Vermont Legislature SmartTranscripts:

[Rep. Charlie Kimbell (D–Woodstock), House Ways & Means]: Good

[Rep. Robin Scheu, Chair]: afternoon. This is the House Appropriations Committee. It's Tuesday, 03/17/2026. It's just after 01:00. And we are first, before we hear the miscellaneous tax bill, going to vote on the amendment we have received to H-four 10, which was related to some reports related to recidivism and other criminology measures. And then we will vote on the bill as amended by us. So maybe Chris can see somebody besides me should talk about it.

[Unidentified Committee Member (House Appropriations)]: So why don't you talk about this

[Chris Rupe, Joint Fiscal Office]: better, please? Chris, we're trying to go. This will be very quick. Whenever you all went through H-four 10 earlier today, the language stipulated that the $25,000 appropriation would be from the general fund to the Vermont Statistical Analysis Center. What this language does is essentially insert the Department of Public Safety in there. So it will say the appropriation will go from the general fund to the Department of Public Safety for contracted support related to the Vermont Statistical Analysis Center. This just recognizes the fact that the Statistical Analysis Center gets its money through DPS, and we need to route money through agencies and departments rather than directly to the programs.

[Rep. Robin Scheu, Chair]: Anybody have any questions about that? Is there a motion to support the House Appropriations Amendment, draft 1.2?

[Rep. Charlie Kimbell (D–Woodstock), House Ways & Means]: I move. Second. Second.

[Rep. Robin Scheu, Chair]: If there's no further discussion, when the clerk gets ready, you can call the roll. Thank you, Chris, on the amendment. Thank you.

[Rep. Trevor Squirrell, Clerk]: Representative Bloom Lane?

[Chris Rupe, Joint Fiscal Office]: Yes.

[Rep. Trevor Squirrell, Clerk]: Representative Dickinson? Yes. Representative Feltus? Yes. Representative Kascenska?

[Rep. John Kascenska]: Yes. Representative Rose? Yes. Representative Wicki? Yes.

[Rep. Trevor Squirrell, Clerk]: Representative Michael? Yes. Representative Spirrell? Yes. Representative Stevens? Representative Yacovone? Yes. And Representative Scheu? Yes. So

[Rep. Robin Scheu, Chair]: that is done, the amendment, and then I'll entertain a motion to approve age four ten as amended by house judiciary and further amended by appropriations. John? Second. Dave? A teen girl down there. Okay.

[Rep. Trevor Squirrell, Clerk]: Somebody needs to get a camouflage.

[Rep. Robin Scheu, Chair]: That's why I texted you. So we're in the middle of voting, Wayne. We're in the middle of voting. We could keep the amendment open and have them vote on the amendment since he's here. So we this is h four ten, which was the recidivism and criminology measures, and the amendment simply says that it's going to the Department of Public Service who will then send it to the whatever. Are we ready for it? The clerk is ready on the amendment? Yes.

[Rep. Charlie Kimbell (D–Woodstock), House Ways & Means]: Okay. So

[Rep. Robin Scheu, Chair]: we're now 11 zeros. And we have an amendment and a motion and a second to vote on the field as amended. So we haven't voted yet. So if everybody's all set, then we'll have the votes call the vote.

[Rep. Trevor Squirrell, Clerk]: Representative Bloomley? Yes. Representative Dickinson? Yes. Representative Feltus?

[Rep. Martha Feltus]: Yes. Representative Sanska? Yes. Representative Roche? Yes.

[Rep. Wayne Laroche]: Representative Mrowick? Yes. Representative Negro? Yes. Representative Spearrell?

[Rep. Trevor Squirrell, Clerk]: Yes. Representative Stevens? Yes. Representative Yacovone? Yes.

[Rep. David Yacovone]: And representative Shaq? Yes. Seven zero zero.

[Rep. Robin Scheu, Chair]: Okay, great. And Trevor, you can send the note to yourself and

[Rep. Trevor Squirrell, Clerk]: I will. Be the reporter of the bill.

[Rep. Robin Scheu, Chair]: Thank you very much. Another bill that gets to go from in to out. It's getting crowded over there, but we'll take care of that. And so next, we're going go straight into, I think we're on the H933. We have Representative Kimmel for Ways and Means. We will start with legislative council. And we have Kirby here, and then we will go to Pat and Chris for joint fiscal note. And then Charlie will ask you to fill in

[Pat Titterton, Joint Fiscal Office]: all the other parts.

[Rep. Charlie Kimbell (D–Woodstock), House Ways & Means]: Sure, we can go.

[Kirby Keaton, Office of Legislative Counsel (Tax Counsel)]: Good afternoon, everyone. Toby Keaton, Office of Legislative Counsel, handle the tax portfolio, as probably all know. I have two documents that we can work from, depending on how you want to go about this. There's a section by section summary, and then there's the bill itself. Which does the committee prefer?

[Rep. Robin Scheu, Chair]: Sorry, I was multitasking. You have the whole bill or you have

[Kirby Keaton, Office of Legislative Counsel (Tax Counsel)]: A section by section summary.

[Rep. Robin Scheu, Chair]: Section by section, please.

[Rep. Trevor Squirrell, Clerk]: Thank you.

[Kirby Keaton, Office of Legislative Counsel (Tax Counsel)]: Then I have more choices. Is

[Rep. Robin Scheu, Chair]: this a decision tree?

[Kirby Keaton, Office of Legislative Counsel (Tax Counsel)]: It's your own adventure, I guess.

[Rep. Robin Scheu, Chair]: Do we have this on our website?

[Unidentified Committee Member (House Appropriations)]: I would love a copy of this one, please.

[Kirby Keaton, Office of Legislative Counsel (Tax Counsel)]: Can briefly go through everything, or I can hit the revenue stuff.

[Rep. Robin Scheu, Chair]: I think it would be good to talk about the whole thing at this point. We need to understand what we'll end up doing this if we don't do it. So, let's do it. So it's posted. And then Autumn's going make some copies for those of you who have no copies. For it. Apologies.

[Kirby Keaton, Office of Legislative Counsel (Tax Counsel)]: I don't know if you're all aware, but with the Windows update, all of Los Angeles has had technical issues until we get into ten years.

[Chris Rupe, Joint Fiscal Office]: Okay, so yeah, this is Oh, really?

[Unidentified Committee Member (House Appropriations)]: Fish face.

[Rep. Robin Scheu, Chair]: If you're able to make it a little bit bigger, that might be good too. I may be pushing it here. See that little thing in the lower left hand called lower right knee corner.

[Kirby Keaton, Office of Legislative Counsel (Tax Counsel)]: A little tricky right now. Okay. We did not touch it.

[Rep. Eileen “Lynn” Dickinson]: Okay, scroll.

[Kirby Keaton, Office of Legislative Counsel (Tax Counsel)]: So we start with section one, which is a provision that repeals a section of the income tax law that prevents S corporations from being able to take a tax credit for taxes paid to another state. This

[Chris Rupe, Joint Fiscal Office]: is

[Kirby Keaton, Office of Legislative Counsel (Tax Counsel)]: a proposal from the Department of Taxes, and the story I've heard from tax is that back in the 90s, the department lost a case related to the tax credits for tax paid in another state for an S corporation, and came to the general assembly and asked to have this included as a sort of, we'll show you, even though the court said you won, we're going to win in the end. So they want to undo that. What this accomplishes is that you have pass through entities like LLCs and partnerships that can take a credit for taxes paid to another state. But currently, Vermont law does not allow that same thing for S corporations, which are just a different type of pass through entity. So this puts all those tax entities on the same level when it comes to this tax credit. So that's your background, and that's why that's in there. Section two is also a request from the Department of Taxes. If you'll recall a couple of sessions ago, there was an increased transfer tax rate created for properties that this was directed basically at second homes for those to pay a higher transfer tax rate when the buyer was gonna use it as a second home. The way that was written was was tied to the landlord certificate and the homestead declaration. So since it's tied to the landlord certificate, a buyer, as long as they claim in the next year, as long as they file a landlord certificate in the next year, they would be able to avoid paying the higher rate. So what we've seen are instances where law firms are more than

