Vermont Legislature SmartTranscripts:

[Speaker 0]: Hello. It's the Ways and Means Committee. We are here in our second week, January 3. We are beginning the day, quite late in

[Rep. Carol Ode (Member, House Ways & Means)]: the day, 2PM, talking about

[Speaker 0]: the Property Tax Classifications and Limitations Report with Jake Feldman from TACS. Julia Richter from JFO is here to offer support, but I don't think it's testifying. And Kirby Keaton is not available today, but we'll catch up with anyone if they have any questions for him later. We have Senate Finance on the Zoom. They're going to raise their hand if they have questions. Similarly, we'll do that around the table. If it winds up disrupting Jake's flow too much, we'll move to section by section. But for now, we'll go as is. And Jake, I just want actionable, specific forward momentum report, and I appreciate all of your team's work on it. Thank you. Floor's yours.

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: Thanks. Jacob Elliman, tax department. And it was a team effort on the report. Abby Magnus helped a lot. She's sitting right here. She's a government fiscal analyst. Rebecca Sameroff, deputy commissioner. Abby Shepherd, must have ledge counsel, she's our policy advisor. And we had a great intern from Middlebury, Gabe Palmer, who helps a lot. So it's good to be here, and it feels good to be back in the witness chair trying to help make the ACT 73 package come to fruition. So, could share my screen for the PowerPoint, but I don't want things to get too tiny for people. Do you think I should share it?

[Speaker 0]: No, I think that would be great.

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: My Saoirse, I've put a couple of things under my name on the Ways and Means page, there is a presentation which I'm going go through, and then there's the actual report. I will say about the actual report that it's maybe 44 pages long, but a lot of it is appendices, so the core of it is maybe only 12 pages. So please take a look at the actual report when you have a little bit of time. It has much more detail in it than I'm gonna be able to cover here, or you could use it to kind of double down your understanding on on what I'm gonna cover. So please take a look at the actual report.

[Unidentified Member (House Ways & Means)]: And

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: I am going to try to share the screen. Okay, great. So I guess the first thing is and it's a little bit difficult for me to see on my own screen, but to kind of go over what changed in Act 73 regarding classifications, I think maybe Julia from JFO has already covered it, maybe Kirby covered it. But just quickly, a new classification was introduced in Act 73. Vermont currently has two. We have homestead and non homestead, and that's all we have. And Act 73 introduced a new one called non homestead residential. So there was no change at all with homesteads, And non homestead, non residential, and that's a lot of nouns, but that one is kind of the catchall. That would be anything that's not a homestead or not in this new group. So you'd think open land, factories, storefronts, apartments, which we're going to talk about, those would all fall in this non homestead, non residential class. And so the new one is non homestead residential. And the definition is pretty lean in Act 73. It's just a parcel or portion of a parcel for which a homestead was not declared, and that has a residential property as defined by the Commission or by rule. So, you could think of it as second homes, basically. Okay, a little bit more talking about rate structures. Act 73 made some important and excellent changes. Rates are going to be uniform statewide. Right now, I'll talk about that later, but right now they're not. In a school district, is another change, in a school district, people could vote to spend a little bit more than they get through the foundation formula, but there would be a tax surcharge. And that would apply to all classes of property. Right now, spending decisions only impact the homestead tax rate. So Act 73 is putting in a scenario where it would affect all the classes. Everybody who owns any kind of property would have a little bit of a surcharge. Act 73 has this tiered setup where you have a statewide rate, which could be something. And then the homestead rate, I have it as one point PBD. In the bill itself, it's one point zero zero, but it could be whatever. That would be multiplied by that statewide rate. Non homestead, non residential would be some other multiple. And then non homestead residential would be some other multiple. And those, I think both the statewide rate and the multipliers could be set by the General Assembly each year.

[Rep. Carol Ode (Member, House Ways & Means)]: Possibly a policy discussion that I want to have about the supplemental district spending.

[Speaker 0]: I'll Yeah, definitely. I don't even know if Yes. We'll wait on that.

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: In current law, there's no statewide rate. There's a yield that affects homestead taxes, and then there is a statewide rate that's just for non homestead property. And I know that you guys are also working on the yield bill. In current law, homestead, like I mentioned, it varies based on people spending. In FY '25, which is kind of the year I was doing all this work off of, the average homestead rate was a dollar 30. And then in FY '25, that non homestead rate and again, in current law, there's no differentiation between non homestead residential and non homestead non residential. The rate for all non homestead property was a dollar 39. They don't get adjusted by CLAs. Okay, so I'm kind of going to skip to it's something that comes at the end of the report, but it's related to the prior slide. The statutory charge for the report asked the commissioner to offer a few possible multiplier sets that could raise enough money. And so to the best of our ability, we did. I will say that the exact tax base for non homestead residential is not known. So there's a footnote in the report on how I estimated it, but a lot depends on policy decisions about what is included in there, what's not included. And I took a hack at it, but I don't know for sure how much of the non homestead base would be called non homestead residential.

[Rep. Carolyn Branagan (Member, House Ways & Means)]: What I

[Speaker 0]: appreciated about this was less the definite numbers and thinking that we're going to implement those definite numbers and more that you made your thinking transparent about each of those scenarios. And so that sort of transparent thinking can be carried through to a time when we have clearer numbers.

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: Okay. Great. Yeah. So I did try to describe the thinking and also the limitations. So again, this is FY '25, and we're thinking about a world of FY '29, so that's four fiscal years away. So a lot can change in that period, and then there's all kinds of other things that can change. So it's a good faith estimate of what could be done with the different classes.

[Rep. Rebecca Holcombe (Member, House Ways & Means)]: I just want to make sure I understand what's in B. I think you're saying that this is using retroactive numbers. If we had used these weights, we would have covered the cost of the new homestead property credit.

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: Yeah, I haven't really talked about L1B. But yeah, that's basically right. The statutory charge asks for a couple of things. The first one says, Can you offer some tax rate multipliers where the tax on second homes would cover the cost of this homestead exemption that was included in Act 73? And that is a great construct. It's a great idea because right now, current law, property tax credits are paid for by the people who get them, which is super awkward, and they're also paid for by renters. So imagine a situation where property tax relief for low and moderate income homeowners would not be paid by other homeowners or themselves. And it would not be paid by renters, but it would be paid by another group. And that's kind of clean because it would have a statutory purpose. It's saying, Okay, we have this surcharge, but its purpose is to do this. So if you tie the things together, then it's kind of like a good linkage. It feels like nexus. And so there's a lot of different combinations that would make that true. But one of them would be and this is set one column. If homestead was 1.2 if non homestead, non residential was also $1.2 and this new third class was $1.96 that $0.76 delta is paying for the cost of the homestead exemption. And there were some other possible combinations in there, but this one had some attractiveness to it. But there's really an infinite number of possibilities. There was also in the study, asked us to talk about attacks three different multipliers that would help mitigate the forecasted homestead rate increases under Act 73. And what that's talking about is that current law, current Vermont situation, some districts have a school tax rate of a dollar and some have, like, $2 So if you're putting everybody on the same tax rate, then the people who are at $1 are going to potentially go up. So that's why we were asked to present some tax rate scenarios that would help mitigate that.

