streamlined sales and use tax agreement. I know it's somewhat convoluted. I actually looked at the agreement last night and it was about 250 pages long. So I gave up on it. I'm hoping you can give me a brief summary of what it does and how it helps the states in terms of tax collection. There's 23 streamlined sales tax states. And I think it's particularly good for small states in terms of having uniformity in the way in which we collect sales tax. Essentially, there's different categories of products that you can either choose to tax or not tax. But the idea is to keep the definitions the same from state to state. And this is actually something that the organization, which is interestingly, a lot of the leadership and a lot of the states are really kind of Republican states. But we lobby Congress on the kind of the Marketplace Fairness Act or trying to get remote sellers to remit sales tax to the state that the product was ordered in essentially. And to try and create that parity with kind of your downtown businesses so that they can actually compete with the stores online. Yeah. So the parity is a big thing that we hear about in terms of online sales or remote sales and then the brick and mortar shops that we have here in Vermont. And it's really what I've heard is that it's a problem that only Congress can solve essentially by requiring one state or all states to participate in the sales tax agreements. Is that true? Is there anything else Vermont can do to force companies to collect and remit? Well, these two things that I talked about are initiatives in that direction. When I talk about the notice requirement, this is a law that Colorado passed two or three years ago. And it requires the remote seller to notify every purchaser in the state of what they purchased. And I'll talk in a second about what they're required to do with that. So that's one avenue that I think is actually bearing fruit. And that was upheld by a federal district court. U.S. Supreme Court was asked to hear it I think in December. And they said they didn't want to hear it, which left the lower court decision standing. So that actually is good law. The other avenue, though, is that the U.S. Supreme Court case that says you have to have physical presence in the state is a case called Quill. And there is strong indication that if a challenge to that or revisiting that decision went to the U.S. Supreme Court that they would decide it differently. And they would say that you don't have to have physical presence in the state. You just have to sell into the state. And if that were to happen, that's the effort that's going on out of South Dakota. If that were to happen... That would be the game changer. That's the game changer. And we did pass legislation last year that said, as soon as Quill gets overturned, we will collect. And to be clear, there are really three reasons why it matters. One is our eroding tax base. And we need revenue to do the things that we've committed to do. The other is what Sam talked about is the competition between our bricks and mortar stores. And bookstores, I think, are particularly sensitive to that. But the third is sort of a tax fairness thing, that some people are paying the use tax, which I'll talk about. I think it makes sense to explain it. And a lot of people are not. And so you really don't have equity among taxpayers in terms of paying what they owe. And you really want to have a tax system that has fairness built into it. So they use tax really quickly. When you buy something out of state, whether you buy it online or catalog or you drive to New Hampshire to buy it. And it would be taxable in Vermont if you bought it in Vermont. You buy it somewhere else. You bring it back to Vermont to use it. You then owe the 6% tax on it. And that's a tax called the use tax that only 10% of filers actually pay. Maybe 90% or so should. In your committee heard testimony from the tax commissioner this week that if all Vermonters paid annually on their income tax form what they were supposed to pay, the state would take in about $28 million. That's about right. And right now you're only seeing collection of about $3 million. So there's a lot of tax cheats out there. Is that the story here? I think a lot of people don't know they're supposed to pay it. It's actually, when you say to somebody, do you pay your use tax? That's probably not the kind of conversation most of us have. But I do occasionally. Most people have tax geeks. Most people have no idea what you're talking about. So they're not deliberately not paying it. People will say, you know, well I bought it in New Hampshire so I don't have to pay the tax. People say that to me and I'm thinking, actually you really do. Yeah. So they're just not aware of it? I think a lot of people are not aware of it. And so I don't know that I would say that they're tax cheats. I think that's too strong a word. But they could be better volunteer payers than they are. Okay. Other testimony that you heard was from the Joint Fiscal Office. And they estimated through public records basically, information that is publicly available, that Amazon may be collecting and remitting as much as $8 million a year, which is a lot of money but maybe not as much as some people may have thought would be coming into the state. Was when you heard those figures, did that sound right to you? Did it sound like we should be getting more? Well, I mean I thought maybe it was a little lower than I might have expected, but need to remember that we don't have a tax on clothing. We don't have a tax on non-prescription drugs. Well under $100. No, any clothing. All clothing is exempt. It's actually in order to join the streamlined sales tax, we had to get rid of the threshold. Which is what those definitions do to us. I like that then. So if you buy clothing or non-prescription drugs through Amazon, you don't pay the tax. The other thing is that you don't pay it if the book, if that's what you bought, comes through a third party seller. So Amazon might connect you with a bookstore in Nebraska somewhere. And they're the ones who send you the book and they're not collecting the tax on that. So they're using the Amazon platform. Amazon won't collect the tax. Only on their products is what they're actually collecting taxes on. What's coming from essentially their warehouses. So we still have a problem. And that may actually, as you think about it, be part of the catalog sales figure. It's hard to know. So you heard that 6.3 or 4 million in other online retailers. And then 7.4 million in mail order. Which was a bit mind-boggling to everyone this week. That there's still that much commerce going