[Rep. Eileen “Lynn” Dickinson]: happy to help a buyer

[Kirby Keaton, Office of Legislative Counsel (Tax Counsel)]: arrange things so they can follow landlord certificates, such as renting to a family member or using a different entity to purchase the property and then renting it to themselves. So to avoid what's being seen as a loophole, there's some language added that lets the department go in and look at those transactions closely and decide whether it's an actual landlord tenant relationship. If I'm going too slowly, let me know, I'll speed it up. Sections three and four relate to instances where in, when it comes to the land use change tax, if you remove a portion of a parcel from current use, there has to be evaluation done under our law on that portion of a parcel to determine the land use change tax that's owed. Currently it's up to municipalities to have to do that because they have the assessing officials. So this new language would allow PVR, if an assessing official at the local level has not done an evaluation in these circumstances, then PVR for thirty days can step in and do the valuation themselves under this language. And then PVR has thirty days to do it. And so the point of it is to let people who may owe wind exchange tax know what tax they owe more quickly than what's currently happening. And so background there, municipalities or some municipalities are completely underwater when it comes to staff for assessing officials and assessing work. And sometimes it takes them a very, very long time, just not all of them, of course, but a few take a long time, so this just adds something to our law to relieve that situation. Section five, also from the Department of Taxes changes the calculation for the municipal grant stabilization program to do the calculations under that program based on previous year's tax rates. This is how it's done for pilot payment calculations, which are similar, and this is just a more administrable way of doing it, because the laws currently written is to use current year tax rates, but the way the timing of things line up is that's not ideal. Section six, also from the Department of Taxes, adds a provision addressing cases where, some background, PBR is taking over the valuation of communications properties. It's done through these inventories that are submitted to the department. Under the previous law, municipalities would have some penalty provisions in case a business is not cooperating with the submission of inventories. So this basically takes that the old penalties and gives them the PBR for this new system, because currently with the redraft of the law, there weren't penalty provisions included. Section seven is a clarification that the treatment of CHIP sites will be treated the same as TIF districts for purposes of equalization study. This is just again, on the technical side of when the equalization study is done, how does the department go about treating the chip sites, because that's not something that's not currently addressed in the law. Section eight says for purposes of the equalization study, PVR is to use a 100% CLA when determining tax rates for municipalities that just completed a mastery appraisal. There's actually a formula in the law that has PVR do something slightly differently, which means that a municipality could have just finished reappraising all properties in their town, and they still don't have a CLA of one point zero. So this would make the default set so that PVR will just set that at one point zero in those cases, and not do an additional calculation. Sections nine and ten extend the health IT funds, Sunset for five years. Sections 11 through 14 deal with some education finance statutes, where a lot of the statutes have inflators. Those inflators written in statute use something called NEEP as methodology for inflators, but NEEP is not something that exists anymore, so the language changes to NIPA, which is something that at least exists. And in current practice, NIPA is what's going to be used for those inflators, like currently. Section 15 allows the property tax credit to be calculated using a 100% of the property tax liability of the party to a separation or divorce who was living in the homestead, even if the other party is still an owner. This came from the taxpayer advocate at the Department of Taxes. It deals with situations where you're a property tax credit, but for, people who are going through a divorce, they could both be owners of the homestead. The way that the law works now is that one of them could not be living there, and since one of the owners isn't living there, it would be a fiftyfifty, they would get half the tax credit, and so currently the taxpayer advocate is fixing that through the system they have for when some unfairness comes up, they have some ability to fix that, but they're asking instead of me just fixing all of these when they come up and they come to me, why don't we change the law? So that's the proposal from the taxpayer advocate. Section 16, those are the estate tax, it aligns the estate tax filing threshold with the tax liability threshold. So currently we have a filing threshold of 2,000,000, but if you have an estate of 2,000,000, you do not owe estate tax at that point. So this is changing that so that the two line up. Under our current system, the department gets a lot of what you would call zero returns where people are required to file a return under our law, but they don't owe any tax. So this makes it so that they're not getting those zero returns anymore. Section 17 extends the down payment assistance program. This is the first, it's a revenue related piece for you, I'll flag. It extends the payment assistance program to 2,031, and it increases the maximum total award amount for a first year credit allocation from $250,000 $350,000

[Rep. Robin Scheu, Chair]: This is a $100,000 increase, not a $350,000 increase.

[Kirby Keaton, Office of Legislative Counsel (Tax Counsel)]: So $100,000 increase over current law, these credits, the way the program works is that for down payment assistance, they sell tax credits, the tax credit, and when they sell those tax credits, each year they'll sell $350,000 worth under this, and that will be spread across five years. So it's 350,000 for five years in a row, and then new ones next year, which we spread across five years and on and on. So it's not just a $350,000 hit, it's that for one year.

[Rep. Robin Scheu, Chair]: If we didn't change it, it would still be 250,000 next year?

[Kirby Keaton, Office of Legislative Counsel (Tax Counsel)]: No. It's going to sunset soon, so this 16 is at three

[Rep. Robin Scheu, Chair]: So, $3.50 would be new, all new money?

[Rep. Eileen “Lynn” Dickinson]: Yes.

[Rep. Robin Scheu, Chair]: Okay, thank you. Thought I'd bounce some money, but I didn't think. Continue.

[Kirby Keaton, Office of Legislative Counsel (Tax Counsel)]: Sections eighteen and nineteen relate to a section from HR one that was passed last summer, it was the big federal income tax change. HR one has a section creating a new federal program for scholarship granting organizations, the way it works the federal level is that a taxpayer can contribute up to $1,700 to a scholarship granting organization, and get a federal tax credit for that full 1,700 amount. Part of that statute though has, gives states the power to participate or not in allowing SGOs in their state. If a state does allow SGOs, then an entity within the state would identify one of those SGOs are, they'd have to follow all the federal requirements that exist in the statute, and then they could get out the scholarships. This language, basically it opts Vermont out of that program. By Vermont not participating, what that means is that Vermonters could still contribute to SGOs that exist in a different state, and they could still get that tax credit, but there will not be SGOs operating within Vermont, and so that means that there will not be scholarships being built out to students in Vermont from this program. Scholarship granting organizations.

[Rep. Robin Scheu, Chair]: Is there an example of what one of those would be?

[Kirby Keaton, Office of Legislative Counsel (Tax Counsel)]: They don't really exist yet because they have to follow all of these federal requirements. One of the requirements is they have to be a five zero 501c3, they also have to manage their money in particular ways, and then scholarships they give out have to be to particular students that meet certain criteria and for certain purposes. So it's kind of an all new thing, So there wouldn't be really a reason for them to exist.

[Rep. Robin Scheu, Chair]: So it's not the same as at high school kids graduating get $500 from the rotary or from because that's all they do.

[Kirby Keaton, Office of Legislative Counsel (Tax Counsel)]: No, and that example wouldn't be allowed under. This would be for expenses for attending school right now. It wouldn't be for college. Sounds like that was like graduating. Right, scholarship at this time. The federal law allows scholarships, it could involve things like uniforms, certain technology, school expenses, and it could be for private school, public school, religious schools. So it's a three-twelve typeface. Section 20 amends the definition of parcel in the grant list statute. This change is about mapping and the language is written in a way so that state can do mapping better based on parcels, but also it's written in a way to leave property tax and property valuation alone. So it's a technical mapping related change to the definition of parcels.

[Rep. Robin Scheu, Chair]: Can you shut the door please? You can't hear it here, but the door is open. Sorry, so it's not changing the

[Kirby Keaton, Office of Legislative Counsel (Tax Counsel)]: It's not really a substantive change. It's technical change to do some data collection related to mapping. And this whole thing comes into play when there's the same owner of two contiguous parcels. For mapping purposes, they would be treated as separate parcels. For property taxes, they would continue to be treated as the same parcel. Sections 21 through 23 relate to the fee setting authority for the Department of Fish and Wildlife. So the language here would basically freeze how Fish and Wildlife does its fees for access to buildings and lands, things like that that it owns. There are rules related to this, would be repealed starting next year, statute would altered in a way that starting next year, the commissioner would come back and propose fees for access to fish and wildlife lands and properties, and the legislature would set those fees and put them into statute.

[Unidentified Committee Member (House Appropriations)]: I figured you'd have a question.

[Rep. Charlie Kimbell (D–Woodstock), House Ways & Means]: Does not impact or address license fees, of the license fees that I think of themselves?

[Kirby Keaton, Office of Legislative Counsel (Tax Counsel)]: No, this does not. This is about access to land. There is some language in there on licenses. Unfortunately, Michael Brady drafted that part, and he would be

[Rep. Eileen “Lynn” Dickinson]: the best source for detailed info about that. Elsewhere in here, something on licenses.

[Rep. Robin Scheu, Chair]: Abel, do you want to introduce yourself? Why don't you just come sit up here?

[Rep. Charlie Kimbell (D–Woodstock), House Ways & Means]: Because it's fine. Oh, and thank you for the dessert. I was hoping to

[Unidentified Committee Member (House Appropriations)]: get a little poise.

[Rep. Charlie Kimbell (D–Woodstock), House Ways & Means]: The backstory is that

[Chris Rupe, Joint Fiscal Office]: It is your Oh, sorry.

