Taxes

The Senate Finance Committee only had one week to work on a critical bill which, as passed by the House, would raise property taxes by 15-18%, create a cloud tax (including software as a service, infrastructure as a service, and platform as a service), and add a 1.5% surcharge to short term rentals. The Chair of the committee, Ann Cummings (D-Washington) continues to be a champion for balance and well-informed policymaking this session and is working to get the property tax increase below 13%. She is taking a measured approach to the issue, with an understanding that raising other taxes to achieve this would also have implications.

One measure under discussion is leveraging the influx of general fund revenue from the solar eclipse to buy down $25 million. An additional proposal is borrowing $20 million from our reserves. However, the Treasurer is scheduled to testify later today that using reserve funds would pose a risk to Vermont’s credit rating. He previously testified in the House Ways in Means Committee on these concerns. The Senate Finance Committee is also considering a handful of sales taxes on items such as candy, sugar-sweetened beverages, clothing over $150, and vaping tobacco. Separately, following business testimony on the anticipated cost and complexity of a widespread cloud tax, the committee appears ready to scale back the House proposal to a tax on software as a service. The committee is expected to work late into this evening to ensure they vote the bill out.

Earlier this week, the committee considered transitioning from the proposed 1.5% short-term rental tax to a .5% rooms tax increase. The Vermont Chamber and members of the lodging community voiced concerns that another tax increase on the lodging industry could have far-reaching ramifications for the visitor economy. Kim Donahue, Owner of the Inn at the Round Barn Farm, testified that for every dollar spent at her business, visitors spend another $4 at neighboring businesses. These figures are particularly notable at scale when even a slight increase in taxation could redirect major events like wedding spending to neighboring states, jeopardizing Vermont’s competitiveness.

Amid a $200 million increase in education spending, instead of making meaningful reform with cost containment measures, the House Ways and Means Committee has advanced legislation that includes double-digit property tax increases and adds more expenses for businesses. To pay for an increased property tax credit, the non-homestead tax would increase to 18%, 3% higher than the homestead rate. A cloud tax would also be implemented, including software as a service, platform as a service, and infrastructure as a service. Additionally, the bill proposes a $200,000 “Commission on the Future of Public Education” that would take 18 months to further study and make recommendations on how to improve the system. This means that rate increases will not be addressed this year and Vermonters could face another high increase again next year.

In written testimony, the Commissioner of the Tax Department stated, “The proposal to increase property tax credits for FY25 is not a reduction in total property taxes, but a cost shift that renters and businesses will pay. This is a puzzling approach when you consider the affordability crisis renters and employers currently confront.” Sending the issue to yet another study would not address the immediate needs of Vermonters. Meanwhile, in addition to property tax increases, the House has already passed $125 million in tax increases earlier this session.

The question remains, how will the $230 million education fund deficit that is slated to increase property taxes by 18% be addressed? The House has already passed $125 million in tax increases, in addition to the $100 million payroll tax passed last year, but none are set to alleviate the property tax burden and will only further limit the taxing capacity of Vermonters and businesses.

The House Ways and Means Committee is considering a $20 million “cloud tax” on internet-based services and a potential 3% short-term rental surcharge related to the yield bill, which determines Vermont’s statewide property tax rate. The bill’s original scope has been scaled back, however, an increase in the non-homestead rate to 18.57% seems likely to remain. This shift would burden non-homestead payers, including businesses, with an additional $25 million in taxes to subsidize the property tax credit for homeowners.

The Senate Finance Committee began its review of the $125 million in tax increases and $6 million in increased fees passed by the House. During the run-through with Legislative Council and the Joint Fiscal Office, they raised important questions on who would be impacted and how these proposals would make Vermont compare with other states. The Chair, Sen. Ann Cummings (D-Washington), made it clear that they will welcome diverse testimony into the committee in the weeks ahead, including businesses.

The tax proposals include an increase in the Global Intangible Low Tax Income and Foreign Derived Intangible Income taxes, raising the top marginal tax rate of corporate income tax, creating a new personal income tax bracket of 11.75% starting at $500,000 of income, and a property transfer tax increase. The Vermont Chamber will continue to advocate for action that corrects systems that are not working instead of increasing taxation on residents and businesses. In doing so, we can secure Vermont’s future as a vibrant and welcoming place for all, today and tomorrow.

Tax increases topping $125 million hit the House floor this week amid ongoing tension on increased state spending in the absence of pandemic-era federal funding. Despite the significant new proposed revenue for the state, none of it would alleviate the $230 million education fund deficit that is slated to increase property taxes by 18%. While the bills housing these taxes all passed, there was notable vocal dissent from legislators on the floor about how the money would be allocated and the long-term impact on the Vermont economy.

As noted by Rep. Scott Beck (R-St. Johnsbury): “In the last 10 years, personal income tax receipts in the state of Vermont have grown 54%, sales tax receipts have grown 65% and property taxes have increased by 53%. Corporate income tax has nearly tripled in the last 10 years.”

