Barrup protests $400,000 sales tax bill
copyright the Chronicle October 15, 2014
by Joseph Gresser
DERBY — Rod Barrup is not happy with the government of what he calls “the first communist state in the U.S.” In particular he is angry about a $400,000 bill from the Vermont Department of Taxes.
Mr. Barrup’s business, Green Mountain Mulch, has been operating for close to 40 years and ships five million bags of bark mulch and another 3,000 trailers full every year.
In a recent interview, Mr. Barrup said he was told by state tax authorities that his mulch was an agricultural product and that he did not have to collect sales taxes on it. The tax department even sent him a certificate in 2007 saying that his mulch was exempt from sales tax.
So it was a big and very unpleasant surprise when he first got a letter three years ago from the tax department saying he owed the state for uncollected sales taxes.
Mr. Barrup protested, and the matter remains unresolved.
“They keep sending us a bill for $400,000,” he said. “At my age it makes you want to shut the door and tell everybody to go home.”
“I lived here over 80 years and I never had to deal with such a thing,” he said.
Mr. Barrup said he reminded the people at the tax department about their previous ruling and his certificate. He said they told him they had changed the rules governing what is and is not taxable.
When he protested that the department should have to inform someone if they change a tax rule that applies to them, officials from the Department of Taxes said they are not obliged to do that, Mr. Barrup said.
In a phone interview Tuesday, Commissioner Mary Peterson of the Department of Taxes called what Mr. Barrup said he was sent in 2007 “a get-out-of-jail letter.” But according to Mr. Barrup, it hasn’t worked for him.
Ms. Peterson made clear that she could not discuss an individual taxpayer’s case, but said she would be happy to discuss general policy.
“We start with the premise that we have a self-reporting system, mostly people figure out their taxes and pay what they owe,” she said.
Ms. Peterson said there are three general categories of information taxpayers can use to figure out their tax obligations.
“We have the law, we have regulations, which have the force of law, and we have technical bulletins that provide general guidance but don’t have the force of law,” she said.
Those who want to be sure of their status can ask for a letter of ruling, Ms. Peterson said. That’s the get-out-of-jail card, but it’s also the kind of letter Mr. Barrup said he got from the Department of Taxes.
When he was asked for a look at the letter, Mr. Barrup explained it was destroyed in a fire that wiped out his office and production facilities several years ago.
“There wasn’t a paper clip left,” he said of the blaze.
That shouldn’t be a problem, though. Ms. Peterson said her department keeps copies of all the letters of rulings it issues.
Mr. Barrup said he does not object to collecting the sales tax.
“We obey the law,” he said.
He just thinks the state should have told him about the changing interpretation of the law before it came down on his business for such a sizeable amount.
“I always say if I’m right I’ll fight ’til hell freezes. If I’m wrong I’ll shut my mouth and pay my dues,” Mr. Barrup said.
So far, he said, he has not even been able to start a conversation about the problem.
“They won’t even speak to us,” he said.
Ms. Peterson said she does speak with taxpayers. When a complaint comes up she looks at the file to see what is going on.
“One slightly funky thing is that I’m the person that a final appeal comes to,” she said. “That means I have to have other people in the room when I do speak with the taxpayer.”
When she came to the office three years ago, Ms. Peterson said, she thought there was not enough in the way of outreach and education efforts from her department.
Since then the Department of Taxes has started a newsletter, created an advisory board, and started to have a presence on social media sites on the Internet, she said.
Diane Bothfeld, the deputy secretary for food and markets at the state Agency of Agriculture, said on Tuesday that she has seen a difference in the way Ms. Peterson’s department acts.
“They are trying to be at places where farmers will be, like the Vermont Farm Show,” Ms. Bothfeld said.
There, tax department officials are trying to help farmers figure out which of their purchases are tax exempt and which are not.
That’s a big deal, according to Clark Hinsdale, president of the Vermont Farm Bureau. He said many of the state’s farmers are having problems with the tax department.
