Every year, the Vermont legislature holds hearings on the "Miscellaneous Tax Bill", a disconcertingly named piece of legislation that overhauls the state’s tax code.  The document undergoes weeks of hearings and constant revisions by the House Ways and Means Committee until the final bill is released and considered by the full House shortly after.
The worst part is that draft versions are not put into the public eye until the final bill is ready to go.  If you call or show up to the hearings they will kindly give you the most up to date version, but how anyone knows what punitive tax measures are in it requires quite a bit of proactive persistence.  For the sake of transparency, I called and got the most recent version (and in fairness, other states like New York and New Jersey have a significantly less transparent budget process).
Vermont is expecting $1 billion in overspending over the next four years and the draft Miscellaneous Tax Bill reflects just that, with tax hikes galore.  Amongst the worst parts:
  • Tax hike on consumers of digital goods including music, movies, books, and ringtones – $1 million.
  • Sets the current death tax exemption at $2 million, lowered from $3.5 million – $3 million tax hike.
  • Repeals select tax credits – a tax increase described only as "Positive".
  • Then SPENDS at least $1.47 million through 2011 to hire new staffers at the Department of Taxation just to make sure they can collect these new taxes.
The bill also requires that anyone hired by the government be in good standing with their state taxes – a lesson clearly learned from President Obama’s Cabinet appointees.
Below is ATR’s joint letter with the Property Rights Alliance and Media Freedom Project opposing a digital products tax in Vermont.  Click here for a PDF version of the letter.
Vermont House Committee on Ways and Means
RE: Miscellaneous Tax Bill – Download Sales Tax
Dear Members of the Committee,
We write to oppose extending the Vermont sales tax onto digital products in the Miscellaneous Tax Bill. Taxing digital goods, such as music, movies, books, and ringtones will dramatically raise taxes on businesses and consumers of digital products during an economic downturn when families are already cutting back on purchases. Taxing downloads will also put Vermont at a competitive disadvantage with other states, encourage online black-markets, and hamper a growing free-market.
Taxing digital products puts Vermont at a competitive disadvantage with other states that are working to ensure digital goods remain untaxed. This tax will hit the state’s consumers and small businesses the hardest. As such, some states are rightly considering legislation to specifically exempt digital products from the sales tax and drive technology sector companies to their states. In fact, North Dakota passed a bill to exempt digital goods earlier this month.
Additionally, taxing consumers that download their music, movies, and books will encourage illegal downloading.  At a time when legitimate providers of these digital goods are working hard to establish an online market, taxing digital goods encourages consumers to turn to illegally pirated copies of music, movies, and books that are easily obtainable online. Taxing digital downloads would essentially incentivize online piracy, reversing a hard fought trend toward legal downloads.
During this recession, the free marketplace of the internet can provide products that cost less in taxes to families with smaller budgets. Imposing a tax on users of one of the most important and thriving areas of our economy will only stifle commerce and harm consumers in Vermont.
For these reasons, we urge you to oppose subjecting digital goods to Vermont’s sales tax. Tax increases during this economic downturn will only further depress the state’s economy. If you have any questions, please contact Kelly Cobb, state affairs manager, at (202) 785-0266.
Grover Norquist
Americans for Tax Reform
Kelsey Zahourek
Executive Director
Property Rights Alliance
Derek Hunter
Executive Director
Media Freedom Project