Vermont Legislature SmartTranscripts:

[Emilie Kornheiser (Chair)]: Ways and means, we are still all here together. And it is Wednesday, February 25. And we're gonna hear from Perfect.

[Kirby (Legislative Counsel)]: Good morning everyone. For begin, let's move to console. And we're all going be experts on all of this decoupling stuff in in the next hour. Don't worry. So I have language for you to look at that is putting into law a lot of the things that Pat was talking about before, and I'm happy to stop and explain things as we go to try to help clarify all this. Can I begin?

[Emilie Kornheiser (Chair)]: Indeed. Please do. Thank you.

[Kirby (Legislative Counsel)]: We'll start off by something easy. On line three, you see some words being crossed out. Little known fact, every time I amend the definitions for the income tax, which is all the time, the editors say, This is not our convention unless the context requires otherwise. Would you like me to prop it out? And every time I say, I'm too busy, I'm not messing with that. This time I said, Fine, do it. So if this passes, the editors will never have to ask me that ever again. Great! Okay, so that's line three. That's why that's there. Starting on line eight, there is a pretty major, well, it's not a change, but it's a modest equilibrium that's pretty important from an administrative point of perspective. Currently, the one thing I want to say that what we're looking at are the definitions relating to corporate income tax first. So the first stuff we'll be talking about is corporate income tax, and decoupling from some things for corporate income tax through the definitions. And so under current law, currently Vermont is decoupled from what is called bonus depreciation under this federal law at subsection 168 ks. Although this is not a change, we are crossing this out because we are moving it down to make this work better from an administrative point of view, and I will explain that in a little bit. But just as a reminder about what is bonus depreciation that we are already decoupled from, is this is when this mostly applies to personal property for businesses, everything from theatrical sets to sidewalks and under federal law, those things can be depreciated entirely in the first year as in take a big deduction for the depreciation on that thing in the first year rather than letting it depreciate over say twenty years. Vermont a while ago decided we don't want to allow that treatment. We would like it to be depreciated incrementally over time. And so that's why Vermont's already decoupled for what normally is called bonus depreciation around here. Like I said, that's being moved down and we'll get to it. The first item that we're adding though for corporate income tax to decouple from actually the first one listed is the bonus depreciation under 168 ks, But we are also adding subsection N under 168, which is the bonus depreciation for the qualified production property that Pat went over a bit ago that was a change in HR1. HR1 started allowing this bonus depreciation to be done for certain machinery and equipment production facilities, mostly in the ag and chemical areas. So this is one area that has been identified that just like how Vermont is already decoupled from bonus depreciation for the personal property items that I was talking about, it would be very similar administratively to decouple from the qualified production property that was the change. So that's what's done here. Things are being, since they're the same section of federal law, there's different subsections, they're being put together and moved down here for corporate income tax. A similar change is also on the personal income tax side, which we'll get to. The next item to decouple from here is this. This is the deduction for the research and experimental procedures under section 174A at the federal level. 174A is the domestic research deduction, 174 is the foreign one. HR1 changed the domestic deduction, but if you are going to decouple from the domestic research experimental procedure, it makes sense to also decouple from the foreign. The big change under HR1 was that for domestic only, all of those expenses could be expensed in the first year rather than across five years, which was, that's the significant revenue impact that you saw, the large number associated with that. There are some tricks with this that I want to flag and that we haven't, think there needs to be some other conversations with the tax department about what to do, because this change under HR one was retroactive. There was, I think a few years where federal level it changed from being expensed fully to then making that expense amortized over a number of years. And now we're going back to expensing it fully and it's retroactive. So you have that year's worth of deductions where it was supposed to be incremental and all of a sudden in this one year right now, they're saying, no, go ahead and go back and take all those expenses. And that's part of why that's a large number I think. We're not currently linked up, but dealing with that retroactiveness of that is something we have to think about, about how this is going to come into effect in Vermont. So it's more of a technical thing to work around, but it's something that's on our minds and then we have to figure out when it comes to effective dates and like in how the language works. But the language you're looking at is going forward, those deductions for those expenses would have to be added back in Vermont. That's what this language achieves. The next change is decoupling