Vt. agriculture businesses face audits, big tax bills

BURLINGTON, Vt. — Chris Conant didn't know how mad he could get until he was audited by the Vermont Department of Taxes.

The co-owner of Claussen's Florist & Greenhouse in Colchester said auditors were in his business for the months between April and July 2014 — his busiest season — going over his records.

"I'm not a rude person, I always make sure to be very cordial to people I'm dealing with, but at one point I got so frustrated because of inconsistent information that for the first time in my life I walked away from them and said, 'I'm done, we're done having this conversation because obviously you're challenging my integrity,'" Conant said. "You're calling me a liar."

The issue that brought Conant to the boiling point was the sales and use tax. Gregg Mousley, deputy commissioner of the tax department, explained the difference between the two types of tax and how they are collected.

Take flowers, for example, something Conant sells. Flowers are sold retail, sales tax is collected, and therefore flowers are exempt from use tax. The sponge that holds the flowers, the plastic wrap that wraps them, the wires and ribbons that adorn them and hold them together, are not being resold and are therefore subject to use tax.

"It's a question of whether the item is going to be resold or if it's being consumed," Mousley said.

If it's resold, sales tax applies. If it's consumed, use tax applies. Sounds simple, but in Conant's case the distinction took on almost Orwellian overtones, leaving Conant frustrated and perplexed.

"They started digging out invoices and looking at products we use and all of a sudden the language of use tax came up," Conant said.

Conant learned he would be charged use tax for the soil to grow his plants.

"I don't understand," Conant said. "How do you get a use tax on soil you grow your plants in when you can't grow a plant without the soil and the plant is exempt?"

Conant told the auditors he had never paid use tax on his soil before, but was told that based on the criteria set forth in the state statute, he should have been.

"Plants are exempt, not the soil they're grow in, not the media they're grown in," Conant said.

Conant asked the auditors if they thought that "when our forefathers decided to develop this criteria in Montpelier that plants were tax exempt, do you think they were thinking everything at the soil level down was taxable?"

Not our problem, came the answer, according to Conant. The plants are exempt, the soil isn't.

A very fine line

Deputy Commissioner Gregg Mousley understands Chris Conant's frustration.

"It comes down to while the use tax very generally might make sense to people, how it's interpreted involves a very fine line regarding what's eligible and what's not," Mousley said. "It's not always clear and it's complex and difficult for business owners to keep track of all the law changes."

As Conant's audit progressed, and the use tax he owed began to pile up, he realized the seriousness of the problem he faced.

Conant's total bill for use and sales taxes owed, once his plastic wrap, tags, pots, packs, boxes and flats were added to the tally, was nearly $150,000. As of Dec. 1, he had gotten that bill down to $46,000, "basically through the diligence of explaining to them about our industry," Conant said.

"I don't want this to be a bitch session because I'll do whatever I'm told, but up to this point there's been nothing laid out on the table for us to be told our obligation for this use tax," he said.

"Virtually everything I touch is being taxed, except the plant," Conant added.

Tom Jennings at Green Mountain Florist Supply in South Burlington is two years into his audit and is still waiting for the tax department to get back to him regarding his counter-offer to the tax bill he was given.

"They basically came in here looking for any scraps they could find," Jennings said. "They came at me with packaging, that what I sold was not floral-related, that it was packaging."

That non-exempt packaging included vases. Jennings was handed a $200,000 bill. He has made a counter-offer based on what he felt was fair that is considerably less than $200,000. That offer was made right after Christmas. Jennings said he is sitting on "pins and needles" waiting for the state to respond.

"My biggest issue, I told them all along, if you really want to work with businesses, instead of sending out auditors, send out advisors," Jennings said. "Knock on the door and ask, 'Would you be interested in knowing if you're compliant or not?' Come on in and have a meeting. But that's not how this thing flew."

Retailers hopeful about sales tax bill

Mousley said the tax department is trying to reach out, mostly through 15 fact sheets available on its websites. The tax department is also doing what it can to meet with business owners face to face.

"We are getting to some industry groups," Mousley said. "We go out to the Better Business Bureau booth at certain trade shows. We are doing our best. We only have two positions that do that and they can only reach so far."

There are currently more than 500 active appeals like Jennings' appeal before the tax department, Mousley said. Predicting how long those appeals will take is impossible because each one is unique. Often taxpayers have to produce additional documents as part of the appeal process.

Appeals can take a few weeks, or a few years, Mousley said.

Don't clear the snow

Mousley described the difficulty in making calculations that presumably go into determining whether a piece of equipment is tax exempt.

"It's really hard to prove," Mousley said. "In many cases the tax department has just assumed that certain pieces of equipment are not tax exempt. You would have to have a log to prove you use it 96 percent of the time on agricultural purposes. That's where it gets really hard. If you push the snow out of your driveway you're done."

The Farm Bureau got involved in the sales and use tax debate after equipment dealers became the focus of audits.

"It's on our list of priority issues to straighten out because it's a mess and ultimately the people who will pay the bill for shrinking of the farm exemption will be farmers," said Clark Hinsdale, a Charlotte dairy farmer and longtime president of the Farm Bureau.

Meanwhile, back at Claussen's Greenhouse, Chris Conant waits for his grievance to be processed by the tax department. He tried to settle for just over $20,000 but that didn't fly. He thinks there could be 100 businesses ahead of him in the queue and figures it could be more than a year before he gets "closure."

"I'm frustrated," Conant said. "Every bill that goes through my hands, based on what's being challenged, I'm accounting for it in preparation for paying use tax. I have to. If I don't they can randomly come in and say, 'How come you're not paying use tax on this?'"

"I'm scared stiff of how much more I'll have to pay, I really am," he said.