[Rep. Carol Ode (Member, House Ways & Means)]: Can I ask you a question about that? Sure.

[Speaker 0]: So I don't remember why we use such Speculitous language to describe that charge to you. But the way I've sort of been thinking about it is like, how much would it cost to essentially bring everyone's homestead tax rate to what is the lowest homestead tax rate in the state. And it seems like that's mostly how you interpreted it.

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: That might be one of the combinations in the report. It's not quite how I interpreted it.

[Speaker 0]: So

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: there's some good data in there. There's a histogram, a distributional chart of what different tax rates are across the state, and you can see that most of them are 1.2 or over. There are some that are 1.2 dollars So if you could make the homestead rate 1.2 dollars it's true that a few districts would see an increase. But what I said in the report is that to really understand what people pay in Vermont for homestead property taxes, you can't just look at the rate, because more than half of homeowners get income based credit. And so to holistically understand what would happen to people under Act of '73, you really need to layer in the homestead exemption. And so last year towards the end of the session, there was concern about places like Berry, which are currently 1.1 dollars And some preliminary modeling had a statewide homestead rate of 1.3 or something. And so everyone was saying, well, Berry's taxes didn't go up by 20¢. And so what we did at the tax department is we layered on the homestead exemption. And the homestead exemption by nature is more beneficial to lower value properties, the way it's framed in Act 73. And we found out that even if the tax rate was 1.3 that the town of Berry City would be sending less in total homestead taxes to the Ed Fund. So what I'm trying to say basically is that it's not just rates that matter, it's the whole picture. So SET 2C has some advantages. The 1.2 would help out most districts. The non homestead, non residential would stay the same. And then the second home tax would be 1 point dollars 6 which is not that it's a little bit higher, but not outrageously higher.

[Rep. Carol Ode (Member, House Ways & Means)]: Representative Ode? Thank you. I want to make sure I got this right. That helps where property values are lower.

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: The homestead exemption in Act 73 is more beneficial than the current law property tax credit to people in lower value properties.

[Rep. Carol Ode (Member, House Ways & Means)]: To people in lower value properties, so that would be also if you're in a place of state where property values are lower, would that be right? Yes, absolutely,

[Speaker 0]: and I don't know if we're focused on the homestead exemption right now. So we can take more testimony about the homestead exemption. And Julia and maybe Jake at another time, need to dive back into it makes sense. But I think that's less the topic of focus now.

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: Okay. So now things turned gray because Oh, talking about contingencies.

[Speaker 0]: Isn't that metaphorically, or did you change your background?

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: I changed the background. Things get a little gray here for a while. Then we go to green. You get green later, too. Okay, so like a lot of things in Act 73, the second home tax is contingent on other things happening.

[Rep. Edward "Teddy" Waszazak (Member, House Ways & Means)]: Doubly contingent, I believe. Doubly contingent, yep.

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: The first contingency is that basically the train stops unless the General Assembly has enacted new school district foundries by 01/01/2027.

[Rep. Carol Ode (Member, House Ways & Means)]: Representative Ode?

[Speaker 0]: I can't

[Rep. Carol Ode (Member, House Ways & Means)]: remember now, but Yes. No. So it could be any district then. It could be the smallest amount of change.

[Speaker 0]: It's a great question, and I think also not a great one for this but that's a good thing to dive into with blood cancel. Sorry to constantly I divert all of your

[Rep. Rebecca Holcombe (Member, House Ways & Means)]: love that.

[Rep. Carol Ode (Member, House Ways & Means)]: Fills it. So I'm going back, it's like I'm a little slug. We

[Rep. Rebecca Holcombe (Member, House Ways & Means)]: know the, there is a, in the previous current weighting under 127, which is still rolling out for the next couple years, We have some issues around the waiting that are lowering tax rates in certain communities that maybe shouldn't be lowered quite the way to be lowered. How does that set us up for any kind of

[Speaker 0]: transition down the road? Think that's also a great question, and not about this report that Jake's telling us about. I'm not trying to

[Rep. Rebecca Holcombe (Member, House Ways & Means)]: No, it's helpful. Just But I'm realizing that the purpose is to address the transition, because we're gonna

[Speaker 0]: have some inappropriate There are many transitions that will need to happen simultaneously, yes. If you also have a set of boxes to write things in, that would be a good one to save for later.

[Rep. Carol Ode (Member, House Ways & Means)]: Representative Ode? I just wanna follow-up on that, which is, in this time between now and Act 173, Act 73 usually happening. It's happening right now. Well, okay. Yes. I wonder whether we should consider fixing some of

[Rep. Rebecca Holcombe (Member, House Ways & Means)]: the things that exist now should not be existing. Sure, but let's focus on questions for Jake.

[Rep. Carol Ode (Member, House Ways & Means)]: Jake, is that a question for Jake? No, I said making sure that that doesn't go off because I'm afraid of it. Okay. Jake, where's yours? Okay.

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: Some more contingencies that kind of like right before FY '29 starts, must be action taken on the new tax rate multiplier. So basically, you'd have to set what what you want them to be. These new school districts must be operating and educating all resident students, apparently. The Cost Factor Foundation was in my mind, I don't know. I'm not a lawyer. It could have been that I transcribed something wrong. I'm not really sure. Third one, the cost factor foundation formula report must be provided to the general assembly. I think that's new weights, but not totally sure.

[Speaker 0]: But you're not enacting new weights. It's looking a report about weights. We don't have to enact, we just have to look at the report.

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: I apologize for all the words on this page, but here is the charge. So we were asked to study the implementation of the new classifications and identify any further actions required by the tax department, by Vermont Towns and the General Assembly to make it happen on the timeline established by the Act, which is by FY twenty nine. So that's kind of a tight timeline. That's basically two and a half fiscal years from now.

[Rep. Rebecca Holcombe (Member, House Ways & Means)]: Is there any reason why that can't be done more quickly?

[Speaker 0]: I think that's going to be basically the topic of this entire presentation, because you're going talk about all the things that need to happen.

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: I'm going talk about how challenging it is. I think if you see a way to condense, we could talk about it. But it's already quite tight. Yeah, you'll see.

[Rep. Carolyn Branagan (Member, House Ways & Means)]: Yes, Representative Branagan. So I'm also a little slow here. So by successfully implementing the new tax classification system, By that, you'll be going back up to your three slides. Board is now reading 1.2, 1.2, 1.9. You mean those figures to decide what they are actually going to be.

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: That's one of the contingencies. You would need to do that before FY 2019.

[Rep. Carolyn Branagan (Member, House Ways & Means)]: What else do we need to do?

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: Quite a few things.

[Speaker 0]: Okay. That's going be about

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: the presentation stuff.