from the section two fifty deductions that Pat was talking about. Again, this is the foreign derived income where there is a deduction at the federal level. There's two types foreign income that are recognized at the federal level. Deduction allows deduction for both of those, or Section two fifty includes deductions for both of those types of income. I think ITEP, when they were in here testifying, put it succinctly pretty well. The rationale, because ITEP did suggest that this change be made, actually I'm gonna back up for a second and say that this section two fifty change is not directly responsive to what happened in HR one. As Pat said before, in HR one, at the federal level, one of the deductions under section two fifty was tightened up a bit so that it would generate more revenue. But at the same time at the federal level, there is a tax credit related to this type of income that was expanded. The tax credit doesn't flow through to Vermont, but the deduction does. So if you did nothing, this foreign derived income revenue, a little bit more of it would come to Vermont. Okay. So this is not directly responsive to those changes. What this is doing is just decoupling Font from those deductions for the foreign derived income entirely. And iTub's reasoning for that was to say, these deductions exist at the federal level as a sort of way to apportion this foreign income to The US to say we recognize that not all of this income should be considered US income. So we give you these big deductions, one of them is 50%, the other one is 37.5% I think, in order to recognize that this is not all US income. ICUP's point was Vermont already apportions based on a sales factor, So you're already giving something like a deduction for this. You're already saying, if it's foreign, we're not taxing it. It's just the Vermont sales that we apportion to. So they were saying that it doesn't make much sense to allow this federal deduction that's trying to do some apportionment when we're already doing apportionment. So that's why this is not directly responsive to HR1. It's a thing that came up in HR1, but this response is more going to be apportionment issue. Those are the new types of decoupling that are happening under this language when it comes to corporate tax. We also have language where this has to do with the bonus depreciation stuff that we're about to look at. Again, I want to remind you that this, without regard to 168 ks, is putting in a lot of work in current law. That's right. In current law, that is like what it means to disregard this thing is there's a lot to it that the department is currently having to do a lot of work behind the scenes to make that effective. So we have language added. A lot of this is a suggestion from the tax department itself to say, can we please spell out what it means when we disregard the bonus depreciation? So that's what this language does. So it says for a taxable year in which the bonus depreciation deduction is taken on a federal return under 168 ks or N, for each applicable taxable year thereafter, an amount equal to depreciation deduction that would be allowed on the property if the taxpayer had made the election under these subdivisions to not claim appreciation on that property. What this is doing is it's saying, we're not going to allow the bonus depreciation. We are going to allow regular depreciation. And that is what the tax has been doing when we say don't disregard bonus appreciation, they have interpreted that to mean, but yeah, we will it and we will pretend you didn't do bonus depreciation at the federal level, and that you did regular depreciation. And so it is spelling out that that is what will be done. There is also additional language. In the taxable yield, the property is sold or otherwise disposed of, because you have to deal with those situations where they took bonus depreciation, and then before they fully depreciated it the regular way, they sold it. So that's something that the tax department currently has to account for. So we have language here addressing that. In the taxable year, the property is sold or otherwise disposed of, an additional deduction shall be allowed to the extent the amount of depreciation claimed at the federal level for bonus depreciation has not been recovered through the additional deductions allowed. So it's again, all of these languages, in cases where you use bonus depreciation at the federal level, we are not going to allow that. We are going allow regular depreciation and we're putting it in the statute clearly of how it works for regular depreciation. We'll apply it as if you had done regular depreciation. In cases where you sold it, the accurate amount deducted under this subdivision in all taxable years for any one piece of property shall not exceed the amount of bonus depreciation taken. In other words, you're going do regular depreciation, but you can't at the end of the day end up deducting more than you would have if bonus depreciation hadn't been taken or had been. Not trying to have any kind of substantive impact on how much tax is ever paid, it's just working it out differently over time. So tax is already doing this. My understanding is they haven't felt great about having to make all of these interpretations and applying it in a logical way based off of just those few words we were looking at. That's why there's a big block of text here. It's just spelling out the logical way that you would go about disregarding bonus appreciation. And then that takes us to personal income tax. You'll notice under the corporate income tax