[Rep. Charlie Kimbell (D–Woodstock), House Ways & Means]: For the record, representative Charlie Campbell from Woodstock, member of the Waste and Waste Committee. The quick backstory is that the Department of Fish and Wildlife was gonna institute a license fee to access wildlife management areas. $20. Met with a lot of opposition. So called into question some of the delegated fee setting authority that the legislators delegated that authority, Department of Fish especially for the Green Mountain Conservation Camps. That was the intent and some of the tuition rates and that kind of stuff. And there are current license agreements with utilities and other research facilities and that kind of thing for the use of long term obligations. So what this clarification in the bill, to be able to say, we need you to come back to us with a greater schedule of what your license fees are. We don't want to delegate that authority anymore. We want you to come to us and say, except for the Green Mountain Conservation Camps and also the long term leases on property. Otherwise, we need to see what those fees are instead of having a fee like that $20 fee just pop up. I'm not so concerned about that one. I was curious about how are the other fees. They said they're still live until 07/01/2027. We're requesting them to come back to us in 01/15/2027 with recommendations for what those fees are. They haven't had any fee bill for what? We haven't had a fee bill for ten years. So

[Kirby Keaton, Office of Legislative Counsel (Tax Counsel)]: to get at your question, this is about fees relating to access to lands and property, not those fees. Those fees are in other places of the law. Sections 24 through 48 are all conforming changes relating to moving the grand list date from April 1 to July to January 1. So currently all of the assessing officials put together their grant lists, submit it to the state, and April 1 becomes the grant list date, which is the snapshot for property valuation across the state. This is being moved to January 1, which allows more room in the entire timeline to do appeals and to do other administrative functions, and the idea is to make things run more smoothly with that extra time. Section 49 was a request from the Department of Taxes to remove some statutory language that empower the director of PVR to supervise the collection of delinquent taxes by municipalities. The PVR director is not doing that now, they don't see that as their role. They see this language and statute as a vestige of when PVR was its own department and did more functions than it currently does. So they're asking to have that removed, and ways and means agree. So sections 50 through 53 are also related to PVR, and it makes some changes of how some of the things that PVR pays for, how they're funded. This would make it so that the fees that PVR pays to municipalities for the work they do, which is grand list maintenance, doing mass reappraisals currently, although the regional assessment district stuff that's still being worked on is looking to change that one, And the help with the equalization study, all of those payments plus the expenses the PBR has for helping pay for a Lister education or assessing official education, all those things would be paid out of the pilot special fund, just like which.

[Rep. Robin Scheu, Chair]: So does the fiscal note talk about this about? Okay, we've had some pilot conversations in here already. So we'll hold questions on dollar values until the price stops.

[Kirby Keaton, Office of Legislative Counsel (Tax Counsel)]: The only thing I would note is there is an issue, if this change isn't made, there's still a technical issue that from the alleged counsel perspective we would like to fix, because it's paying for lister education out of the ed fund, but the ed fund statute does not have that as an authorizing use, which one could argue triggers the poison pill that destroys the property tax. So rather than play around that, we'd like to button that up. If this continues to be paid out of the Ed Fund, we should address that other technical issue.

[Rep. Robin Scheu, Chair]: Okay, and did raise and means think it should be paid out of the Ed Fund instead of the pilot?

[Kirby Keaton, Office of Legislative Counsel (Tax Counsel)]: No, I'm saying under current law, those in statute, this is paid out of the Ed fund. In current law, in practice, the department actually uses their budget to pay for it.

[Rep. Robin Scheu, Chair]: So we want to clean up so it doesn't say the Ed funds anymore?

[Kirby Keaton, Office of Legislative Counsel (Tax Counsel)]: Yes, either that or put into the Ed fund statute that it's an allowable use of the funds.

[Rep. Robin Scheu, Chair]: Not what we want to do with the Ed Fund.

[Kirby Keaton, Office of Legislative Counsel (Tax Counsel)]: It's 100,000.

[Rep. Robin Scheu, Chair]: Yeah, well, it's 100,000. Also

[Rep. Charlie Kimbell (D–Woodstock), House Ways & Means]: what you did in the BAA, you moved those funds

[Kirby Keaton, Office of Legislative Counsel (Tax Counsel)]: out of the Ed Fund, or out of

[Rep. Charlie Kimbell (D–Woodstock), House Ways & Means]: the general fund into the pilot structure.

[Rep. Robin Scheu, Chair]: Right, the three, this is what the governor had recommended, the 3.41?

[Rep. Charlie Kimbell (D–Woodstock), House Ways & Means]: Yes, you got it. Okay.

[Kirby Keaton, Office of Legislative Counsel (Tax Counsel)]: Section 54 creates a ten year tax study that's to be conducted by JFO. There's a $100,000 appropriation there, and there's also language that says if this study doesn't end up getting appropriate this year, then JFO does not do the study.

[Unidentified Committee Member (House Appropriations)]: Yep. Yes. Is that

[Rep. Charlie Kimbell (D–Woodstock), House Ways & Means]: a retrospective look or a forward look? If you go back to 2015 and compares the ten years, so this is the fourth study that's been done by the tax department, and part of it is also looking at the benefits cliffs that are in other public benefits, so and looking at income and income taxes for Vermont and compared to other states as well, for other taxes. So they're very excited about it.

[Unidentified Committee Member (House Appropriations)]: Of course.

[Chris Rupe, Joint Fiscal Office]: But it's all on income.

[Rep. Charlie Kimbell (D–Woodstock), House Ways & Means]: Not all on income, just looking at overall taxes. When we say

[Rep. Eileen “Lynn” Dickinson]: that property taxes are high here but they're higher in New Hampshire, you'll be able to say the reason why or you know that taxes are lower in Florida maybe not because there's actually you know because of all the different things that overall tax burden that kind of stuff. And

[Kirby Keaton, Office of Legislative Counsel (Tax Counsel)]: Joe will be up later.

[Rep. Robin Scheu, Chair]: Chris can fill us in the pad but

[Unidentified Committee Member (House Appropriations)]: Is this what's been known as blue ribbon tax?

[Rep. Charlie Kimbell (D–Woodstock), House Ways & Means]: No. That's different. That's more policy, and this is study on the math.

[Rep. Robin Scheu, Chair]: Okay. This is it's time for the ten year tax studies. It's been

[Rep. Eileen “Lynn” Dickinson]: ten years. As opposed to the things we get from the tax foundation.

[Kirby Keaton, Office of Legislative Counsel (Tax Counsel)]: Yes.

[Rep. Charlie Kimbell (D–Woodstock), House Ways & Means]: I believe that's true. And then the tax structure commission in 2019, I believe, that was totally different. Remember the three member panel?

[Rep. Robin Scheu, Chair]: And then there was the blue ribbon one that Bill Sayer was on, and that was ten years earlier. Yeah, every once in while we have those too. We'll let JFO tell us more about that.

[Kirby Keaton, Office of Legislative Counsel (Tax Counsel)]: And then section 55 involves a few different things relating to HR one from last summer, changes to federal law, and it has Vermont decoupled either fully or partially from some provisions of federal income tax. So I'll take each piece one by one for you. First is something called bonus depreciation of qualified production property. So HR1 allowed for certain real property that's related to production, mostly to do with chemicals and agriculture production, for those businesses to fully depreciate that real property in one year, as in just to take that off the taxes the year in which they put it into service. Currently, or up until now under federal law, that's something the IRS would require to be depreciated over thirty nine years. So that was going to flow through to Vermont, the impact of that, and there's going to be a revenue impact. And so this is one that was decided that Vermont would decouple and not allow that bonus depreciation, but Vermont will nonetheless allow the normal thirty nine year depreciation with this language, okay. Second change, federal deductions for domestic research and experimental procedures for taxpayers with average gross receipts over 31,000,000. So there was a change to federal level that for this one, I'm gonna go back to the Tax Cuts and Jobs Act, which changed how this deduction for domestic only, so in The US and certain US territories, Domestic research and experimental procedures, taxpayer under Tax Cuts and Jobs Act, they changed it so that the expenses for those things would have to be amortized over five years. This is a large deduction, and this is a lot of money that's spent on this, so a high impact thing. So changing it to one year to spread over five years was a big change. HR one changed it so that the five year amortization, just for the domestic ones, was changed back to being one in one year, in the year in which the expenses incurred.

[Rep. Robin Scheu, Chair]: For the carry forward?