[Rep. Carolyn Branagan (Member, House Ways & Means)]: Okay. Right now, all we've gone through is this set 1B. We know we have to do that. That's our work. And then, where are we? Right here. Okay. All right, so we're on the last line of that first paragraph, right?

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: Yeah. I jumped ahead to the multiplier sets because they made sense with the prior slide, but that's kind of the pot of gold at the end of the rainbow. And it's a hard, hard journey to get to that pot of gold. So there's quite a few things, actions by the tax department, Vermont towns and the general assembly that need to happen.

[Rep. Carolyn Branagan (Member, House Ways & Means)]: And we don't know what they are yet.

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: That's what's in the report, but yeah. Right.

[Rep. Carolyn Branagan (Member, House Ways & Means)]: Okay, I'm all ears.

[Rep. Mark Higley (Member, House Ways & Means)]: Just real quick, so again you've got a FY 2090 date there, but proving the tax rate multipliers has to happen by 07/01/2028, right?

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: So, like in the session at the 2028, that's when it would happen.

[Rep. Rebecca Holcombe (Member, House Ways & Means)]: Jake, do

[Speaker 0]: you have a timeline somewhere in this presentation?

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: Not like an actual draft.

[Speaker 0]: What I'm going to offer to the committee is we're going to hear Jake's whole presentation, We're going to ask questions about the presentation. Kirby has begun to draft a set of decision points for us based on the report. And I will ask him to work Julia and Jake to create a timeline so that we're all clear about all the decisions that need to be made and when they need to be made over the next three years.

[Rep. Rebecca Holcombe (Member, House Ways & Means)]: I respectfully have that disconnected from the dependencies. Because I think what we're interested in understanding is what the tax process We can figure out both ways. It's done, but if it's separated some of the It's five dependencies.

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: Yes.

[Unidentified Member (House Ways & Means)]: I'm curious if we need do have to do FY '29, preventing these set of guidelines, is the Department of Taxes ready to proceed based on our Can they implement it?

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: You'll see, we're going to talk about that. The real stress here is going to be on counts.

[Speaker 0]: Let's give you a chance to give your presentation, because I think you answer all these questions at some point in the report. Okay. Yeah.

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: So in the report, we considered adjustments to definitions, changes to existing forms, which you're going hear about in a second, and whether new forms or filings are needed. This one's kind of important. It asks us how the department could identify parcels with dwelling units that did not have an affiliated homestead declaration or landlords who are going to get on file. That last sentence suggests to us that it is the intention to not include long term rentals in the new classification, so not in fact, some like second homes. It doesn't say that in the definition of non homestead residential, but we're thinking that that is what you want. Okay.

[Speaker 0]: Because we started with all those categories, and then we combined all of them into the non homestead, non residential. Yes.

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: So I think that's a apt reading of legislative intent. Thank you. A few assumptions. So like I just said, we're thinking that long term rentals are intended to be excluded from that new class. This one's important. I need to explain it. We anticipate that seasonal properties will not be considered residential property, and here's why. In the way Vermont categorizes property right now for the grant list and the equalization study, there's separate categories for seasonal property and residential property. It doesn't affect what people pay for taxes. But what I'm trying to say is that it's already organized in a way, for the most part, not perfectly, that seasonal property, like you're kind of camp around a pond or a lake that's pulling water out of the lake to drink, and they shut it down in October or whatever. That's in its own grouping. And in prior attempts of taxing second homes by the General Assembly, such as the surcharge that was enacted a couple of years ago, it says exclude property that's not fit to year round application. So we think that, A, it would be easier logistically, and B, it would be consistent with that surcharge that was passed. So that means if somebody buys a camp and it's not subject to a surcharge, it's also not going to be subject to this new surcharge. What do you mean the transfer tax? Transfer tax, yeah.

[Rep. Carol Ode (Member, House Ways & Means)]: I was going to say, in this, looking at some legislation that's up, about property that's not habitable because it's fallen into disrepair? That could fall under a theft.

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: Right, that might actually end up in the commissioner's rules about what is fit for year round habitation, But then there would need to be a way to administer that type property.

[Speaker 0]: And I just want to highlight, this is of all the questions that I've gotten about thus far, this question of seasonal properties, camps not being included in this definition, I feel like is the place I'm getting the most questions. So I just want to pause and say it out loud a second time that the idea is that camps and seasonal properties would be excluded from this definition.

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: Which makes a lot of people happy. I want to point out that it's hard to know what is seasonal versus not, and that's going to be a burden on the tax department to create those rules. And right now, I don't believe that it's totally consistent from town to town, and it doesn't really matter all that much.

[Speaker 0]: Under the current law, that's under

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: the law. It doesn't matter that much. So if this is going to affect tax classification and the fact that people actually pay, then it's going to have to get more formal. You're really going to have to say those bright lines about, Where does your water come from? What's your heating source? Etc. So that's going be tricky, especially in smaller, more rural towns with maybe a lot of camps. They're going to have to make some judgment calls. It possible?

[Speaker 0]: Sorry, go for Can you go for

[Rep. Carol Ode (Member, House Ways & Means)]: Can you ask people to be quiet?

[Unidentified Member (House Ways & Means)]: Can you go from one category to another? Say seasonal, non residential, non homestead residential, and change it to homestead? Could you go back and forth? How difficult will that be for a person that they end up selling their residence? It's seasonal now, but could be a homestead.

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: Yeah, in Vermont, any kind of property could be a homestead. You could move into your camp, and then maybe it's just got a wood stove, and you could claim it as your homestead. Or I think the chair has a friend who has an aircraft what is it, an air hangar that she is living in? What to I thought you said that one time.

[Speaker 0]: But anything

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: via homestead, so to your question, yes, yes, you can go back and forth, and so it's going to require an annual attestation.

[Speaker 0]: My ex grew up in an air hangar in Texas.

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: That's the

[Speaker 0]: scenario that I brought up hypothetically one day. Yes. I might have just made it a useful hyphen

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: That's what happened.

[Speaker 0]: That purpose of the conversation. Yeah. Now everyone knows. Don't think that's where everyone knows.

[Rep. Carol Ode (Member, House Ways & Means)]: I'm sending out just as much.

[Speaker 0]: Everyone else has. So let's go to TJ.