Their issue is not the same as Mr. Barrup’s, although Mr. Hinsdale said he knows of another Vermont mulch producer who is in the same boat. Most farmers, though, are confused about when they must pay sale tax on equipment and supplies they buy and when they are exempt.
There used to be a list of tax-exempt products, Mr. Hinsdale said, but that kind of information is no longer provided by the state.
Instead of certain categories of equipment automatically being exempt, the new rule is based on the use to which the equipment will be put. The rule of thumb is that a tractor must be engaged in agricultural pursuits 96 percent of the time for it to be tax exempt.
A field tractor that spends too much time at the Orleans County Fair could cost its owner an additional 6 percent, if the tax authorities find out about it.
Ms. Bothfeld said tax department officials are trying to help farmers and equipment dealers figure this out by providing them with what she called a “decision tree.” By following the tree, she said, a farmer can determine whether his or her purchase will qualify for the agricultural exemption.
There is a language problem, she acknowledged. When a farmer talks about cleaning out the barn, it doesn’t involve mopping the place, Ms. Bothfeld pointed out. That doesn’t always register with tax department officials.
Mr. Hinsdale said the situation confuses both farmers and equipment dealers.
“The equipment dealers aren’t our enemies,” he said. “They’re our partners.”
Sometimes the lack of clarity in the regulations is enough that a farmer will find one dealer willing to sell a piece of equipment without charging tax, while another will insist the item is taxable, Mr. Hinsdale said.
He gave the example of a skid steer, a small mobile piece of equipment with lift arms that can do a variety of chores. Some dealers say they have been told by tax officials that skid steers are always taxable, others have heard differently, Mr. Hinsdale said.
With this kind of confusion some farmers are going to the local dealer to look at equipment and then ordering it from the Internet, he said.
He also worries that the tax laws are not keeping up with new developments in farming and the work being done by entrepreneurs turning out value-added products.
“We need to be ladies and gentlemen and to provide bright lines” in defining tax policy, he said.
The state needs to help farmers prosper, Mr. Hinsdale said. The state’s strong farming community “is the reason Vermont looks like Vermont and New Hampshire looks like New Hampshire,” he said.
Agricultural exemptions are not as broad as people think, Ms. Peterson said without apology. She said a broad tax system can have lower rates and spread the burden more equally.
In any event, she said, it is unlikely that the Legislature is going to make major changes in the tax code. The last time an attempt was made to clarify the sales tax, Ms. Peterson recalled, a single exemption was removed and a new one created.
Some legislators are concerned, not so much about the code, as about the way it is being applied.
State Senator John Rodgers buttonholed Governor Peter Shumlin before the ribbon cutting at the Louis Garneau plant in August. The Glover Democrat complained about problems his constituents, including Mr. Barrup, have had with the Tax Department loudly enough to be overheard by people standing in the general vicinity, including members of the press.
Senator Bobby Starr of North Troy also got involved in the conversation.
Asked about the exchange later, Mr. Rodgers said the Governor stood up for his appointees. He said that if he is re-elected he may possibly “jump ship,” leaving one of his two committees — Institutions and Natural Resources and Energy — and taking a seat on the Finance Committee, which oversees the tax department.
Mr. Rodgers said he is not eager to change assignments and could, instead, sponsor a tax bill. In that case he would be invited to sit with the committee to question Ms. Peterson.
Many small businesses in the Northeast Kingdom are being hit by what appears to be overzealous enforcement of tax laws, Mr. Rodgers said.
He said he has tried to speak with department officials, but likened the result to conversing with a brick wall.
Mr. Rodgers said he understands the state may find people out of compliance with tax laws, but suggested that walloping people with $400,000 assessments may not be the right way to go about insuring compliance.
He suggested it might be better to start with a smaller fine, with the understanding that further noncompliance will result in more serious penalties.
For her part, Ms. Peterson said her agency tries to work with those who owe taxes to the state, putting together payment plans or making other accommodations.
“We never want to put anyone out of business,” she said.
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