From The Washington Post:
MONTPELIER, Vt. — Dentist Frank Illuzzi was stunned when Vermont tax collectors began demanding a 6 percent sales tax on the value of toothbrushes and floss he hands out to patients. Senior care facility operator Jay Grimes was similarly surprised to get a $350,000 bill slapping a 9 percent restaurant tax on the meals served to residents in the dining room. Landscaper Richard “Buckwheat” Lowe got $18,000 in bills taxing him for the first time ever on the mulch he sells.
Vermont is among a handful of cash-strapped states getting more aggressive about collecting every tax owed — hiring more collectors, hounding scofflaws and exploiting corners of their tax laws that haven’t been enforced in years. It’s an effort to avoid what politicians from both parties are dead set against: raising taxes.
“You don’t want to raise taxes until you’re very sure the taxes that people are supposed to pay are being paid,” said Rep. Janet Ancel, chairwoman of Vermont’s House Ways and Means Committee.
Under adamant no-new-tax Democratic Gov. Peter Shumlin, Vermont has added about 10 new tax compliance auditors and has stepped up efforts to scour records in rural areas, and add greater scrutiny to businesses ranging from auctioneers to Internet-based cloud-computing services.
Much more at the link.
The part which caught your Editor’s eye was he sentence about the dentist being required to pay a 6% sales tax on the value of toothbrushes and floss he hands out; I had my teeth cleaned a couple of weeks ago, and, as always, the dentist’s office gives me a “care package” of a new toothbrush, a small tube of Crest toothpaste, and floss. I suppose that dentists’ offices around the country do that.
It does not bother me that states are seeking greater compliance with existing tax laws, but I have to wonder about the instance with the landscaper: what means did the state use to inform him (and presumably, his accountant) that the laws or regulations had been changed? And will the $18,000 unexpected tax bill put him out of business?
The article continues to note that some states have had more success than others with the emphasis on collecting back taxes.
The article noted that Mary Peterson, Vermont’s Tax Commissioner, acknowledged that the agency was working on better communication, but that it was the responsibility of the business owners to keep up with the tax laws. Given that sales tax is always passed on to the consumer, there was never any incentive for the landscaper not to charge the sales tax if he knew about it, and it would have been against the law for him to charge the sales tax on an item he believed not to be taxable. In the end, though, the tax collector always wins.
However, what the article left unsaid was at least as important as what was printed: there is a huge, underground cash economy in this country, an economy in which goods and services are provided off the books, cash-only, and business, personal income and sales taxes are not paid. There will always be some of that, because people will always want to avoid taxes where they can, but the Editor wonders just how much of this is motivated by the inherent inequality of the tax system in the first place. Mr Lowe, the landscaper, was surprised to discover that the material he thought was not subject to the sales tax actually was, but that is due, in significant part, to the fact that some items are taxed and others are not; if everything was taxed equally, there would be no confusion.
This is a huge problem with our tax system, from top to bottom. Politicians set income tax rates, and then they put in different rates for different people, based on their productivity, and then try to compensate for taxing the top producers more by having an absolutely dizzying array of exemptions, deductions, credits and lower rates for particular businesses and forms of income. Would it be any wonder that, for example, a hard-working roofer might consider doing a few jobs for cash, off the books, when he can see other people who don’t work as hard — or at all — paying far less in taxes, if any taxes at all?