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: As so this one's a little bit technical. Right now, when you are doing your taxes in a couple months, take a look at the homestead decoration. You can report if you're using part of your property as a business use. Like, if you have a building on your property that I don't know, you have a wood shop or something where you sell handmade bowls or whatever, you can say, Hey, there's this building that has a commercial use, and the listeners will move that building value into non homestead classification. Or you can even say, Hey, within my house, 40% of it is an office or my some sort of business, and that gets taxed as non homestead. So what about and this is going come up later too, but does the owner of a second home have that same option? If they have a shop on their property where someone is making wood bowls, and they report that it's a commercial use, Or if they're using part of their house as an office, can they say that they are? So that's a policy choice, ultimately. The policy choice that

[Speaker 0]: would shape the forms that you have

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: to develop. Yes, it would shape the forms. So kind of putting everything together as a result of the assumptions and law as it is passed, we anticipate that the tax reform will need to create a new dwelling use attestation form that's gonna replace the homestead decoration. You could call it whatever, homestead decoration and new dwelling use, or you could just call it dwelling use attestation. And we also anticipate that anyone who owns between one and four dwelling units is gonna need to file with us. I wanna point out something here that's mentioned in the report. It's a little bit awkward in Vermont that you file this form with the tax department, and then the tax department communicates information back to the town to move things into the right classification. In other states, it's usually at the county level, and you file with your county, and the same people who are doing your taxes are also moving the value. So we have this funny isosceles triangle that's pretty inefficient. So we're layering on to that here where we are gonna have to process about 173,000 homesteads, but we're also going to need to process tens of thousands more other dwelling use at that stations. And then all that data is going to have to get communicated back to towns. And they already struggle with just the current law.

[Rep. Carolyn Branagan (Member, House Ways & Means)]: Can I ask you a question about that?

[Speaker 0]: So I regularly hear from other members who are aware of, and or town clerks who are aware of someone in their district who is filing inaccurately, and then they send that complaint to you, and then what happens?

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: I don't know that much about it. I know that that's really tricky.

[Speaker 0]: I guess I'm asking because it seems like that's a thing that we're already grappling with every day, and so it would be helpful to know how we are currently grappling with it, because there are already incentives around filing in different ways in different communities. I represent Holcombe regularly. Brings that one up. It's a little

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: bit awkward because if they say they're going to be a homestead, it's like saying, In the coming year, this is going be my domicile. But you don't really know what is happening with a person until the end of the year. So if a town says, Hey, that person's not a homestead, they live in New York City. We can't. That's very hard facts for us to go dispute in the moment. Maybe at the end of the year, if they don't file a residential tax return, maybe then we could say, Why did you file as homestead?

[Speaker 0]: So that's a question for you that I have, and I think you had a question to represent what I So it seems

[Rep. Carolyn Branagan (Member, House Ways & Means)]: to

[Speaker 0]: me that you're already grappling with residency and how much time people are spending in the state every day in the context of income taxes. And sort of your ability to match data. It seems like this could actually strengthen the income tax collection and the income tax collection to strengthen this collection. But I don't know if your systems are set up for that. And I don't know if that might be deep in the compliance department or something. I'm happy for you to get back to me on that.

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: I can comment on the parts of it that I can understand. Yes, they have the ability to work off of each other, but you have to wait until the year is over to know about income taxes. And I will say that if you had a more consistent rate structure, where non residential was always higher, it would probably be easier to deal with than a current system, where non homestead is higher in a third of towns, or two thirds of towns and lower in one third. That's just confusing. So the incentives to do one thing or another are weird, and the penalties are also a little

[Rep. Edward "Teddy" Waszazak (Member, House Ways & Means)]: Forgive me if I'm forgetting that it was part of Act 73, but I didn't think it was. The one to four dwelling units rule. Oh, great. Thank you for that. It's used a lot in the report, and it just seems that I don't say this in an accusatory sense, but it seems like kind of an arbitrary number. I'm curious where that came from, what data was used.

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: No, it's great that you're asking because I would have just forgotten to talk about it. In current categories, we have a residential category in the grand list, the way the grand list is kept, that is one to four dwelling units. Undercar. Current lot. I forgot what the exact word is, but it's one to four dwellings or something. But then everything that's five or more goes into commercial apartment. So they're already their own thing. And I talked to BHFA about how many apartments are rented short term, and it's a pretty small share of the total short term rentals. It's maybe like 2,000 are apartments out of 16,000 total short term rentals in the state. And it's likely, although I would need to support this with data, but it's likely that those are not in the bigger apartment buildings. It's probably in the smaller, up to four. If you made and this isn't anticipating something here, but if you made landlords of really big apartment buildings a test for all their units, it could get quite onerous. And I'm not sure the deuces are the squeeze, at least now.

[Rep. Edward "Teddy" Waszazak (Member, House Ways & Means)]: And I'm just thinking about about a quarter mile from where I live, I'm in an eight unit building. My neighbor is a four unit building, and then on the other side is a single family. And the only thing that's fundamentally different is the size of the house. They're all long term rentals. Whereas in Downtown Mary, we have a building that's commercial on the 1st Floor, and there are then six luxury Airbnbs, which that's another day. So I'm just thinking that we might want to do some massaging of that one through four and dig into that a

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: little bit more as we continue down this road.

[Speaker 0]: So definition of commercial properties is a question to some degree.

[Rep. Edward "Teddy" Waszazak (Member, House Ways & Means)]: Yeah, and whether the one through four is the correct metric for what we're trying to measure, and more classification.

[Speaker 0]: That is a picture, yes.

[Rep. Rebecca Holcombe (Member, House Ways & Means)]: And in this thing, since any of this will involve some reconfiguring and reverification, is there any way to also, at the same time, cross reference whether people are paying income tax here, whether they filed for homestead exemption, and whether they're claiming a tuition voucher?

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: It seems like a separate project. Mean, you could do that now. Right?

[Rep. Rebecca Holcombe (Member, House Ways & Means)]: And then Now we just drive by their house and see if it's plowed.

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: Right. Yeah, I'm not sure. Okay, so now we are talking about implementation steps that Kirby is going to lay out for you guys in a better way.

[Speaker 0]: In a better way. It'll just be the third time we're here, and it will help us make decisions.

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: Okay. So to get this all ready by FY twenty nine, there are some things that would need to happen, like this session. There would need to be a working definition of dwelling unit in this context, and the definition is going to be not on how the unit is being used, it would be on its potential use. I bring that up because there are other places in law that talk about dwelling units, but it's how it's being used. So you could have an airplane hangar as a dwelling unit, you could have whatever as a dwelling unit. But this is fleshing out what an actual dwelling unit is, and you probably need to mention, does it have a kitchen or bathroom, etc. You had mentioned earlier about listers and assessors looking at the number of dwelling units. You used that word, and I thought, well, they must have a definition then, in their handbook or in statute. Yeah, I think it's in the Lister Handbook. I don't remember offhand exactly what it says, but you'd want it to be consistent with whatever was there. The actual definition of non homestead residential is going to need some refinement. It's going to need to talk about excluding long term rentals, excluding other things you want to exclude. Like, what about mobile homes? Can those be non homestead residential? Can farmworker housing be non homestead residential? There's going to need to be some more effort there. There's also things that are going to come up in this presentation that are going to have to be addressed in that definition. And then there's going to need to be some thought about what qualifies as long term rental.

[Unidentified Member (House Ways & Means)]: I

[Speaker 0]: know a lot of this is defined in other places in law. It needs to be defined for this context. Yes.

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: I was just thinking about long term an investment property that is rented to people on a long term basis with a lease underlying at thirty days, whatever we use for a different definition, that would fall into non homestead residential, Cause the owner is not necessarily occupying it. No, that would be non homestead, non residential. Ah, yes. And then someone who has an apartment in their, or a unit that is a short term rental, Is that at that point non homestead? Residential, I. E. Second home.