Tax increases passed by the House include:

• $15.3 million – Increase in the Global Intangible Low Tax Income (GILTI) and Foreign Derived Intangible Income (FDII) taxes to increase the amount of revenue from foreign corporations doing business in Vermont. Giving Vermont the highest GILTI and FDII tax rates in the country.
• $17.7 million – Increase in the top marginal tax rate of corporate income tax from 8.5% to 10% giving Vermont the highest corporate tax rate in the country.
• $74.9 million – New personal income tax bracket of 11.75% starting at $500,000 of income per tax flier, including.
• $17.5 million – Property transfer tax increase from 1.25% to 3.25% for transfer values greater than $750,000. This tripling of costs will likely harm the ability to attract new and scaling employers in purchasing industrial space for expansion.

We know the House isn’t done there. As the focus now shifts to the education fund, we are expecting to see taxes proposed regarding cloud internet services and software as a service. Legislators need to hear from you about your concerns. Please contact your Representatives and Senators.

Just over three months before the $100 million payroll tax is set to start, the House Ways and Means Committee has passed an additional $125 million in new tax increases. None of these tax increases are slated to go into Vermont’s education fund deficit, which means that the additional $230 million that is projected to be needed for the education fund will be accounted for in double-digit increases to property taxes, a possible new cloud tax, and additional options.

Tax increases passed by the House Ways and Means Committee include:

• $15.3 million – Increase in the Global Intangible Low Tax Income (GILTI) and Foreign Derived Intangible Income (FDII) taxes to increase the amount of revenue from foreign corporations doing business in Vermont
• $17.7 million – Increase in the top marginal tax rate of corporate income tax from 8.5% to 10%
• $74.9 million – New personal income tax bracket of 11.75% starting at $500,000 of income
• $17.5 million – Property transfer tax increase from 1.25% to 3.25% for transfer values greater than $600,000

Notably, these changes were voted out swiftly without the robust testimony and due diligence normally afforded for major policy changes, leading to speculation that this was strategic to gain approval amid the Friday deadline to pass these bills. The Vermont Chamber raised concerns about these new taxes and the lack of thoroughness in their review with both the committee and the Speaker of the House.

The vote count for the bills containing this breathtaking spending in the committee was split on party lines. If this is any indication of what is to come when these proposals hit the House floor, it will be up to the Senate to once again make choices that align with the fiscal reality of Vermont, and an already highly taxed population.

Legislators need to hear from you about your concerns. Please contact your Representatives before these proposals are considered by the full House next week and help them understand the collective impacts they will have on Vermont’s economy. 

In the wake of recent turmoil sparked by the anticipated 20% rise in property taxes, the urgent need for innovative cost-containment measures has become increasingly important. The Senate expedited the passage of a bill that allows school boards to delay budget votes and replace the 5% property tax increase cap with a discount system. However, top lawmakers have acknowledged that these measures are only temporary fixes and a broader solution is needed to address the issue comprehensively this session.

Despite statewide affordability concerns, discussions in the tax committees have continued on other potential tax increases including:

• A tax on the personal income of a tax filer (single or filing jointly) earning over $500,000
• A tax on unrealized personal gains
• A tax on the gross sales of streaming services
• A tax increase on the USF fees in telecommunication bills

There was movement this week on how to rapidly address the looming 20% property tax increases expected this year. A House Ways and Means Committee bill includes a repeal of the 5% cap set on tax rate increases, a measure that the Vermont Chamber and other business organizations asked legislators to take action on. This will take the burden off of non-residential taxpayers like renters and businesses to make up the difference between the 5% cap and full increase in spending. While short-term solutions to soften the projected $250 million statewide school spending hikes are the present focus of the taxing committees, the even greater concern is how they will address the long-term implications of an education fund that does not meet the needs of a school system with dwindling enrollment. Specifically, the next step outlined by legislators is considering new revenue sources for the education fund.

Taxes that have been discussed this session that may be on the table for this discussion include a “cloud tax” on software as a service (SaaS), Platform as a Service (PaaS), and Infrastructure as a Service (IaaS). Whether as a response the the unsustainable increase in school spending or as a more general proposal, it is one possibility that is likely to gain traction in the House again this session. Nearly all Vermont businesses that use cloud-based services would see considerable cost increases. The Vermont Chamber will be working to minimize the impact, specifically on business-to-business transactions.

The following tax increases have also been under discussion this session:

• A high-income earner surcharge of 3% aimed at tax filers, filing single or jointly, earning an annual income over $500,000
• A new personal income tax on unrealized capital gains
• Moving to a worldwide combined reporting corporate tax
• Excise tax on sugary beverages
• Increased taxation on candy (including maple)
• Broadening Vermont’s sales tax.

While legislative proposals for increasing the burden on Vermonters are discussed, the Vermont Chamber is working to ensure cost containment measures, like finding efficiencies in the education system, are also considered.