[Emilie Kornheiser (Chair)]: People want ask you questions because you're waiting until the end? That what's happening? Okay, cool. Great. That's like a very silent group here.

[Kirby (Legislative Counsel)]: I'm just answering every question that they can have as we go.

[Unidentified Committee Member (Ways and Means)]: It's almost like that section could be just a reader assistant notes. This is what the section does. It's part of your presentation.

[Kirby (Legislative Counsel)]: I can do that, if it would be helpful for this language.

[Emilie Kornheiser (Chair)]: That would be helpful. I got a section by section.

[Kirby (Legislative Counsel)]: A section by section of this? Okay.

[Emilie Kornheiser (Chair)]: So

[Kirby (Legislative Counsel)]: we're going to go into the personal income tax. A lot of it's the same. I was about to say, you'll notice that even Pat had mentioned that this language addresses the qualified small business stock. It does, but that's not relevant to the corporate because at the federal level, corporate taxpayers are not allowed to use the exclusion for qualified small business property. So it's not something that we have to address. So we're going to go into the definitions relating to personal income tax. Same thing as before, not having these few words do so much work. It's regular, the bonus appreciation for the business personal property is being moved down. And then the new addition for decoupling here is the same as what we were just looking at when it comes to bonus depreciation and also the new bonus depreciation for qualified production property. We have also the same language and personal income tax when it comes to the deductions for the research and experimental procedures, both foreign and domestic. And then we have also decoupling from the qualified small business stock exclusion. And this is again not entirely responsive to purely what happened in HR1, because in HR1 it took the existing exclusion for qualified small business stock and then expanded it quite a bit. This is not decoupling from just that expansion. This is decoupling from the exclusion entirely. So any exclusion done at federal level. Decoupling from just the change would have been administratively much more difficult as you can imagine because Vermont would have to figure out, well, under the old law did you qualify? And then there would have been a lot of having to investigate to try to apply the old law. So this is just a full decouple from that. And so in all cases, if gains from the sale or disposition of qualified small business stock were excluded at the federal level, added back for Vermont is going to be the rule under this.

[Unidentified Committee Member (Ways and Means)]: Think Kirby showed us it was a zero impact. There's a $0 impact. Never

[Kirby (Legislative Counsel)]: mind. There should be an impact for this. I think if you looked at Pat's charts, the fact that it's not just decoupling from the changes under HR1 means that if you look at the HR1 chart and you look at the outcome of this, they're not going to line up perfectly because we're not decoupling from the same exact thing. Okay. We also have a provision here. Dealing with the qualified small business stock exclusion also. Vermont has an existing partial exclusion for capital gains, right? And you're looking at the language starting on line seven for that partial exclusion. Bit of a policy question here, but clarifying that Vermont has decided that we are not going to let you exclude gains from the disposition of qualified small business stock. And so this clarifying language says, you also cannot exclude it using our partial exclusion. You cannot exclude those capital gains at all, ever. And then we have the same language that we saw for the corporate when it comes to spelling out how bonus depreciation works. I've already gone over. And then we have the definitions for personal income tax when it comes to estates and trusts. It's the same changes as you saw for individuals for personal income tax that we were just looking at. Both types of bonus depreciation decoupling from those decoupling from the research and experimental procedures deduction and decoupling from the exclusion for qualified small business And not allowing the partial exclusion and all of the explanation for how depreciation is to work. And then that leads us to another change which came from the Department of Taxes that is heavily related to decoupling, which is also a problem with existing law. We're looking at how a portion of works for personal income tax. So currently, I want to tell you how apportionment works in a nutshell for corporate income tax, and then look at how we do it differently for personal income tax and how there's actually a problem already existing. Under corporate income tax, you would find the taxpayer's income and then you would apportion that income to Vermont, the piece of that income, and then you would tax that income that's apportioned to Vermont. So it works out pretty logically. The way that our personal income tax apportionment is actually written is a different approach. It is you find the tax first, how much tax total based off of federal AGI. Then you apportion based off of AGI, your federal AGI compared to your Vermont. But that calculation as it's written in statute does not take into account all of the additions and subtractions that we just walked through. Basically all of the things that Vermont's decoupled from. And so letter of the law wise, you can have instances where it's the apportionment is really out of whack with reality when you start to look at the, when it starts to involve some of the things that we add back or subtract, including things like Vermont can't tax federal government bonds. But by doing apportionment based off of AGI, we're not taking that into account. So if you have most of your income from federal government bonds, and we're not taking that into account in apportionment, that would increase how much you over mod a lot. But it can also go the other way, where it decreases a lot. And so when I see stuff like this, I'm like, well, the department is going to interpret this in a logical way, right? They're going to say, okay, our apportionment statutes in bad shape, but they'll interpret it and make it so that the logical things happen, which they try to do. But when a taxpayer is going to really benefit from this, they can push back and say, no, letter of the law says I use AGI. And the Department doesn't really have much to stand on to argue like, well, the statute does say that. What happens is that a more logical interpretation is used in cases where it might benefit the taxpayer, but it might benefit the taxpayer to follow the letter of the law, then they might insist on that. And then also not so savvy taxpayers might follow the letter of the law in cases in which it's harmful to them. So this is a clean up area that is needed. I'd assume the department had worked it out. The department has told me, no, this actually comes up and can result in some bad situations and we can't do anything about it. So you got the background, so let's talk about fixing it. Basically, this is codifying what the department would like to happen in these situations, which is getting out of AGI and making it more logical. So we're adding language defense. For the purposes of this subsection, adjusted gross income means federal adjusted gross income modified by the additions and subtractions provided in the law we were just looking at. So it is modifying the AGI for the things that Vermont's decoupled from.