[Kirby Keaton, Office of Legislative Counsel (Tax Counsel)]: They also had a retroactively carry forward for the last few years, and that carry forward means that as far as the revenue hit, that flows through to Vermont was going to be the largest right away, because of the carry forwards, more than one year's worth of those expenses. So what Ways and Means ended up doing was using a definition of a small business under federal law, which is businesses that have an average gross receipts across the previous three years of 31,000,000 or less, those businesses could still do this. They could expense this deduction in one year, same as the federal treatment is now under HR one. But for any business that's larger than that, they would get the free HR one treatment of amortizing it over five years. And that was a way to soften the revenue hit to Vermont, and find a middle ground as far as, rather than taking it completely away from the taxpayers.

[Unidentified Committee Member (House Appropriations)]: If you

[Rep. Robin Scheu, Chair]: will see in detail on the

[Unidentified Committee Member (House Appropriations)]: fiscal report. Liz? Kath, can you go back and you talk I found the bonus depreciation deduction language. Where is this new language, second piece, the $31,000,000 deduction or whatever? I can't see anything that

[Kirby Keaton, Office of Legislative Counsel (Tax Counsel)]: just Do want me to switch over to the bill language for this?

[Unidentified Committee Member (House Appropriations)]: So at least I know where the language is for that piece.

[Rep. Eileen “Lynn” Dickinson]: So

[Rep. Robin Scheu, Chair]: section 55, but we're in section 50

[Unidentified Committee Member (House Appropriations)]: It's a lot of language. I don't see any reference to the 51 or whatever it is you want to follow. 31,000,000.

[Kirby Keaton, Office of Legislative Counsel (Tax Counsel)]: I'll just it might be easier just to share it.

[Rep. Robin Scheu, Chair]: It must be

[Unidentified Committee Member (House Appropriations)]: out of bonus depreciation. Yeah, I'll

[Kirby Keaton, Office of Legislative Counsel (Tax Counsel)]: walk you through all this language because this is obviously probably the most dense stuff that we'll be going through here.

[Rep. Charlie Kimbell (D–Woodstock), House Ways & Means]: As Kirby's looking for that, I just want to say these parts of the bill are our decision whether or not to conform with the changes of the federal tax code or to decouple in certain areas. So we had to look at what the the JFO and Legis Council has been working hard since the bill was passed in the summer to figure out what that impact is and was. So it's with each one of these changes to figure out how it affects the revenues of the state.

[Rep. Robin Scheu, Chair]: And I know that JF would have been working very hard on this, and it's very complicated. Hang on a sec. We have

[Unidentified Committee Member (House Appropriations)]: each number or something.

[Rep. Charlie Kimbell (D–Woodstock), House Ways & Means]: I don't know. Yeah. What incentive for big businesses to be here, how does this affect any incentive the business has would be? There are so many aspects of this. At positive, negative? Exactly. There are both positives and negative impacts on the state. Some might be we have in this a provision that makes it more attractive for small businesses in research and development, and we've got to focus on that. And I think Kirby will get to that.

[Kirby Keaton, Office of Legislative Counsel (Tax Counsel)]: Federal the

[Rep. Charlie Kimbell (D–Woodstock), House Ways & Means]: reason why the feds did it in the first place was to promote business? Is that what they were trying to do? Really hard to say. It does give a lot of tax advantages to certain businesses to be able to reduce their taxable income. And so that definitely was the case. You remember that there are a lot of consumer changes that do not affect the tax in the states such as, what is the tax on tips? That's limited, but that's below the adjusted gross income line after looking at taxable income for calculating federal taxes. That is not something that affects the tax. So we're only focused on those things that affect income.

[Kirby Keaton, Office of Legislative Counsel (Tax Counsel)]: On that, I will just give you a baseline, a reminder of how corporate income tax is paid under Vermont law. First for allocating an apportioning income that comes into Vermont, we use what's called a single sales factor. So when it comes to corporate income tax liability for Vermont corporate income tax, it's related entirely to how many, what are your sales into Vermont. It has nothing to do with being based in Vermont. So you could have corporations based in Vermont to make sales exclusively to other places, and they would pay no corporate income tax in Vermont. So there's not a relationship in our corporate income tax at least between being based here.

[Rep. Charlie Kimbell (D–Woodstock), House Ways & Means]: Amazon sales, online sales, the person that's sold in Vermont, would fall into that?

[Kirby Keaton, Office of Legislative Counsel (Tax Counsel)]: So they have no base here, but they pay tax of Vermont, because they make sales there. So I'm going to walk through starting on page 39, this is the beginning of the section 55 changes. You see a strike through on line two on page 39, which is an existing decoupling that Vermont had already done. This is bonus depreciation for certain personal property. The reason why that crossed out is it's been moved below, and then we have additional language fleshing out how exactly bonus depreciation works for decoupling in Vermont. Our current law only has what you're looking at there. It just says without regard to 26 USA section 168 ks. There's a lot more to it as far as the taxpayer trying to figure out what they're supposed to do in Vermont than those few words. So because the first item I talked about for qualified production property was also a bonus depreciation decoupling. Those things have been put together now, been moved down, and also how you actually go about figuring out how to depreciate in Vermont is spelled out. So we crossed that out there. On line 17, we have both the bonus appreciation for business personal property, and also bonus appreciation for qualified production property, and those are things that are being decoupled from here. By the way, the definition we're looking at right now are corporate income tax definitions. Many of these same changes are identical in when it comes to personal income tax and for states and trusts. Okay, so that's line 17, that's the bonus depreciation stuff or part of it. Starting on line 20, this gets at the question that just asked, line 20 on 39 and then going on to page 40, decoupling language from the domestic research and experimental procedures deduction. And then there's more of that dealing with the different scenarios and what taxpayers are supposed to do, there's more language below relating to that. And then on line six on page 40, you'll see some more decoupling, which decouples Vermont from what's called at the federal level, the section two fifty deductions. These are deductions that apply when a corporation has foreign sourced income, and then it's coming into The US at the federal level, starting with the Tax Cuts and Jobs Act, federally, started part of this income started being taxed federally. And these act, the section two fifty deductions basically act to reduce what is taxed the federal level by about 50%, and it's meant to sort of take the place of apportioning foreign into US to say for the federal law to acknowledge, we recognize that some of this foreign income has nothing to do with The US and has to do with your foreign activity, so we're only going to tax part of it. Well, as we said before, Vermont already up portions and allocates income to Vermont. That was the sourcing we were talking about, the sales factor stuff. So the rationale here is because Vermont's already apportioning, why have the federal level apportioning also? So this decouples Vermont from that, there were some changes in HR one to this area of law, but this change does not directly respond to those changes that were made at the federal level. This is more of a going past that and saying, you know what, we're just not gonna have these deductions, we're not gonna allow these deductions because we already allocate an apportion in Vermont. So for the corporate tax stuff, those your decoupling sections. Starting on line 20 on page 40, you have where we start to spell out how a taxpayer does the ordinary depreciation in lieu of the bonus depreciation. Our current law, even though there's some bonus depreciation we don't allow, our current law does not address these in the weeds things. So this is sort of to help with the administration, the process that a taxpayer would have to go through. It's a whole lot of words to say that instead of bonus appreciation, you're gonna do it with us, you're gonna do it as normal. How you look as if you did not elect to do bonus appreciation, and also you can't depreciate it more than you would have been able to at the federal level. Section five is another example of a lot of words to say that this relates to the domestic research and experimental procedures, and the section starting on line 16 is saying, if you're not an eligible taxpayer is the language used here, but it's the small business, if you're a business that has more than 31,000,000 in gross receipts over the three year period, then you have to amortize those deductions, you can't fully expense them. That's what five says for those particular taxpayers. Starting on line seven on page 42 is some language to address the scenario where you have the retroactive situation. We had talked about for the smaller businesses, they have been having to amortize over five years, but what do we do about that? What this language says is you will continue to amortize the retroactive expenses. We're not gonna let you, you won't lose them, because that is, if we were silent on that, the question would be, do we not get to take those expenses at all now, or do we get to take them all in the first year here? The answer is no to both of those. It is you will continue to amortize it like you have been, but for any new expenses will allow you to expense them all in one the first year. So that's what that does, and then starting on line one on page 43, it deals with the scenario where a larger taxpayer, one with more than 31,000,000 in gross receipts becomes a small taxpayer, return change. We've like these are

[Rep. Robin Scheu, Chair]: 32,000,000 to 30,000,000.

[Kirby Keaton, Office of Legislative Counsel (Tax Counsel)]: You go from 32,000,000 to 30,000,000, what do we do now? Because you've been saying we have to amortize all of a sudden now we don't have to, can we, what we do? And so what this language says is for those older expenses, you amortize those, for any new ones now that you're under that limit, you can fully expense.

[Rep. Robin Scheu, Chair]: So it's the reverse

[Rep. Trevor Squirrell, Clerk]: of the

[Rep. Charlie Kimbell (D–Woodstock), House Ways & Means]: other one.