on through catalog orders and mail orders. Very surprising to me. So overall, we're looking at, if you subtract out the 8 million that the state will get from Amazon now, it's over 13 million dollars in potential sales tax revenue that the state is not collecting. Anything your committee can do at all to address that at this point? Well, we hope that this notice provision that we pack, I keep going back to this, but we passed this law last year. It takes effect July 1st. And it will require other online sellers, other sellers other than Amazon, and catalog sellers, I think, to notify purchasers of what they've purchased. And the tax department? No. No? Okay. We took that out. It's just the purchaser. When the consumer gets this notice, will it direct them on how to fill out their tax form at the end of the year and explain the table and how much they have to pay on it? We're not asking the seller to tell them about our tax law, just how much they purchased, but then it's our job to make sure that they know what they should be doing with that information. Okay. Any other retailers besides Amazon indicating to you or the tax department or anyone in Vermont that they plan to follow Amazon's lead? Not that I'm aware of. And they're really, I mean, they're just such a huge player. I mean, you looked at all of the other companies on the list. Yeah. And, I mean, Walmart's online sales pales in comparison, but they are already have a physical presence. So if you order something from Walmart, have it shipped to your house, they are collecting the sales tax. So those are really the two big ones. And a number of the other ones also have a store in the state which would require them to collect the sales tax. And some sellers, because we were part of Streamline, had already agreed to do that. Apple is one that just they decided that they would collect on behalf of Streamline states, no matter what. So it's a patchwork, really. And, but it is, I mean, this is an issue I've been working on for years. And because my philosophy around taxes is the first thing you want to do is collect what's already owed before you look at adding new taxes or raising taxes. And so to the extent we can collect what's owed, that's good for everybody. Yeah. Congressman Peter Welsh, Vermont's lone congressman, has long touted the Main Street Fairness Act, which looks to address this issue. Any update on where that might stand at this point? What's interesting, it has faltered. It's been right at the point of passing several years and it just hasn't made it across the finish line. In some ways, this push to overturn the quill decision may push Congress to do something because what the big retailers want is they want uniform rules and they want the Marketplace Fairness Act actually exempts a lot of so-called small business, which is like 500,000 in sales, which we think is pretty big. So they would be better off if Congress had. States would be better off if they don't. Similar to with our GMO labeling law, we saw Congress take action once they realized that. So there may be a chance. I don't know. The kind of report that I got at this year's Streamline Convention was that there's, I mean, there's a couple major players in the U.S. House that have different ways that they want to do it. It's like the chairs of two different committees that kind of fight over which way they want to do it. One of them wants it to be destination-based, which is what Streamline really wants and other people want it to be source-based. So the sales tax just really doesn't work. I think one of the things about the quill decision is it goes back, I mean this is about mail order and it's well before internet sales even exist. And we have software now that can calculate down to which part of town you're in and apply the local options tax now and that did not exist. Which Amazon does, I believe. If you order in Burlington or wherever. They will charge the local option tax. The committee also discussed the Blue Ribbon Tax Commission. We did. Report this week. That's something we've heard about for a number of years. It's been sitting on a shelf, I think, collecting dust for a while. I take it out all the time. Maybe you guys do, but nobody else does. You need a good nap. There's nothing like it. So this study was conducted 2011, I believe. 2011. The report came out. It recommended a number of things. One of the recommendations was to consider taxing services along with goods and by expanding the sales tax you could lower the base rate. Has that been a recent discussion in the committee? We did talk about it this morning. Their recommendation is to expand the sales tax to services but exempt so-called business-to-business services and, I think, food and prescription drugs continue to be exempt. What that meant is we could, if we did all that, big if, you could reduce the rate from 6% to 4.5%. And a lot of us at the time that the report came out thought, you know, maybe that's worth doing if you could get down to 2% or 3%. But 4.5% wasn't enough to make it worth it. Personally, I don't think we're going to go wholesale into applying the sales tax to services. There might be a service here and there where it does make sense to do it. You can make the compelling argument. But I just don't see us moving in that direction in the way that the report recommended. I think the compliance on it would be just completely hard to enforce. It's hard to know where you're having issues with online sales and other things now. You expand it to services and, you know, the guy who might come and mow your lawn and get paid in cash and it probably opens up a whole enforcement compliance issue. There are states that do it. There are states that only have a sales tax, no income tax, for example. And they tax everything. South Dakota is one of them. And I forget if it's Oregon or Washington, it's another one. So states do it. And I guess they deal with the compliance issues. I just don't see us making that kind of change. Yeah. Just to shift the discussion a bit here, Governor Phil Scott has put out his budget and he has, says his plan is balanced without raising taxes or fees. And he's called on lawmakers to pass a budget that does not raise any taxes or fees. As the tax and fee writing committee, I'd like to get your take on whether that is really feasible as you look at the challenges with the budget this year. Well, his budget only balances if you buy into the proposal that he made around the Education Fund. And even then, I would question whether it balances because I think those proposals raise property taxes. Well, they balance. But it's not without new revenue. The new