[Emilie Kornheiser (Chair)]: Page and foot line do you want to go back to where are the readings?

[Kirby (Legislative Counsel)]: We are on page 10, starting at line eighteen, nineteen. Again, so the billings you looking at on line 10 is part of our portion of professional And income we are adding language clarifying that we are not going to use just AGI to do apportionment. We are going to make those modifications that we make to taxable income, so that our apportionment actually lines up with what Vermont considers taxable and non taxable.

[Emilie Kornheiser (Chair)]: This is suggested by the tax department?

[Kirby (Legislative Counsel)]: It's suggested by the tax department because the administrative lawmakers do come up.

[Emilie Kornheiser (Chair)]: This they usually This is is

[Kirby (Legislative Counsel)]: how they try to. But without this language, if a taxpayer really insists on a more literal interpretation of the statute, there's not much tax can do about that. I don't want to make you think that this enforcement is causing widespread problems, because it's going to come up only in the decoupling areas. Vermont So is mostly coupled to federal, so a lot of the times there's no difference. But you can come up with scenarios in which it would be vastly different. You can come up with scenarios in which, for instance, someone's making millions of dollars for federal government bonds and we're saying that they owe tens of thousands of dollars to provide income on that, or tax on that. Which, if you were to take our additions and subtractions into account, that would not be the case. That's just one example. I think tax has done work, if you're interested in learning more about this and looking at different scenarios that could have happened. So that's what this language does. It also on page 11, there is additional language to do the same thing. This again has to do with personal income tax apportionment and cleaning it up and making sure that our statutes actually reflect the tax treatment for apportionment that is given when there's not apportionment. So on page 11 at the bottom is the beginning of the existing Vermont tax credit for research and development. It says a taxpayer of this, so this obviously if there's no underline, it means this is current law. The taxpayer of the state shall be eligible for credit against the tax imposed under this chapter and amount equal to current law is 27% of the amount of the federal tax credit allowed in the taxable year under 26 USC section 41. So to give you some background on the federal law stuff, we've talked about sections 174 and 174A, which are deductions for research and experimental procedures. And when it comes to the domestic research section, HR1 allowed that full expensing to be done in year one, which is very costly. Those are the numbers Pat showed about the cost of that change for Vermont. Also at the federal level is this section 41, which is a tax credit for research and development. They're written at the federal level in a way in which they work together. You can't take both. So if you're fully expensing everything you spend on research, there's not going to be any amount that you can actually take credit for because you don't have expenses on your taxes. So they work together at the federal level. Vermont has allowed the deduction to flow through in the past for not decoupled. And it's also allowed a percentage of the credit, but like many States, Vermont's credit is limited to expenditures that are made within this state. So the effect of the changes in this proposed language would be not allowing deductions for research expenses that are done in other countries or other states. Still it gets a portion of Vermont, you know, but having a tax expenditure, having a tax benefit in this credit of those research expenses that you are spending on in Vermont.

[Unidentified Committee Member (Ways and Means)]: In that federal citation, are there any dates? Is this time limited?

[Kirby (Legislative Counsel)]: Since this is a credit, it would be in the tax year.

[Unidentified Committee Member (Ways and Means)]: Okay, but this isn't continuing. Because we're writing it in here, this will be stable policy for Vermont. It's not a policy that ends or begins with timelines.

[Unidentified Committee Member (Ways and Means)]: That correct.

[Emilie Kornheiser (Chair)]: It

[Kirby (Legislative Counsel)]: would still be if Section 41 ever changed, say the percentage or then that would flow through. Section 41 was not changed by HR1. Vermont currently allows this credit to be carried forward up to ten years. And there is a requirement that already exists in the law saying the department will publish a list containing the names of the taxpayers. So claim the credit in the most recent completed calendar year. That looks like at some point the general assembly was interested in being able to track and know where, because this is the state spending money, right? Like you're allowing a tax credit. Then, so maybe this is obvious, some of the decoupling areas that we were talking about before would mean more revenue for Vermont. Expanding this credit from 27% to 75%, less revenue for Vermont, for the state, more revenue for these per month companies. And then the next change here is also spending some of the revenue that's saved at the beginning of this language by increasing by 2,000,000 the amount of credits available for the downtown and village center credit. So I didn't include the entire law here, maybe I showed up for context, but this is the limitation on how much downtown and village tax credit can be awarded every year. And so you're increasing the cap from 3,000,000 per year to 5,000,000 for those credits. This is investing in real property in downtown and village centers.

