Taxes

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.

House and Senate tax committees considered several new or expanded revenue sources to supplement a projected 20% increase in the average property tax bill for the next fiscal year. Addressing the persistent shortfall in the education fund, which struggles to meet the needs of a school system serving fewer students but requiring more resources, is not a new challenge. Introducing new revenue sources without accompanying solutions merely serves as a temporary fix. The Vermont Chamber agrees with the committee members willing to stand up and say that more money is not the solution and that hard conversations about cost containment measures need to happen this session. Specifically, those identified by the Joint Fiscal Office that would allow the education fund to support students without increasing the tax burden on Vermonters, which would only further drive the workforce from the state.

Options under discussion include an excise tax on sugary beverages, increased taxation on candy (including maple), a 6% sales tax on remotely accessed software, and potentially increasing Vermont’s sales tax. Last week, several business organizations sent a joint memo to the chairs of key committees to raise these concerns and request that they implement the changes provided by the Joint Fiscal Office to curtail education spending. Cost containment measures can’t take a back seat, while legislative proposals for increasing the burden on Vermonters are discussed.

House Ways and Means Committee Chair Rep. Emilie Kornheiser (D-Brattleboro) announced her new tax proposals shortly after the Governor’s budget address. These new taxes come into consideration as businesses and workers will soon feel the $100 million first-ever state payroll tax to be levied starting July 1. This tax proposal is also in tandem with statewide concern for double-digit property tax increases and the confusion around how school spending works.

New taxes that have been introduced include:

• A wealth tax of 3% aimed at tax filers, filing single or jointly, earning over $500,000.
• A new personal income tax on unrealized capital gains.
• Moving to a worldwide combined reporting corporate tax.
• A cloud tax containing tax on software as a service (SaaS), Platform as a Service (PaaS), and Infrastructure as a Service (IaaS).

Raising these taxes will not reduce the tax burden on middle-income Vermonters. To make meaningful progress on improving affordability for middle-income Vermonters we can instead address the root causes of what is making the state unaffordable. The Vermont Chamber will continue to raise concerns about these tax proposals and share with businesses with the potential impact they would have on the Vermont economy in the weeks ahead.