[Kirby Keaton, Office of Legislative Counsel (Tax Counsel)]: It's the reverse of other one, and dealing with the other going back and forth stuff, which isn't going to be common, but will come up.

[Rep. Robin Scheu, Chair]: If you don't pay it back to them, yes.

[Kirby Keaton, Office of Legislative Counsel (Tax Counsel)]: So as you can see, we're very thorough here with the tax code, trying not to put the department, obviously the Department of Taxes had a large hand in working with me, with JFO and making sure that we're setting this up well. Okay, so we're mostly through. Starting at line 15, we get into the personal income tax definitions, and a lot of it's the same, page 44 line three, it's the same as above when it comes to the post depreciation, starting on line nine, it's the same as above when it comes to the domestic research and experimental procedures deduction, and then in line 18, we have a new one. So one change that happened through HR1 was to expand something that's called an exclusion for gains from qualified small business stock. So it's been an existing thing. So previously, not a corporation, any other taxpayer could buy something called qualified small business stock, which is the type of stock that is issued by taxpayers of a certain size. So let's say there's a small corporation, we're going by federal definitions here, so small means something different. Under the old law was assets of 50,000,000 or less. So as long as corporation had assets of 50,000,000 or less, they could issue qualified small business stock. If an individual were to buy that stock and hold it for at least five years, when they do receive a gain from that stock, it would be fully excluded federally, and all this stuff is passing through to Vermont. It's an area of the tax code that really deals with investors and startups. Oftentimes when the stock is issued, it has a very low price. Oftentimes the exchange is actually the investor is out give you property, I'll give you things to help or I'll help you with your initial payroll, and then you just give me a whole bunch of this stock. But then when the investor goes to sell it, they're not paying any tax on it. Under the old law was up to 10,000,000, up to 10,000,000 of gains, no tax at all federally. So HR one expanded all of that. The businesses that could issue this, they could have assets now of 75,000,000, and the amount that could be excluded was raised to 15,000,000, and also it didn't have to be held for five years anymore, you could get a partial exclusion holding it for four years and another partial exclusion for holding it for three years. So really expanded this thing that was allowed at the federal level to the point that it was costly, which JFO could get into the revenue estimates for that. So what ways and means said was to say, we're just not gonna, we're just gonna not allow this exclusion. And that's what the language does. It does not exclude any of the income from tax for gains from qualified small business stock.

[Rep. Charlie Kimbell (D–Woodstock), House Ways & Means]: Because it's also a long term gain, it's also subject to that 40% exclusion from income tax purposes in the state. That's already covered somewhere else, basically. Yeah. Because not a 100%. Right. Nice. Yep. Straight from the simple question.

[Rep. Eileen “Lynn” Dickinson]: All of these changes here are large, complex, extensive. Does this bill essentially come out flatlining where we're taxing? Are we changing other taxes in order to are we taking this so that there's a net zero effect on our income?

[Kirby Keaton, Office of Legislative Counsel (Tax Counsel)]: That's probably best for Jay.

[Unidentified Committee Member (House Appropriations)]: Yeah. Okay. We're going to be

[Rep. Eileen “Lynn” Dickinson]: I'll try to be simple.

[Rep. Robin Scheu, Chair]: Yeah. Well, there's a whole lot about big picture. Do we link up? And every year, it's been the most boring thing we ever do in tax. As we link up with the corporate or whatever, this year, it's all different. It turns out we can link up with some things and not other things, and that each of them has a fiscal impact, which is what Pat spent the last three weeks of his life tearing his hair out trying to figure out. And if we didn't do some of this, there would be some huge losses of revenue to the state, huge, that the governor hadn't planned on or budgeted for. And some of it we didn't know because it took us a while to figure out what the consensus revenue forecast by our economists did, whether they decoupled them or not. And they didn't include some stuff in there, which was going to cause big revenue losses of a state that the budget had not been built on. So there's some response to that as well. And you'll see in the stuff from JFO.

[Rep. Charlie Kimbell (D–Woodstock), House Ways & Means]: Just as a teaser, it solves a problem you have in appropriations.

[Rep. Robin Scheu, Chair]: Right, well, it helps thematically, which we appreciate. Solves them, but helps them. We got into this detail based on Lynn's question. We were back on the section by section chapter.

[Rep. Charlie Kimbell (D–Woodstock), House Ways & Means]: Go back.

[Unidentified Committee Member (House Appropriations)]: I think that would be.

[Rep. Robin Scheu, Chair]: Back to

[Pat Titterton, Joint Fiscal Office]: the high level?

[Unidentified Committee Member (House Appropriations)]: Yeah, we were on

[Rep. Robin Scheu, Chair]: Why don't we go back?

[Kirby Keaton, Office of Legislative Counsel (Tax Counsel)]: I was going take you through all of section 55 here and then go back.

[Rep. Robin Scheu, Chair]: Are we still on 55?

[Kirby Keaton, Office of Legislative Counsel (Tax Counsel)]: Yeah, we're still on section 55. The same spot on the section by section.

[Rep. Robin Scheu, Chair]: Okay, So remind us now.

[Kirby Keaton, Office of Legislative Counsel (Tax Counsel)]: Because I tried to make those summaries where a person can actually sit down and read them. So it's a five page summary. As you can see, if I want to If

[Unidentified Committee Member (House Appropriations)]: you look at all

[Kirby Keaton, Office of Legislative Counsel (Tax Counsel)]: of that We could do 20 pages on the section.

[Rep. Robin Scheu, Chair]: So appreciate this. So what page are we on now? Now I've lost track. Are we on 46?

[Kirby Keaton, Office of Legislative Counsel (Tax Counsel)]: Of the bill we are on page 45. And we're at line five on page 45,

[Rep. Charlie Kimbell (D–Woodstock), House Ways & Means]: which

[Kirby Keaton, Office of Legislative Counsel (Tax Counsel)]: is clarifying language that says when it comes to the qualified small business stock, we're not going to allow the partial exclusion for capital gains that represent Kimball was referencing. The policy decision here is if we're saying we're not going to allow qualified small business stock to be excluded, we're not going to allow our exclusion either, so that there is some clarifying language on

[Rep. Charlie Kimbell (D–Woodstock), House Ways & Means]: that. Okay. Next

[Kirby Keaton, Office of Legislative Counsel (Tax Counsel)]: change is Actually, think we might be virtually done because We have the spelling out stuff that we went over before when it comes to bonus depreciation, and then when it comes to the domestic research experimental procedures, and then that carries us through to page 48, which is all of the same language that we've already looked at, those things. And then on page 49, line six, it's all the same changes we were just looking at for personal income tax, but that language plugged into the definitions for estates and trusts for those tax returns. And they're treated, it's treated under all these changes, it's treated the same as personal income tax. And that does bring us all the way through section 55.

[Rep. Robin Scheu, Chair]: Okay, let's go back to the section by section.

[Kirby Keaton, Office of Legislative Counsel (Tax Counsel)]: So sections fifty six and fifty seven is to add some clarifying language, Vermont over time has decoupled more and more as more and more federal tax changes happen and the state responds. For corporate income tax, there were a lot of changes in the last few years, and the single sales factor change happened in the last few years, and with that how income would be apportioned to Vermont was redone. So when it comes to corporate income tax, we have, and I'm telling you this is as footage, when we talk about this change, you'll have something to compare it to. So in our corporate income tax we take, what's all of your income, and then what portion of that income do we apportion to Vermont? And then we tax it. The way that the statutes written for personal income tax right now is it says, how much tax do you owe? Okay, let's figure out how much of that is Vermont's. It's done in a way where all of the decoupling that we've done doesn't get taken into account, at least in the statute, the language in the statute. And so this can mean someone's paying, if they have income from somewhere else and they have Vermont income for those personal income tax returns, our apportionment being this way, that means that in some cases, at least according to the language in the statute, that you could pay more or less than having the same sort of distribution if it was all Vermont income. I'll give you an example, Vermont's not allowed to tax federal bond income. The person can have a whole lot of federal bond income, a million dollars federal bond income, and then they could have $10,000 from renting out a property they own in Vermont, and that's the only thing they own Vermont. We would say, what's all your tax? And then we're gonna say how much of it is to Vermont? You would end up taxing that person more than all of the income they even received them from, because all that bond income gets included because we're not running it through the things we've decoupled from. So that would be an instance of a tech payer being asked to pay too much, and then on the other hand, if they have a bunch of income that's excluded at the federal level, but the Vermont taxes, it would go the other way and the taxpayer would pay Vermont less than what other equivalent taxpayers will pay if it wasn't for the apportionment. So these changes make it so that it works more like our corporate income tax. We are gonna take all the decoupling into account when we go to do apportionment. And this is something that I worked for the tax department on to, and again, they were wonderful throughout working through all of this on the technical side and making sure that we put the tax laws in a better shape. So that's what that change is about. Section 58, this is something that Representative Kimball mentioned earlier, this is an attempt to spend some of the money back in this bill, where starting in, I think 2028, this is delayed a couple years, the Vermont research and development tax credit would increase from 20% of the federal credit to 75% of the federal credit, but that tax credit like other state credits like this in other states, it's for expenditures to take place in Vermont only. So for small taxpayers that are spending a lot on research and development, the idea is that Vermont will allow a very large credit and offset some of the other changes here. Section 59 increases the amount of the downtown and village center tax credit by a million, so it goes from 3,000,000 annually to 4,000,000.

