Appeal Challenges State Tax Levy On Compost
A Vermont compost producer says his organic soil additive should not be subject to the state’s 6 percent sales tax.
Karl Hammer of Montpelier has appealed a $115,000 bill the state says he owes for back taxes, interest and penalties.
Hammer and his supporters in the organic farm community say the state’s policy of taxing compost is misdirected.
They point out that other agricultural products – such as pesticides and chemical fertilizers – are exempt from the sales tax if they’re sold to farmers or consumers who use them to grow food. Rachel Schattman of Bella farm in Monkton said taxing compost hurts organic agriculture at the expensive of conventional, more chemically-intense farming.
“The possibility of taxing compost while other agricultural inputs including chemical fertilizers are not taxed feels very much like conventional agriculture is being incentivized while organic agriculture is being penalized,” she said.
Schattman spoke outside the offices of the state Tax Department where Hammer had gone to appeal his bill.
The state contends the Montpelier-based compost producer owes $86,600 in taxes, $10,400 in interest and another $18,400 in penalties.
Hammer, the president of Vermont Compost Company, said he didn’t know his compost sales were taxable until he faced a tax department audit.
“What was happening was the tax department was auditing fairly large reported revenues and small sales tax revenue,” he said. “And that’s how they discovered, what was not a secret, that we were not charging sales tax for compost.”
The tax issue is being examined by the Legislature. Rep. Will Stevens, I-Shoreham, the ranking member of the Agriculture Committee, said the law is inconsistent. Forest products, for example, are not subject to the sales tax along their production chain, he said.
“For another example, fertilizers, seeds and pesticides used by Vermont farmers, used for the production of food, are not taxable,” he said. “It does not make policy sense tax-wise to treat compost different than a Vermont tree or a bag of fertilizer.”
Tax Commissioner Mary Peterson said she cannot comment on individual tax appeals. She said the department has not applied a new policy or interpreted the law differently when it comes to compost sales.
As for Karl Hammer, if his appeal is unsuccessful he can turn to his customers for help as the law allows him to try to collect from the people he sold his product to. Will Stevens – who buys Hammer’s compost for his organic farm in Shoreham – said he probably owes about $250 for his share of Hammer’s uncollected taxes.