[Speaker 0]: Unless they have decided to have their B and B business be like a commercial hospitality business, which some inns do, for instance? And then it's a commercial property. Maybe. I think that's something we need to figure out the rules.

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: Yeah. How do you treat short term? Okay, getting step two. Oh,

[Speaker 0]: thank you. Hello, Senate Finance.

[Sen. Thomas Chittenden (Member, Senate Finance Committee)]: Hi, Chair Kornheiser. May I ask you a question?

[Speaker 0]: Of course.

[Sen. Thomas Chittenden (Member, Senate Finance Committee)]: So, Jay, thank you, great presentation and I hope this is on point for what you're describing. Have you contemplated, and I have skipped your report, but have you contemplated the process for when a house is atrophied and not livable because of going through a major renovation and flipping process? Would that process be as simple as just not declaring or declaring that it is currently unlivable or would that, is that in the report as well and it would also involve not necessarily appraiser but some boots on the ground coming out and looking at the properties if they were to be declared as unlivable. Is that in the report or would you have any comments on that contemplated possible process for our constituents?

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: That's not in the report. That's gonna be a tricky area. I know Montana is planning to give people five months for renovations and that's it. Right? So yeah, it's a question about, you know, what if what if apartment is being remodeled, substantially remodeled, and it takes a while, which stuff does in Vermont? During that period, is it a non homestead residential or what is it? That's something that's going to have to be figured out. Thank you. It could be a situation where the commissioner's rules around what's fit maybe gets to that. But it's going to be an administrative complexity, I think. Okay, the next step of implementation that suppose the first things happen and suppose the first contingency is met around school districts, then property valuation and review can develop guidance and assist municipalities on identifying dwelling units. That's where I think the commissioner's rules might come into play and the definitions created by the general assembly. This one's in bold because it's so big. It's football season. This one is a bit of a Hail Mary. So towns are going to need to identify all the dwelling units that meet the statutory definition, including their square footage and identifiers so that we can communicate about them. What are they called? Are they called above the garage? Are they called Apartment 1? Are they called 2nd Floor? Otherwise, there's no way to talk about what's happening in which apartment. We have a system that was developed in Act 60 for each parcel called a school property account number. It's a unique identifier. There's nothing for apartments. Tim Turway at BCGI, one of the smartest people I know in state government, took a look at a couple of CAMA systems to see if he could find the dwelling units, and I think it was very struck out. So this is really quite a project. There's going to be really difficult cases, and it would need to happen on this short timeline to get up and ready for FY '29.

[Speaker 0]: And how does this line up with the landlord certificate, your favorite, all forms? How does

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: it line up with the landlord certificate? Mean, a landlord certificate could maybe be helpful. The department gets landlord certificates really just to administer their renter credit. It's not a perfect accounting of all the apartments in any town. So, small rural towns with a lot of camps are going to need to do some work here, saying this camp meets the definition and this one doesn't.

[Rep. Carol Ode (Member, House Ways & Means)]: We have so many places in government,

[Speaker 0]: in taxes even, where self attestation is just trusted until proven otherwise, why not roll with that here?

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: What do you mean? Who would be attesting to what?

[Speaker 0]: That folks who own properties would be attesting to their own property?

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: Do you mean how many dwelling units there

[Rep. Mark Higley (Member, House Ways & Means)]: are? I

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: think that would have to be part of it. I think a town would say, Hey, we think that based on our records, have two dwelling units. Here's what a dwelling unit is. Can you confirm? That might have to be part of it?

[Speaker 0]: I say I have one dependent, and no one's going around coming over to see how many dependents are in my household. And so why would the municipality lead on the count of dwelling unit? I understand that my child and a dwelling unit are two dwelling units. But why would the town need to lead on the number of dwelling units rather than having the owner of the dwelling units lead on?

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: Who's asking them, and why would they respond? Is there a mandate that every owner is going to report back their town? Many dwelling units there are?

[Speaker 0]: If it was part of the new homesteadnon homestead declaration form, for instance. I'm just trying to figure out where the right burden of proof should sit.

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: Yeah, think the town is the one who administers property taxes, they would be the closest to knowing if there is a dwelling unit on a property. And a lot of them, my house is going to be easy. It's a single family home. So I'm imagining that they might look through their records and say, here are cases where we're not sure and we need to mail a letter. That could be part of this.

[Speaker 0]: Representative Wilson, then the Senate Finance Committee, I think, has a hand.

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: My question is more about other databases. So a nine eleven database would have the dwelling unit, I believe Apartment 1, Apartment 2. So that data already exists somewhere. The nine eleven data is imperfect, and it's possible that it could be used. But I was talking to the person who administers that, who's in our housing data council, and they say that it doesn't know about the dwelling

[Unidentified Member (House Ways & Means)]: units. It

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: could help support herself.

[Speaker 0]: Senate Finance Committee?

[Rep. Carol Ode (Member, House Ways & Means)]: Don't see any questions. Oh, okay. Your hand is up.

[Speaker 0]: Oh, it's up. Legacy hand. And Jake, the floor is yours again. Oh, sorry, it's not.

[Rep. Edward "Teddy" Waszazak (Member, House Ways & Means)]: Sorry, no, it's not. Also, it be nice to have that level of information, Apartment 1, etcetera, etcetera? Yes. But I don't understand why they can't just be referred to, like, you identify that you have four dwelling beds. Record keeping columns, dwelling units one through four, why is that extra level of information necessary? I understand that it would be nice to have, unless we put all of this data isn't perfect, and we can't let that stop us from making progress, but I don't understand why it's necessary.

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: No, that's the perfect question. Thank you. All your questions are great. Praise to face. Truly, I don't just flatter.

[Speaker 0]: No way that makes

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: you flatter, Jake. The reason you need to know that is because the owner is going to be Suppose you have four units in a building, and two of them are going to be rented short term and two long term. The owner's going to fill out this new dwelling use attestation. And they're going to need to say, well, which dwelling is which? So they might say, oh, apartments 1A and 1B are the ones that are short term, and two a and two b are long term. And then that is information that will go back to the town who's sitting on the data needed to put the the value in the right classification. But if the owner just said, I have four, and two are short term and two are long term, that wouldn't be enough for the town to administer the tax. Does the town or the owner to put the value on the individual dwelling units, the one on the floor? Okay. So the way act 73 is written, it's based on square footage. So there is no and and that's one of the challenges here. In places that have this, individual dwelling units have their own values already. Vermont doesn't have that. Act 73 says it's based on square footage. So if apartments 1A and 1B are each 2,000 square feet, and 2A and 2B are each 3,000 square feet, then 1A is 20% of the total building value 1B is also 20, but 2A and 2B are each 30% each. And that's how Act 73 organizes the value of each portion of a parcel, and it's going to need some more work. I think there's one more thing here. Then

[Speaker 0]: It's just like we can change that square footage thing if it turns out that it doesn't work. Right? Yeah, absolutely.

