by Viola Gad August 12, 2013 vtdigger.org The owner of Vermont Compost Company in Montpelier was surprised when he received a bill for $100,000 in unpaid sales taxes a year ago.
Vermont Compost Co. owner Karl Hammer held a news conference Monday at the state Department of Taxes. Hammer believes compost products should be exempt from state sales tax. Photo by Viola Gad/VTDigger
Monday, Karl Hammer, president of VCC, appealed the tax audit decision with a letter delivered in person at the state Department of Taxes. Members of the farming industry and a state representative joined Hammer, citing an inconsistency in taxing agricultural products during a brief news conference in front of the tax department.
‘It does not make policy sense tax-wise, to treat compost differently than a Vermont tree or a bag of fertilizer,’said Rep. Will Stevens, I-Shoreham.
This spring, Vermont Compost’s 208 commercial customers received letters in which Hammer explained that the company was being audited and that it might have to pay tax on sales made in 2009, 2010 and 2011.
Many of his customers offered to pay the 6 percent tax retroactively, Hammer said, but it is VCC’s responsibility in the end.
The invoice from the Department of Taxes is about $115,000, while the annual gross revenue of the company is around $1.5 million, Hammer said.
If Hammer loses the appeal, he could go to court, but the state wins 95 percent of tax appeals, he said.
‘We’re in business and hope to survive in business,’said Hammer after he delivered the appeal letter. ‘But we haven’t even talked about 2012, 2013 (unpaid taxes) yet.’
There is no date set for payment of the invoice.
Generally speaking, the tax department will work with companies to set up a payment plan if it doesn’t have the money, said Mary Peterson, commissioner of the Department of Taxes.
The department doesn’t discuss specific cases and would not indicate whether other compost companies were audited for missed sales taxes. Companies are responsible for their taxes going three years back, Peterson said.
The Department of Taxes cites a change of statute in 2007 that ruled that compost is not on the list of sales tax exemptions. According to Hammer, the law was put into effect in 2009.
‘I’m certainly aware of it now,’Hammer said. ‘There’s an awful lot of government, and it’s hard to keep track of all of it even if you are sophisticated enough and have the resources.’
VCC started charging sale tax to growers who are not able to present an exempt certificate after it received the audit notification in August of last year, Hammer said. The company has also taken written statements from growers who think it’s immoral to have a sales tax on compost, he said.
Up until Hammer received the audit notification, he was under the impression that farmers who use 96 percent of their compost purchase for food production are exempt from paying sales tax.
‘We have always said to people, ‘If you’re growing food, you don’t have to pay sales tax,’‘he said.
Representatives from the farming industry have trouble understanding why compost is charged sales tax while other fertilizers used for growing food are not.
‘The possibility of taxing compost while other agricultural inputs, including chemical fertilizer, are not taxed feels very much like conventional agriculture is being incentivized, whiled organic agriculture is being penalized,’said Rachel Schattman from Bella Farm, an organic certified farm that buys 20 yards of compost and potting soil from Vermont Compost Co. each year.
Legislators and organic farmers are keen to change the current statute. Stevens is currently working on a bill, H.542, which was brought back for policy work. (http://www.leg.state.vt.us/docs/2014/bills/Intro/H-542.pdf). The bill aims to make compost a non-taxable commodity for food growers.
In addition to being a legislator, Stevens is a farmer and owner of the 88-acre Golden Russet Farms. Each year, he buys 400 yards of compost products from Hammer and he will have to pay him a total of $600 in sales tax for the 2009-2011 period.
‘It will be one of my two priorities to get this bill past early next session,’Stevens said.