MONTPELIER -- One of Vermont’s long-simmering disputes over what’s exempt -- or not -- from the state’s 6 percent sales tax came to a boil Monday, as the head of a major compost processor appealed a three-year back tax bill of more than $115,000.
Karl Hammer, owner of Vermont Compost Co., argued that the compost he makes from restaurant scraps and other wastes and sells to organic farmers and gardeners should be covered by the state law that exempts many agricultural products from sales tax.
Hammer has run his business on the outskirts of Montpelier since 1994. But in 2007 the state passed a law that included a list of agricultural products exempt from the tax -- and compost wasn’t on it.
"I’m embarrassed to admit that I didn’t know it at the time," Hammer said at a news conference with organic farming advocates including Rep. Will Stevens, a Shoreham independent who is ranking member of the House Agriculture Committee.
They argued that as the law currently stands, a Vermont farmer using conventional fertilizers enjoys a sales tax exemption on that fertilizer. If the farmer switches to compost, it’s subject to a tax.
"It feels very much like conventional agriculture is being incentivized, while organic agriculture is being penalized," said Rachel Schattman, whose Bella Farm grows organic vegetables in Monkton.
Stevens said when lawmakers return in January, they’ll be studying legislation that would exempt compost from the sales tax.
After what Hammer said was a yearlong audit process, the tax department hit him with the more than $115,000 bill for sales taxes he should have collected from customers for 2009, 2010 and 2010. He said he has not yet received a bill for 2012 or 2013.
Both Hammer and Stevens added that taxing compost raises at least two issues. One is double-taxation when compost is used to grow ornamental plants which are subject to the sales tax when they’re sold at retail. The other is as a hidden tax when the compost is used to grow vegetables, a violation of the longstanding state policy that food is not taxed, they said.
Tax Commissioner Mary Peterson said she could not comment on an individual taxpayer’s case. She said her department’s job is to implement laws passed by the Legislature.
"We just try to apply the law as it’s written, try to keep the playing field fair for everyone out there," Peterson said.