[Rep. Rebecca Holcombe (Member, House Ways & Means)]: For each of these problems that you're coming up with, are you going to be suggesting language or solutions?

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: Yeah, we will always be engaged and trying to help. We did provide some refinements to the We provided the Definitional Dwelling Unit in the report and some refinements to the non homestead residential technical. But, yeah, we're always helping out. In the $20.27 grand list that comes to PVR, then municipalities could tell us about the dwelling units. Okay, one more. There's actually eight steps in the report, but I'm only doing the first three. We can look at some pictures of properties. We would need a requirement to be passed that owners of parcels of between one and four dwelling units have to annually attest to the use of each dwelling unit. There needs to be some penalties in place for fraudulent attestations. Those are not in Act 73. And this is all stuff that could happen next year. And then we need to know what to do about appeals. What if people think that, Hey, that way you did the square footage and did not make any sense? Can they appeal that? Can they appeal the use? Mike, that's not said residential. What are their rights there?

[Rep. Edward "Teddy" Waszazak (Member, House Ways & Means)]: Yes, Rebecca, you mentioned in the report that there is a penalty right now for can you remind us what that penalty is?

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: If I can remember it, I will remind you. It's something like if non homestead is higher than homestead, it's like 8% a difference or something. And then if non homestead is lower, but you go to homestead, I know, I give up. So we can do that.

[Sen. Thomas Chittenden (Member, Senate Finance Committee)]: Finance. Thank you. Another question from me, Mr. Chair Kornheiser. Jake, so I heard you just say, I I might need to think about penalties for non declaration, but I recall you presenting in previous years that you'd want to use the carrot rather than the stick approach, and I thought that our trajectory was that tax rates would default to the worst rate, which would thus ultimately motivate people to attest that they are dwelling units. Is that not no longer the thinking?

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: That is the thinking. If there's a dwelling unit that's fit for year round habitation, it defaults to the non homestead residential. For it to be in other classes, somebody would have to say, That's my homesteader. That's a long term apartment. So, the default is the worst one. What I'm talking

[Rep. Mark Higley (Member, House Ways & Means)]: about

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: penalties, Senator, is suppose at the beginning of the year, somebody says, I've got these apartments. I'm going rent them long term, but they don't. What's the penalty in that case?

[Sen. Thomas Chittenden (Member, Senate Finance Committee)]: If I may, is there a penalty now if somebody declares a homestead and it isn't? Do we have enforcement and penalties already structured around that, our current tax mechanism?

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: Yes, but it's a little bit complicated. So in the new rate environment, you'd want to take a look at that.

[Sen. Thomas Chittenden (Member, Senate Finance Committee)]: Okay, thanks.

[Speaker 0]: Is there I understand that the transition would be complicated if we did this, but we tax income retroactively. Couldn't we tax property retroactively?

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: It would create a pretty big lag. There already is a lag, because the calendar year is different than the fiscal year.

[Speaker 0]: So much so, yes.

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: So, if you're saying, This is my homestead in 2026, then that's a calendar year, but the fiscal year doesn't start till July. So there's already a lag if you think about it. And to say, was it your homestead in the prior year? And if it was, then in the coming July you get the homestead, then that's even more of a mismatch. So I think that the rental, when you're talking about apartments and homesteads, it should all be on the same basis, same calendar year as each other, and it should align with the fiscal year as much as possible.

[Speaker 0]: I'm curious about why, but let's talk about it another time, and I'm gonna let you keep on going with your question.

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: I know there are jurisdictions that do it on more of a lag, but it's complicated because it's like, well, with my homestead last year and I get that rate starting in July, does that open up potential for gaming? You're saying I don't know.

[Speaker 0]: Let's talk about it another time.

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: So now we switch to green. New world. I guess in early twenty twenty eight, so towns will have records of all the dwelling units, including their square footage and any identifiers, like calling them apartment 1A or whatever. Property owners between one and four dwelling units will have been made aware through a letter that's coming either from the tax department or the town that they need to file this dwelling use attestation form each year. And if you're becoming a landlord, like if you're a landlord in progress, you would file the landlord in progress at the station, which goes with this. So it would be dua lipo.

[Rep. Rebecca Holcombe (Member, House Ways & Means)]: That's how I listened to him my whole ride to hear this.

[Rep. Carol Ode (Member, House Ways & Means)]: So thank you, Jake.

[Speaker 0]: You're not going pause and give Jake credit for his terrible pun, or whatever that was, I don't know if that's a fun acronym.

[Rep. Carol Ode (Member, House Ways & Means)]: So, what I'm wondering is, this looks like an unfunded mandate, small, and then these kind of thoughts, doesn't have something going on already, and I just wondered if it's something that we could, you know, it's cost, why doesn't the cost be covered at least from the general fund?

[Rep. Rebecca Holcombe (Member, House Ways & Means)]: That's an interesting question. Thank you.

[Speaker 0]: Let's save it for when we get into the, yeah.

[Rep. Carol Ode (Member, House Ways & Means)]: Just gonna let you answer it all.

[Rep. Mark Higley (Member, House Ways & Means)]: Can throw in this report the ability to possibly tack on to the non homestead residential rates and money for municipalities?

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: That's some possibility. I agree with representative Ode's observation, for sure, that it's quite a bit more work. So, yeah, I think that somebody should consider that. Currently, are towns with blisters who are basically volunteers and get paid $1,000 a year, and they have to do homestead done homestead already. So this is not just 50% more complexity, but quite a bit more.

[Speaker 0]: And I think we still have ways to go to figure out what exactly the municipality's responsibility will be or won't be on this. And I think there are ways we can minimize the burden as we work through the bill.

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: So we're in the green world. So we are going to talk about some properties. We'll start off easy. This is just a single family home single family home dwelling unit. If the owner attests that it's their homestead on the dwelling use at Bell Station, it's a homestead. And then otherwise, to Senator Chittenden's point, it's just non homestead residential. So that's an easy case. And Okay. Example three. There's only example two. Oh, single family dwelling, same house, but rented out. If the owner attests that the house will be rented on a lecture basis on the dwelling use attestation, then it would be taxed at that non homestead, non residential rate. Otherwise, suppose it's rented out short term, like a Airbnb, it would be taxed at the non homestead residential rate. Example three is an owner occupied duplex, and the other unit that's not the owner's house is rented out. The owner files this attestation, and they're gonna have to talk about, to your point, which unit is the one that's their homestead. Is it the one on the left or the one on the right, whatever they're called? The other unit is gonna be taxed at non homestead, non res if it's rented long term. Otherwise, if it's non homestead residential. And then the town will move the value into the correct classification based on square footage, which they presumably have records of.

[Rep. Rebecca Holcombe (Member, House Ways & Means)]: And under current law, I know we're

[Speaker 0]: in green future implementation, but under current functioning law, this scenario basically already exists. We have a duplex, one side of it's homestead, one side of it's not homestead. Yes. Okay,

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: this is my friend Frank's pottery studio on Berry Street here in Montpelier. And he has a pottery studio on the Ground Floor, and he rents the apartment above short term rental.