revenue is on the property tax side. So, you know, we're in a tough position in the committee, really, because we're sort of reactive. You wait for the appropriations. Yeah, we wait for the governor to make a proposal and for the appropriations committee to do its work. And we know we have a role in getting to the balanced budget at the end of the session, which is where we'll get. But I'm not sure that we know exactly what that's going to look like. But I think it's important to note that this governor, Scott, won the election. And he won fairly comfortably. And this was part of his platform. And so we're aware, you know, very aware of it in the committee and in the legislature generally. But I don't, but the Ed fund proposals, the way the budget proposal was constructed around changes in the education fund, I think are hugely problematic. And they would definitely raise property taxes. Well, they shift general fund obligations to the education fund. And there's some debate over whether it's all covered. Yeah. Well, and it would increase property taxes. It wouldn't be more than would have been if the, you know, basically you take out all of the growth in the school budgets, but then you take that money and spend it on something else. And we're sort of already beyond that point where we know school boards aren't going to be able to level fund at this point. So we've already passed our budget. Right. The savings that he's counting on. They're not there. They're certainly not there for 18. And, you know, I hear from people on taxes all the time. I've never heard anybody ask me to increase the property taxes. Of course. Of course. Do you, does the committee have some ideas on the table for revenue if you're called upon by the appropriations committee to find some money? You know, there are ideas that have been out there in previous years. And if we were looking at revenue, I suppose we would look at those kinds of proposals that are out there. But something I think is important to underscore that right now we're looking at a very uncertain world relative to the money that we get from Washington. And I feel strongly that if we have tax capacity, and maybe we have a little here and there, but not a lot. But if we have it, we need to save it for when we get, but when we find out that we're not getting as much revenue or as much money in various ways from Washington. And I think, you know, we don't have the reserves that we really should have in the state. So if we have capacity, that's really functioning more like our reserves. Yeah. So I would be very reluctant to raise revenue just to solve the budget. Okay. One of the other seems to be outstanding questions right now is the governor said no fee increases, but the legislature typically deals with fees on a three-year cycle. So every year it's a different section of state government. And I'm not sure what's up for consideration this year, but typically, you know, there are some things that need to be raised to keep up with inflation and otherwise. Have you been able to get an understanding from the administration as to whether they will consider the typical schedule? I mean, we've looked at, we had them in to talk about the fee report. I mean, they're not particularly looking for any fee increases. There's some that need to be statutorily reviewed every year. Right. And so there's going to be a bill. And the judiciary came forward with some fee changes that they would like to really just to put in practice stuff that they're already doing, but they really need to put it in statute. But that doesn't particularly raise any money. I mean, there is a bill. It just doesn't really have very much money attached to it. One of the interesting ones in the fee report was that they booked a bunch of money for a small farm fee, but then they haven't really advocated for it. So we're still trying to figure that one out. But it was really, it's been, you know, there wasn't really a fee bill that they put forward, but there's a bunch of things scattered throughout the building. And it's been my job to kind of go around and collect them and put them back together in one place. As it turns out, this would have been a light fee year. You know, every third year we have a fee bill that's smaller. Transportation and DMV must be a big year. Exactly. ANR is a big year. So this was designed to be a light year anyway. But it's particularly light. And Sam is taking the lead on sort of figuring out what needs to be done and making sure it happens. I have a bigger year next year. Before we go, I've got a couple minutes left. Representative Young, I'd like to ask you about a marijuana legalization bill that you've prepared for introduction. I understand it's not quite introduced yet. But it harkens back to last year and the regulated market idea that came from the Senate and didn't make it through the House. So can you provide a brief update on what you're seeking? It's similar to what the Senate had proposed last year, although what it does is actually has a lot more small growers. And the idea is also that it's actually regulated in the agency of agriculture. They're the ones who have the facilities to test for pesticides and microbes and stuff like that. As you know, there's another proposal that would just legalize growing a couple plants at home. The Washington, D.C. model. I think the landscape has changed with Massachusetts and Maine legalizing and kind of coming online. And I don't particularly look at this as a big revenue source, but I think it is valuable to make it safer. And people are going to be purchasing it out of state. And so I think if it's going to be happening that we should at least have some revenue to pay for some prevention, education, and treatment, I don't particularly see that it does much more than that. I think it provides a safer product in the marketplace. And there is a wholesale tax of 10 percent? The way I had it structured actually is a retail tax of 10 percent and a wholesale tax of 15 percent when it's transferred to the retailer. And that you would have the commissioner suggest a tax change on that wholesale tax yearly to try and regulate the price so that the price doesn't drop too much, but also that you can try and undercut the black market, which it is part of the point. Okay. Very good. Well, we're out of time and that's probably all the tax talk. Thank you. Viewers at home can handle. I think it's so exciting. Yes, I know. Representative Sam Young, thanks for joining me today. Thanks for having us today. And thank you for tuning in on behalf of Orca Media and Vermont PBS. We thank you for watching and we'll be back next week.