[Rep. Robin Scheu, Chair]: That was not requested by the administration, I know that, to add it yesterday.

[Kirby Keaton, Office of Legislative Counsel (Tax Counsel)]: I'm not sure where that one came from.

[Rep. Robin Scheu, Chair]: I think the committee.

[Rep. Charlie Kimbell (D–Woodstock), House Ways & Means]: Yes. There have been several requests throughout the building. More

[Kirby Keaton, Office of Legislative Counsel (Tax Counsel)]: to come. Section sixty and sixty one, get to the boring part that the chair mentioned earlier.

[Rep. Robin Scheu, Chair]: That's really important.

[Kirby Keaton, Office of Legislative Counsel (Tax Counsel)]: This is the language that does link Vermont up to all of the federal tax code for 2025. So all of the stuff from HR one that we've not decoupled from, and that does flow through to Vermont would be linked up here. If that change isn't made, then that would be an instance where Vermont would have decoupled from everything in HR one, because it was, you know, it's path to 2025, became became effective in 2025. Section sixty two and sixty three are some things that JFO is going go into with you, but it changes some of the statutory distributions for meals and rooms tax and purchase and use tax revenues. We

[Rep. Robin Scheu, Chair]: got our preview yesterday on this on changing the percentages.

[Kirby Keaton, Office of Legislative Counsel (Tax Counsel)]: So the percentages are there, it's changing where some revenue flows, but I'll leave it to them to give them more comprehensive explanation for that. And then we have the effective dates. Many of these things are technical changes, so many of them are effective on passage. A lot of the decoupling stuff is retroactive to 2025, means there'll be no gap in tax treatment where we're changing from the federal code. Actually think my summary needs to be updated for this

[Rep. Charlie Kimbell (D–Woodstock), House Ways & Means]: new class. I

[Kirby Keaton, Office of Legislative Counsel (Tax Counsel)]: think we changed that to 2027. Disregard. That last one is 2027, not 2026.

[Unidentified Committee Member (House Appropriations)]: That's 2026.

[Rep. Charlie Kimbell (D–Woodstock), House Ways & Means]: And

[Kirby Keaton, Office of Legislative Counsel (Tax Counsel)]: that's it for your walkthrough.

[Rep. Robin Scheu, Chair]: Okay, thank you. Don't go away. We'll get Pat and Chris or whoever's coming out, both of you. Chairs, you can stay up there, we can pull the third chair up.

[Rep. Trevor Squirrell, Clerk]: Your deep St. Albans are well documented either.

[Chris Rupe, Joint Fiscal Office]: Well, good afternoon, everybody. Chris Roop and Pat Titterton from the Joint Fiscal Office. Hopefully, you all are still with us because I'm dragging at this point of the day, but

[Rep. Robin Scheu, Chair]: There's food right there.

[Chris Rupe, Joint Fiscal Office]: We put a very robust fiscal note together on this bill. A lot of it is sort of a repeat of the section by section summary that Kirby just walked you through. Because we aim to give you sort of a plain English summary of what all these things do. But we only really elaborate on the things that have fiscal impact later on because so many of these things are technical. Some of this you've already heard once or twice now. We'll go through it one more time and answer any other questions you have. But this table on page one really just summarizes everything in one picture. And when you factor in the changes to their revenue policies that are in various portions of the bill, you factor in the one time appropriation for the tech our decennial tax rate and the meals and rooms and purchase and use allocation changes between the three major funds that are at the bottom there. Everything sort of nets out to be the impact to the three major funds that you see at the very bottom. So you'll see that across FY '26 and FY '27, the net impact is negative 610,000. My colleague Emily walked you through this at the end of the day yesterday.

[Rep. Robin Scheu, Chair]: Walked us on more on page nine. I feel like this page is kind of like for ways and means.

[Chris Rupe, Joint Fiscal Office]: Yeah. And this is then

[Rep. Robin Scheu, Chair]: The other page is for us.

[Rep. Charlie Kimbell (D–Woodstock), House Ways & Means]: Yeah. This sort of shows

[Chris Rupe, Joint Fiscal Office]: you what the entire bill costs. Right. So you'll see that, you know, it's pretty close to a net zero for the Ed fund, and the t fund gets a little bit more money as a result of that purchase. So I am not gonna go through this summary line by line. Can you go to this? I'm gonna go right there. Yeah.

[Rep. Robin Scheu, Chair]: That'd be great. Paste

[Chris Rupe, Joint Fiscal Office]: the I put little breadcrumbs here to show where they're you'll see description. That means, oh, there's probably a description top. So that'll be done at the next section. And which is on page six. Alright. I'm going to skip over section one, which Kirby mentioned, not expected of an impact. Section two closes that loophole around the property transfer tax. You know, really hard to quantify the impact of closing a potential loophole, but it's an unknown likely positive on the revenue front. And that has to do with the loophole being that you could have a situation where somebody buys a second home and essentially rents it to themselves or to a relative to avoid the higher property transfer tax. We just have to close that. Section eight mentioned the CLA and how, you know, in a year when a town does a reappraisal, the CLA will be a 100 for that year. That just clarifies a weird tax department calls it a snapback that can happen in the math in that year when a reappraisal is done. It makes CLA a little less volatile when that happens. You all remember the sunset on the health IT fund and the health care claims tax. This seems to come up, like, every year or every other year. The governor's recommend had some language that suggested that these that the sunset be kicked out, I think, a year or two. This bill kicks those sunsets out by five years. So if this goes through, we won't have to talk about this for a while. And this would preserve the existing revenue stream to the health IT fund, which is about $6,000,000 a year. My colleague, Nolan, can go deep into the weeds on the health IT fund. But I think you anybody who's been on this committee for more than one or two biennia has seen this come up before. Section 17. This gets to the expansion of the down payment assistance tax credit. I'm just gonna jump to this little picture here that we had today. We thought it was so good that we clipped it and reused it and added a footnote. This shows you how the credit works. There is a first year credit allocation of under current law of 250,000, but you see that there's a tail on those allocations. So the amount that's available in sort of year one also becomes available for the four subsequent years. So, under current law, they were issued the authority to issue, $250,000 in first year tax credits from through f y twenty six. And you see in the blue, that's the tail that extends to f y thirty as those credits roll off. The proposal is to extend the credits for another period of time at a slightly higher level of 350,000 for the first year. So that shows up in the green, and that represents a net additional impact of $350,000 of foregone general fund revenue in '27. Then that will scale up a little bit as those tax credits, you know, get layered up, and then it phases back down. But this is a sort of an extension of current tax credits at a $100,000 slightly higher level.

[Rep. Robin Scheu, Chair]: It's like a familiar chart.

[Chris Rupe, Joint Fiscal Office]: Yeah. And and as was mentioned, these credits are often sold to, you know, banks or insurance companies to raise the money to then finance this program. So sections 21 through 23 deal with that Fish and Wildlife Authority that Kirby walked you through. I just wanna reiterate that this has nothing to do with hunting and fishing licenses. Those are already set in statute. This is dealing with the authority for the department to use the rule making process to set fees to access department lands. You may have heard that there were some proposals to either require an access fee or to use a hunting and fishing license to to access department lands. And what this does is say, you know, the department, you know, can't do that and then it's for right now, and instead you have to come back and submit a proposal for fees that the legislature would then put in the statute. So this hadn't been in place yet, no physical impact then, but the department did say in testimony elsewhere that, you know, had this been in place for '27, it had the potential to generate about 50,000 of additional revenue. So in the big picture of their budget, it's not huge, but it's not something you need to be looking on the couch cushion. Sections 24 through 48. We really should have the time to go section by section because this giant chunk of the bill basically changes deadlines from April to January. This all has to do with grand list maintenance, PVR, assessments, appraisals, current use, pilot payments. These have a delayed effective date until 2031 because these are contemplated to be part of a bigger package of assessment reforms that are a few years out. So the intent behind shifting all of these deadlines up by three months is to allow some additional time to hear appeals and do other administrative work before everything's finalized. But that is a huge chunk of the bill that literally crosses out April and replaces it. Sections 50 through 53 have to do with those PVR expenses related to towns. These sections of language showed up in the govrec language for f y twenty seven, and all of these sections of language allow the cost for a brand list litigation and the per parcel payments and things like that to be paid out of the pilot fund. So a lot of this is cleanup language by removing references to the edge fund. Current practice have been to pay these expenses out of the general fund anyway. But you all remember in f y twenty six BAA, you shifted this $3,410,000 worth of costs of the tax department over to the pilot fund. And at that time, you just broadly not withstood any step any provision to the contrary. What is in here is thematically similar to that and consistent. This is just the statutory changes that the gov rec included in the big bill language, ways in Maine felt that should ride in the miscellaneous tax bill. This does not require you to spend any money to appropriate funds. This is the cleanup that goes with the proposal of shifting the that b one thirty nine appropriation over the pilot fund, that 3,410,000.00.

