Wheels for Warmth is a great thing. It turns an unutilized resource (winter tires sitting in garages) into money for emergency home heating assistance. It also gives many a Vermonter a chance to buy perfectly good snows on the cheap.
Win-win, and a testament to Phil Scott’s community-mindedness.
But when you run a charitable enterprise, no matter how noble, you have to play by the rules.
Charities that sell stuff to raise money are supposed to collect and pay sales tax. And as far as I can tell, Wheels for Warmth doesn’t do so.
An inquiry to the Tax Department produced the following information courtesy of Kirby Keeton,
Tax Policy Analyst Interim General Counsel for the Department.
The state “cannot disclose tax information related to a specific taxpayer,” Keeton wrote. However, it can say whether an entity is registered to collect and pay sales tax.
Wheels for Warmth is not so registered.
Here’s the legal background, per Keeton:
Sales of tangible personal property by a 501(c)(3) organization are exempt from sales and use tax if the organization’s taxable sales in the prior year did not exceed $20,000.00. 32 V.S.A. § 9743(C)(3); Sales and Use Regulations, Reg. § 1.9743(B)(2). Charges for amusements and sales that would be exempt due to a separate Vermont sales tax exemption do not count toward the $20,000.00 threshold.
If Wheels for Warmth’s tire sale this past weekend netted more than $20K, it should pay sales tax. If last year’s sale netted more than $20K, if would be required to pay sales tax for last year and this year.
Wheels for Warmth claims to have raised more than $300,000 in its first eleven years. That’s an average of $27,500 per year, comfortably above the legal threshold. (Presumably the revenue has grown since the early years, and is substantially north of $27K by now.)
An entity that qualifies for exempt status under 32 V.S.A. § 9743(3) is required to register to collect and remit sales tax even though its sales are not subject to sales and use tax. Sales and Use Tax Regulations, Reg. § 1.9707-2(A).
So, even if WFW revenue consistently fell below $20,000 per year, it would still be required to register with the Tax Department, which it has not done.
There is no legal penalty for failing to register. However:
The Department may audit an organization to determine whether the $20,000.00 threshold was exceeded. If an audit reveals that tax should have been collected, the business can be assessed for the amount of tax that should have been collected and remitted, as well as interest and penalties for failing to file a return and remit tax.
There is no doubt that Wheels for Warmth has failed to register with the Tax Department. It’s likely that WFW should have collected and paid tax on tire sales, and has not done so.
I don’t want to make too big a deal about this. It’s not a scandal. I’m not calling for WFW to be shut down or Phil Scott and Dick Wobby (Scott’s consigliere and his partner in WFW) to be thrown in the clink.
I do say this: Its evident failure to abide by state law points to sloppy management. Which does not reflect well on Phil Scott’s ability to be chief executive of our state.
One more detail along the lines of “sloppy management.” Wheels for Warmth began operations in 2005. But not until the spring of 2013 did it formally register as a corporation with the Secretary of State’s office.
I imagine that the charity grew from very small beginnings, and only recently did it occur to organizers that the arrangement should be formalized. But again, it seems like the sort of thing a competent administrator would have done much earlier on.
I contacted Phil Scott’s office and his campaign on Tuesday morning to get an explanation or reaction. I tried again Tuesday afternoon and Wednesday. They did not return my messages. If I hear from them, I will post their response.