[Speaker 0]: I believe he testified.

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: Yeah, great guy. So the town of Montpelier is aware of a thousand square foot dwelling unit above the commercial space of the same size. The owner can file the dwelling at the station. But if not, if it's not filed, the town will just move 50% of the building value into the nonhomestead residential fan classification and 50% into nonhomestead nonresidential for the for the pottery studio. But there's a big thing that needs to be addressed. The the question is, what about the land value? So apportioning the building value based on square footage is maybe doable, but what what about the land value? Does it go with non homestead res, no homestead non res, or does it also get a portion? Right now, for homesteads, if you declare homestead, all your land, imagine it, all of your home's credit, all the land values automatically homestead. Here we have kind of your classic second home, but it's got an equestrian center. The second home is 5,000 square feet and the horse barn is 10,000 square feet. There are year round riding lessons happening there. Somebody is operating it year round. The owner files a attestation and reports that that building has a commercial purpose. So the town moves the barn value into the commercial non homestead, non residential class, and the house gets taxed as non homestead res. We have that same question about what to do with the land value.

[Speaker 0]: Let's put it in current use just to make your slide more fun. But

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: a tricky one here is, well, imagine if you apportion it based on square footage. The horse barn is twice as big as the house. So, does two parts out of three of the land get taxed as commercial? Or do you do it based on finished square feet and the horse's barn are not living in a finished zone? I have no idea.

[Speaker 0]: There's also a question that Chittenden asked.

[Rep. Carolyn Branagan (Member, House Ways & Means)]: I'm not sure this question is appropriate right now, but are properties like this eligible for current use? Yeah.

[Speaker 0]: There is a debate about horses and current use, to be clear. Oh, okay. What's that? There's a debate raging next door about horses and current use.

[Rep. Carolyn Branagan (Member, House Ways & Means)]: Oh, I had no idea.

[Speaker 0]: Should we even go down that road? Probably not, no. Okay.

[Rep. Carol Ode (Member, House Ways & Means)]: Don't know

[Speaker 0]: if Jay knew that when he stepped onto the horse's mary.

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: I've never heard that horse thing yet.

[Rep. Carolyn Branagan (Member, House Ways & Means)]: Let's wait, we'll let them settle it and then deal with our problems.

[Speaker 0]: Let's just pretend they're cows so that you can ask the question. Well then, if they're cows,

[Rep. Carol Ode (Member, House Ways & Means)]: then

[Rep. Carolyn Branagan (Member, House Ways & Means)]: whatever we valued in that 10,000 square foot building at, Things get cut in half or cut in half or

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: Current use on buildings and local current use are tax at zero.

[Rep. Carolyn Branagan (Member, House Ways & Means)]: Well, there you go. That's what we're all about at Vermont is agriculture. We want to encourage this kind of thing. I don't know about the second house where he falls into the whole scenario, but the $10,000 riding ring has to come with some land and fenced in property and all that. That doesn't bother me at all. Can I also refer this question as I've raised it to our resident list, see what would happen in this town?

[Speaker 0]: Emilie, do you want to ask Mark a question? Higley. Yeah.

[Rep. Carolyn Branagan (Member, House Ways & Means)]: Higley, what happened to this property? Could you be in front of this in your town? And then what would happen to his tax obligation?

[Rep. Mark Higley (Member, House Ways & Means)]: It would, as far as my understanding, be the same. Zero. Right. As long as it's for agriculture purposes.

[Rep. Carolyn Branagan (Member, House Ways & Means)]: And I don't think this is a problem.

[Speaker 0]: I think a lot of what we're grappling with is there are scenarios that are already complex under current law. And Jake's concern is that maybe they'll be exacerbated under future law or that we have a chance to change law, and so maybe we want them. But they're all things that we will work through, whether or not they are problems, I guess, is the question.

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: The issue of how the land value, where it goes, has to be addressed.

[Rep. Rebecca Holcombe (Member, House Ways & Means)]: Yeah, absolutely.

[Speaker 0]: And it's something that we address in current law. We would

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: just need to make sure that we're. Yeah. In current law, the land of a homestead is all homestead. So what about Exactly. Yes. Yeah. Yeah. Senator.

[Speaker 0]: Oh, I thought you meant the senate was gonna figure it out. Senator Branagan.

[Sen. Ann Cummings (Chair, Senate Finance Committee)]: I'm stretching my memory, but I thought if you were breeding horses, it was agricultural, and you're just riding them. It isn't.

[Speaker 0]: Thank you, senator Cummings.

[Sen. Ann Cummings (Chair, Senate Finance Committee)]: I stand to be corrected.

[Speaker 0]: I think we're gonna work with the a cow scenario rather than a horse scenario just to minimize that piece of the confusion.

[Sen. Ann Cummings (Chair, Senate Finance Committee)]: Okay. We all understand cows.

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: And is These are things that we've kind of talked about already, but a four unit building, two units are rented out long term and two are short term. The owner is going to have to indicate which apartments are short term and long term, and that's why you need these identifiers. And then the town's going to move the building value the right way. You have the same issue about the land value as the prior slide. Then what if the owner doesn't like these unit values that they'd see on their tax bill? What if the owner thinks that the things that are in short term are not worth nearly as much as what the square footage calculation produced? Okay. This is also something that is gonna need to be addressed. Somebody lives in a ski house a few months or they come to it a few months of the winter and a couple months of the summer. When they are here, they have an office that they use for remote work. Can they get that portion of the property moved into the homestead, non res, which is what homesteads do. Homesteads would report if it's a private interaction with UCEDD or not vessel. More than 25%. So

[Speaker 0]: one piece that I find exciting in that complex question is that it's very possible that a lot of folks who are supposed to be declaring income in the state when they're working remotely, essentially on extended vacations, are not reporting that income into the state. And this actually creates an opportunity for us to do better data matching to get that income reported.

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: Assuming that the non homestead res rate is higher than the non homestead non res rate, and this owner wants to get a little bit of a lower rate on that part of their property, then they would report it. And then, yeah, to the chair's point, then on the tail end, we could say, Hey, you told us that part of your building was going be used as an office, so does that mean you have income here? I think there is that. That's all. Couple more. Oh, this one's a bit sad. That's okay. It's an important one, though. It's a duplex with an upstairs unit that's just not rented at all. An elderly couple lives downstairs, and they don't want to be landlords. Their kids occasionally come to visit, and they stay in the upstairs unit. In this new classification, that upstairs unit will be taxed as non homestead residential because it's not rented long term. This one's a bit complicated because under current law, the whole thing is a homestead and the whole thing is even part of the house site, and so it's eligible for an income based credit. But in the new world, really the upstairs unit, it's a zoned dwelling unit. It shouldn't be part of a homestead. And would policymakers let a homestead claim multiple dwelling units up in their home as homestead even if one of them is totally vacant? I don't know. Let's see if the last one is happy or sad. Oh, can either feel

[Rep. Carol Ode (Member, House Ways & Means)]: like Calm. Do all of them have feelings,

[Speaker 0]: or is it just that one that had feelings?