[Rep. Robin Scheu, Chair]: Do you want the language in both bills?

[Chris Rupe, Joint Fiscal Office]: That's a question above my pay grade, madam chair, but

[Rep. Charlie Kimbell (D–Woodstock), House Ways & Means]: Belton suspenders, I think since

[Chris Rupe, Joint Fiscal Office]: it was related to tax policy, the committee felt it made sense to put it in the mislanguage.

[Rep. Robin Scheu, Chair]: Yeah, that makes total sense. And we're going to do this anyway, I think, in the budget. So I'll confer with the other powers that be

[Chris Rupe, Joint Fiscal Office]: in And the if this language doesn't ultimately ride in a bill that passes, we'll just wanna make sure that there's a broad not withstand in the budget at the

[Rep. Trevor Squirrell, Clerk]: very least to make sure. Yes.

[Rep. Robin Scheu, Chair]: Yeah. I mean, we wanna make sure this happens. Yep. So yeah.

[Chris Rupe, Joint Fiscal Office]: Section So 54 has to do with the ten year tax study. So, this was previously mentioned, but every ten years, JFO does a very deep dive decennial tax study. It is a huge lift for our office. It is a large study. It is very comprehensive. The last time we did one was approximately nine years ago. So it is time to do another one. I found them going back to the mid nineties. So as far as I know, there's been, what, three of them done already. This would be the fourth one. And there's some language in the bill that spells out what we would be looking at. We'd really be focusing on the years 2015 through 2025. The study is on our website if you if you dig around a little bit, but it, you know, compares our tax structure at the state level to other states. It really does a dive into, like, where the the tax responsibility falls. We, in the past, have hired accounting firms to run sample returns to say, like, what do different family configurations and business types? What type of tax burden do they pay? And or tax responsibility do they pay, and how does that compare? And there's a a space to raise other recommended areas for further analysis. That has looked different with different tax studies in the past sort of based on what's going on at the time. So the last study we did, which was published in January 2017, looked at the ability of our business tax structure to sort of withstand economic downturns and volatility because we are coming out of the Great Recession at the time. There was also a recommendation to do deeper dives into demographics. What does that look like for state tax revenues? And that led to a whole body of research that our former colleague Joyce did. So different issues have come up at different times. The issue that ways and means would like us to take a look at this time would be see how some of our tax credits interface with benefits eligibility for for certain programs and see whether or not Cliffs exist. Doing a deep dive on the entire benefits Cliff universe is such a large scope that it could be its own body of work, but we would like to take a look at based on a lot of input we've received from ways and means, take a look at how our current tax code interfaces with the eligibility criteria for significant benefit programs and see if we're creating any gaps or any clips or if there's ways that things can be changed around to try to avoid that.

[Rep. Charlie Kimbell (D–Woodstock), House Ways & Means]: So again, that's more than

[Rep. Eileen “Lynn” Dickinson]: a few years old has to be looked at again, at a particular given. There was a lot of work being done after 2017, probably right through the beginning of COVID about minimum wage, about different paid leave issues. So there was a lot of different studies that Joyce did. I know about some of the clips and showed off. That's the

[Chris Rupe, Joint Fiscal Office]: type of work we'd be looking to update.

[Rep. Eileen “Lynn” Dickinson]: Wright was the signatory on that as well. So alright. No. As long as it's not reinventing I mean, you're you're you're I'm all for it. Yeah.

[Chris Rupe, Joint Fiscal Office]: That that's the you know, I I wanna be very clear that it's not gonna look at every single program out there. We wanna look at the the bill sort of gives us attitude to look at the things that are larger and more fiscally significant and things like that because and we looked at every single thing. That would be its own body of work. But we do wanna fold in how does our tax code and our our tax credits interface with major programs, and are there ways that we can we can avoid cliffs or make things better. The sections 55 oh, and there's also a $100,000 appropriation one time in this section so we can hire the consulting expertise that we need to help us with the SOTI. In the past, we've hired folks to help us with everything from the accounting firms that I've mentioned to doing help with graphic design and some data analysis and things like that. So we're envisioning some pretty small dollar contracts to help augment our in house capacity because this is a really, really technical lift, and we only do it every ten years. The sections 55, sixty, and sixty one all pertain to the federal link up and decoupling, and Pat can go into the details about that once I go through sort of the high level here. Section 58 is an expansion of Vermont's research and development tax credit from its current 27% of the federal credit to 75%. So this is a expansion of a state tax credit. The fiscal impact of this would start taking effect in f y twenty eight at a lost revenue of about $1,740,000. So there's a there's a delayed effective date on that piece. Section 59 is the expansion of the downtown and village center tax credit by that additional million. It's currently at 3,000,000. This proposes to bring it to 4,000,000. That's an extra million dollars of foregone revenue every year, fairly straightforward in that calculation. The table two here rolls up just the tax policy provision impact. So this is not the entire bill. This is just the stuff relating to the tax credits, the makeup, and the decoupling. So you'll see that in in the current fiscal year, there's a loss of revenue of 3,960,000.00 of the general fund. But then in future years, there's there's positive revenue. This is just one piece of the bill that we wanted to disaggregate so you saw the impacts of these changes separate from the rest of the bill at

[Unidentified Committee Member (House Appropriations)]: large. So

[Rep. Robin Scheu, Chair]: this is our important page, because I know there was a lot of fiddling that you all did. Pat was going back and saying, well, what if we didn't decouple this and we added it back? And so the swings could be wild depending upon the decisions that were made around the taxes. At one point, it looked like there would have been 20,000,000 or $30,000,000 of lost revenue, and that's part of it. You've built a budget around something, and then suddenly you don't have any money. The idea was to try to well, a few things. We wanted to make sure that we could deal with a $10,000,000 transfer to transportation. And that's covered by that change in the percentages with meals and rooms and purchase and use. Structural, we talked about that yesterday. But then these are the other things. We could have I'm sure there were ways that had the committee decided to not decouple or decouple, that the FY 'twenty seven number might be higher than 14,250,000.00. But we also had to balance that with what's tolerable for all the parties that are affected by it. So I think it was quite a balancing act that you all did. I'm not sure if I'm missing anything key there, sort of capturing what you're

[Rep. Charlie Kimbell (D–Woodstock), House Ways & Means]: You're right. We're trying to really thread the needle on trying to make it so it's revenue neutral without affecting any of the other tax rates that we already have in place.

[Rep. Eileen “Lynn” Dickinson]: And the last sentence before your chart here about the downtown tax credits, is any type of tax credits are widely available like this and the idea is that well if we get this then it will increase the tax revenue which your last sentence is not it's purposely saying we're not considering what those have those been tracked at all ever like when when a town like Waterbury has given out x number of or has you has vied for and received x number of tax credits for certain buildings. Is there any way that could really track increases that would be related to that or is just like there are more tourists here? So

[Pat Titterton, Joint Fiscal Office]: a part of the question there gets into a concept that we refer to as dynamic modeling, which is you support or raise taxes or cut taxes in certain areas. And what does that do to general economic activity? Generally speaking, JFO does not do dynamic modeling because part of the reason why is you do the model, but it's really hard to prove if the outcomes are really real. Can this change in economic activity be truthfully attributed to this specific program? So I think the sentence is referring to, sure, incentives change behavior, but the actual nuts and bolts modeling of what those changes are is not something that the Joint Fiscal Office typically engages in. No. It's completely fair.

