House Advances Partial Exemption on Military Retirement Pay Taxation

The House Committee on Ways and Means added a military retirement pay tax exemption to their controversial cloud tax bill. The tax exemption would exclude the first $10,000 of federally taxable U.S. military retirement pay from state taxation. Vermont is currently one of only a handful of states that fully taxes military retirement pay, which disincentivizes military retirees from moving to Vermont upon conclusion of their service. The Vermont Chamber has long supported fully exempting military retirement pay from taxation because military retirees often conclude service in their 40s and typically possess professional skills that uniquely position them to continue contributing to the workforce until they reach traditional retirement age. Military retirees are also a significantly more racially diverse population than the general population of Vermont.

The Vermont Chamber believes better incentivizing military retirees to move to Vermont would increase the diversity of our communities while also strengthening the workforce. If implemented, this exemption proposal would serve as modest step toward the future goal of fully exempting military retirement pay. However, the Vermont Chamber has concerns about using a bill that will implement a costly new tax on cloud services as a vehicle to advance the exemption. This exemption should, ideally, be increased in scope and advanced as standalone legislation.