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: The last one was clearly sad.

[Rep. Carol Ode (Member, House Ways & Means)]: No, but it hit all the other, was it?

[Speaker 0]: Sorry. Continue on. So

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: a new accessory dwelling unit goes up in a rural town. The owner puts it up, and Narrickstown does not have any kind of zoning at all, and their plan is to rent it out on Airbnb. And the question is, how the heck is the town even gonna know that this dwelling unit has appeared? Because they don't have zoning. Or conversely, how would a town know really if the dwelling unit ceases to exist because it's burned down or something really bad has happened? I don't know. Or maybe somebody knocked down a wall and tore out a kitchen and the dwelling unit no longer exists. You kind of need to know about all the dwelling units to make this work. So how is that data going to be available?

[Speaker 0]: Or it would be in someone's best interest to let the tax department know when something that's taxable no longer exists.

[Rep. Rebecca Holcombe (Member, House Ways & Means)]: Isn't that the case now?

[Rep. Edward "Teddy" Waszazak (Member, House Ways & Means)]: I mean, the town has,

[Rep. Rebecca Holcombe (Member, House Ways & Means)]: I mean, point is, hear you, and this is true now, and the town itself and the municipal side has the vested interest of knowing what buildings are in town. It's not like this isn't already the case.

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: I think in a way it could play out. Imagine you have somebody's property in an attached apartment, and they do knock down a wall and tear out a kitchen. So they wipe this other dwelling unit off. And they don't file their homestead, but they don't say anything about this other dwelling unit. And the town, all of a sudden, starts taxing it, or it shows up as non homestead residential, then the person is going to complain. So maybe that's how that gets addressed. But how does this get addressed, where you're in a rural town with no zoning and somebody puts up an ADU? You need a mechanism where new dwelling units are reported. I'm not proposing this is the right way to do it, but even a separate dwelling unit would have to file for a wastewater discharge permit, right? I'm not sure if that's not my No? Unless they're port of

[Rep. Mark Higley (Member, House Ways & Means)]: mine or wood, so I'm

[Rep. Carolyn Branagan (Member, House Ways & Means)]: not sure.

[Speaker 0]: I think there's also the question of a new dwelling unit would change the value of the property, and the municipality would need to be aware of it regardless, because it would change the value of the property, whether a town has zoning or not. Though I was surprised to hear how many of your towns, Representative Higley, have zoning.

[Rep. Mark Higley (Member, House Ways & Means)]: Well, that's kind of my question, I guess, Jake, is you talk about this new dwelling definition that we're going to come up with, right? So let's say there's a substantial number of buildings that don't mean that definition, but they still live near year round, are they going to be taxed under the non homestead residential rate?

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: No. No. They would be if if they if it's somebody if it's are they apartments or or That's a single that you can declare that as as a homestead. You could if you were living on a on an insulated camp with a wood stove, you can make that your homestead. There is no law against that.

[Rep. Mark Higley (Member, House Ways & Means)]: Okay, so that would be taxed at the homestead rate. But what about units that are no longer fit for habitation? How is that determined?

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: Right, so that's what we were just about. If something has happened to a dwelling unit, then there needs to be a way for the person to let their taxing authority know that it's not a virus.

[Speaker 0]: Three different people have asked that same question about not fit for habitation. I think there are bills that have been introduced in various ways to create a new fine structure for buildings that are not fit for habitation. And there have been the word's gone from my head, but for that kind of property. And so I think dilapidated or whatever it is. And so I think it would be helpful for us to have a totally separate committee conversation about that. Because there's also a question of fines aren't really our jurisdiction. Should it be a tax? Should it be a fine that municipalities can levy? Should we set guidelines for it? Some of it's outside of our jurisdiction, but it's a question that keeps on coming up.

[Rep. Mark Higley (Member, House Ways & Means)]: Well, it definitely is important because I've got seven homes, the people who live in between my place and the Edentown Line that don't have power, some of them don't have water, I don't know what they have for a septic tank. So again, that definition is pretty concerning to me.

[Speaker 0]: And I think what I heard from Jake in this context thus far, is that if someone is living in it full time, it's a homestead. And it doesn't like, people get to declare whatever they want to be a homestead if they live in it. It doesn't matter what whether it's a airplane or a tent.

[Rep. Carolyn Branagan (Member, House Ways & Means)]: Jake? Yeah.

[Speaker 0]: Is that a question for Jake?

[Rep. Carol Ode (Member, House Ways & Means)]: An owner decides, think about what if an owner decides, maybe I don't know what this all about here, an owner decides just not to rent their property, it's not dilapidated.

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: It's like a big city, big game house.

[Rep. Carol Ode (Member, House Ways & Means)]: But fine, it could be a commercial building, what happens now?

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: What happens now? Although it's not a homestead, so it's non homestead.

[Rep. Carol Ode (Member, House Ways & Means)]: Okay, then what happens if it's a homestead and it's just not well that's kind of like the old, I don't know, I don't know. I'm confused with myself.

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: Well, imagine just a house that could be lived in full time and it's just totally empty. In this construct, it would be taxed as non homestead residential. Alright. What

[Unidentified Member (House Ways & Means)]: if a corporation would take a large home, would it be under non homestead residential? And what

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: do they do with that?

[Unidentified Member (House Ways & Means)]: Well, let's say they let their employees use it.

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: Okay, so employee housing is a tricky one that someone will need to think about, because imagine you have a farm, I worked on a farm like this in Walden, but you had a farm and another older farmhouse and your employees didn't pay rent, but they lived in that other farmhouse. Is there an exception for employee housing on farms so that that other house doesn't get taxed as a second loan? So that would need to be thought upward.

[Unidentified Member (House Ways & Means)]: And it could be a ski shop, or a ski company.

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: Right, yes, there's an example of that in Wakesfield, I think. Hospitals for nurses. Yeah, yeah.

[Speaker 0]: So let's flag that as something that we were going need to solve it to. It could also work the other way.

[Rep. Rebecca Holcombe (Member, House Ways & Means)]: It would be in some people's financial interests right now to set up a limited liability corporation and rent their house back from the limited liability corporation, and this would address that problem as well. It goes both ways. Yeah.

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: I think that might be all for my yeah. It's the whole thing.

[Speaker 0]: There are all the senators much larger on the screen. Do you all have any questions over there? They all got very attentive when

[Jake (Jacob) Feldman (Vermont Department of Taxes)]: I said that.

[Speaker 0]: I hope you enjoyed watching the fairly wild, circular conversation we had in here. It was nice to spend this time with you. Thank you. See you soon. Jake, thank you very much. I hope you can come back for the next conversation as we work through some of the decision tree that you laid out here. Really appreciate your work on this. Happy hear. Folks, we are done for the day.