[Rep. Eileen “Lynn” Dickinson]: I just think that we, as citizens, tend to go, oh, but if we do this, it'll increase this, where I think maybe it's taking you all out of it anyway. This tax credit is an investment in the communities that are able to receive it. And there's no way of expecting what that return is going to be. Think it's

[Pat Titterton, Joint Fiscal Office]: Yeah. Well, and one thing that's also interesting about Vermont statute is anywhere in statute where we do have tax expenditures, there is also a corresponding intent. So if you're not taxing something, there's always a statute of corresponding intent of, we don't want to tax this to promote X, Y, Z. So there's intent in there, but not actually quantified in that sense. I

[Rep. Charlie Kimbell (D–Woodstock), House Ways & Means]: would say what the Department of Housing and Community Development does is it shows how much this leverages other sources of funds to make those other improvements into a building that's an historic building or leveraging those. I haven't seen anything, and maybe the department has it, but I just can't recall it as to what that means for actual grant list growth in terms of tax revenue. Because oftentimes it might be a nonprofit, maybe it's exempted from that type of, might be exempted from property taxes by the rest of the taxpayers. So I don't know, but it should, that should be data that's gettable.

[Rep. Eileen “Lynn” Dickinson]: It may not be, I just think that it's, I think it's a good program. I think it's been really beneficial in a lot of different areas, especially those with the best of climate energy and downbeat people like a designated downtown etc. But it is I'm almost more commenting not so much on jfoe avoiding trying to do that as much as those folks who want to who are pitching it for their own projects like say well no it's not about it's not about quantifying what the returns are going to be overall and it's about the state's making an investment in those communities that choose to follow these particular rules in order to get this benefit.

[Unidentified Committee Member (House Appropriations)]: I'll make

[Rep. Charlie Kimbell (D–Woodstock), House Ways & Means]: a note of this and I'll follow-up on that. I think that stuff is there.

[Rep. Robin Scheu, Chair]: We're going to try to wrap up quickly if we can. Can

[Unidentified Committee Member (House Appropriations)]: I ask about about the Section two fifty of Internal Revenue Code? Can you explain that again so I can better understand? Because it's on here as We're decoupling that.

[Pat Titterton, Joint Fiscal Office]: Yeah, sure. So there's a couple of pieces to this. So I guess just quick backstory. TCJA was the first federal tax legislation that provided any specific treatment for this type of income. At the time, it was called global intangible low tax income. Sort of the narrative behind that was it would be a foreign subsidiary owned by a domestic corporation. And again, the narrative anyway, this is not always necessarily the case, but the narrative for that would be your situations where you have a foreign subsidiary where you maybe transfer all your intellectual property to, and then you'd be charging rents or royalties or licensing to the parent company for access to that intellectual property. Again, the narrative is shifting some of those domestic profits to a foreign subsidiary. So

[Unidentified Committee Member (House Appropriations)]: that was what a lot of corporations did. They set up an office in The Netherlands or Ireland or something. They moved the cash assets out to the subsidiary. I feel like

[Rep. Robin Scheu, Chair]: we're getting way off track. I'm trying

[Unidentified Committee Member (House Appropriations)]: to ask, because it's a sizable change here in the 'twenty seven and 'twenty eight fiscal year. And I wasn't sure if this is foreign income that comes in here for someone or if it was part of that. So maybe

[Pat Titterton, Joint Fiscal Office]: I can talk about it a little more high level then. So there's kind of two pieces. There's sales by a domestic corporation internationally. And then there's this foreign, the controlled foreign corporation, which is the subsidiary in this case, which is also engaged in activity internationally. So federal government does provide some deductions for this type of income. In HR1, they actually increased the deductions while at the same time redefining the base, basically broadening the base. So by broadening the base, we'll increase your deduction. But the other thing that the foreign government relies on for a lot of this type of income is allowing for tax credits to pay to foreign countries. That's not something that Vermont allows. And so that's one piece there. The other piece is one thing the federal government does not even have to think about is apportionment. And that gets into what Kirby was talking about with the single sales pitch. So rather than And this idea was brought in to Ways and Means, I believe, by Carl Davis from ITEP. Part of the argument that was put forth then is rather than relying on deductions or tax credits, let's just treat this like normal income, which for the sales abroad was typically the case. It'd be counted as your total net income prior to TCG. But when thinking about it in the context of sales tax or state tax apportionment, those sales are

[Rep. Eileen “Lynn” Dickinson]: happening elsewhere.

[Pat Titterton, Joint Fiscal Office]: Those are not sales that are coming into Vermont. So while it does increase their total net income, mechanically, this is also providing factor relief, so the denominator in the apportionment equation. And part of the reason that I think further part

[Rep. Charlie Kimbell (D–Woodstock), House Ways & Means]: of the argument for it was

[Pat Titterton, Joint Fiscal Office]: with the credits and the deductions, it's sort of in a way providing preferential treatment for this type of income. And again, just to stress, this is going to apply to domestic corporations that are dealing, and this income is specifically dealing with their international activity. So is that a high level, long way Yeah, yeah. High level and long way

[Unidentified Committee Member (House Appropriations)]: of answering your question? Yeah. So Corporation A that's in Vermont sells Or anywhere. Anywhere. Yeah, anywhere. Anywhere. Corporation sells say, dollars 100,000,000, but only Vermont buys $20,000,000 The only thing that a tax got in Vermont is the $20,000,000 looking for a very

[Pat Titterton, Joint Fiscal Office]: strong So you would take

[Rep. Eileen “Lynn” Dickinson]: the full total net income amount.

[Pat Titterton, Joint Fiscal Office]: Yeah. And then just if you so that's one And then you have this equation of sales into Vermont, so just revenue generated from selling in Vermont, and then just total revenue under that. So that's your fraction that becomes the basis for your portion of the percentage. So you could have a situation where you have a Vermont based business only selling into Quebec and nothing into Vermont, and they're not gonna actually have tax liability in Quebec because they have no sales into the state.

[Unidentified Committee Member (House Appropriations)]: Okay. Alright.

[Chris Rupe, Joint Fiscal Office]: We're almost done. Yeah.

[Rep. Robin Scheu, Chair]: So we did hear this one yesterday, this part, so you can be Yeah.

[Chris Rupe, Joint Fiscal Office]: Question sixty two and sixty three deal with shifting around the revenue allocations of the purchase and use in meals and rooms tax between the three major funds. Under current law, the transportation fund gets two thirds of the purchase and use tax. This proposal would change that to 73% and lower the education fund's share correspondingly from one third to 27%. And then the next piece shifts 4% of the meals and rooms tax revenue, the base revenue, not including the 3% term rental surcharge that goes to the Ed fund, but the base shifts 4% more of that to the Ed fund out of the general fund. These numbers, if you were wondering where they came from, are the closest whole percentages that get you as close to $10,000,000 as you can. So that's why, you know, there's a little bit of decimal dust here, but you can see that in FY '27 and in the out years, the the impact, you know, on net to the end fund is pretty much a wash. They're they're just very so slightly ahead. The T fund would get an additional $9,900,000 in FY '27, it would grow slightly with overall purpose and use tax revenues later on in the forecast, and the Ed Fund would lose that 4%

[Rep. Charlie Kimbell (D–Woodstock), House Ways & Means]: of the meals and rooms tax.

[Rep. Robin Scheu, Chair]: So the math for us is if you go to page nine, this is not, you don't have it. We have 14,250,000.00 in increased revenue for FY '27, But we lose 3.96 in FY 'twenty six as a result of this. So you have to take that out, and that gets us to 10,290,000.00. And then we're also losing 800,000 from this meals and rooms and purchase and use swap a roo. So that gets us down to 9.491. So that was the number that Emily talked to us about yesterday. So some of those numbers should sound familiar. All right.

[Unidentified Committee Member (House Appropriations)]: It's all

[Rep. Charlie Kimbell (D–Woodstock), House Ways & Means]: covers the down payment assistance program and the $1,000,000 increase in the downtown and bill of selling tax credit.

[Rep. Robin Scheu, Chair]: All TBD. Thank you. Thank you all very much for this. If people have individual questions about details and all of that, you know who to talk to. We are not going to vote on this today because some of this impacts the budget. And we really appreciate all the work that you did and your committee to really to get to this place. I know there's a lot of work, I know you have. And Chris, thank you very much. Cat was running scenarios night and day for a long time. So now we have this beautiful fiscal note. Thank you very much. And we'll keep you posted.

[Unidentified Committee Member (House Appropriations)]: Thank you.

[Rep. Robin Scheu, Chair]: Great, thank you. So committee, we're running a bit late, you may have noticed. What we are going to do is we're moving a bill till tomorrow. We are going to move eight sixty one till tomorrow, and we're going to hear 08:17, but I think we need to take five minutes for a break before we hear 08:17. So if you all don't mind, can you all manage that? We've just been sitting here for a very long time, and I think we need to clear our meds and claps before we talk about your stuff. So if you want us to focus on your stuff, that would be best for all of us. So let's

[Rep. Charlie Kimbell (D–Woodstock), House Ways & Means]: talk