[Emilie Kornheiser (Chair)]: No.

[Kirby (Legislative Counsel)]: Downtown and village center tax credit, different. It doesn't have to be in TIF district.

[Emilie Kornheiser (Chair)]: We took testimony on this from the Department of Community Development, Chris Cochran, and the words are just gone. Preservation Trust was the heir as well, we took Ben Doyle, when we took testimony on that.

[James Masland (Member)]: Chittenden.

[Emilie Kornheiser (Chair)]: Mhmm. Caitlin? Corcoran. I think this is great policy, it's been much requested for many, many years. It also makes the whole bill revenue neutral.

[Unidentified Committee Member (Ways and Means)]: It had an increase from the $3,000,000 a stash to $5,000,000 for a

[Emilie Kornheiser (Chair)]: couple of years during COVID. But only for neighborhood development areas, it was like a pilot of sorts? I don't know if this is a good idea, but I wondered if we could somehow connect that to as schools decide to close, some are deciding now on how many days, whether we could have additional credits, so that those buildings could become the community hub. If you I started a conversation with Preservation Trust and a few other partners about that last year, if you wanted to follow-up on that conversation, that would be fantastic. Thank you. Let me see what they suggest. Mhmm. Sure. You. Represent Masland?

[James Masland (Member)]: Wouldn't mind being part of that. Okay.

[Emilie Kornheiser (Chair)]: Go for it. It's not the problem. Thank you, David. Back to you, Kirby.

[Unidentified Committee Member (Ways and Means)]: So

[Kirby (Legislative Counsel)]: we're mostly done with the changes. The thing left is the last two sections I did throw in here the linkup. So this is the link up language. So other than these new things that are being decoupled from Vermont would link up to the rest of the federal tax code for 2025. That's what those two sections do. And that's it. I did not include effective dates. There are some questions like I mentioned before. At least some questions around the effective dates because there's especially the large expense related to the research and experimental procedures and how that was retroactive and how it would have a large revenue impact immediately. So it's a policy decision committee to try to figure out how deal with that and that's effective date related. Some of the HR1 changes are not effective right away, So there's not a big issue with that. Usually when you change income tax, like the usual course here is that I would draft an effective date that would be retroactive to 01/01/2026.

[Emilie Kornheiser (Chair)]: We'll take test 20 and talk to department about that. Any

[Kirby (Legislative Counsel)]: other questions?

[Emilie Kornheiser (Chair)]: President Brady? Well, I think this is probably a community discussion, but I'm worried that we're getting rid of these things tax wise that make Vermont attractive to some of these big businesses.

[Kirby (Legislative Counsel)]: So again, with the corporate income tax changes, Let's walk through that, the corporate income tax changes.

[James Masland (Member)]: Page two.

[Kirby (Legislative Counsel)]: The bonus depreciation, qualified production property, that's a federal deduction for building factories and things anywhere in the country. Know, Vermont portions it based off of that businesses sales into Vermont, but the amount of tax paid to Vermont would be less if they were able to take a big deduction for spending say $20,000,000 $50,000,000 building a plant in Louisiana or something, I don't know, something like that. So this change is more likely to be a deduction at the federal level for investment somewhere else. If it is possible, that it also relates to qualified production property that is in Vermont as well. So you just have to think about the scale, I think the big point is that the way the corporate income tax stuff works is these federal things are for anywhere, not just Vermont. Same thing for the domestic and foreign research experimental procedures, deduction that's being decoupled from here. The language is trying to make it more Vermont focused by not allowing this, which is a deduction that could take quite a few research anywhere in the world.

[Emilie Kornheiser (Chair)]: And by companies that are located anywhere.

[Kirby (Legislative Counsel)]: Yes. The companies that happen to sell into Vermont and therefore have to pay some corporate income tax in Vermont. The part of this proposed language by increasing that Vermont specific research and development credit, make sure that the money that Vermont as the state is giving up, to speak, when it comes to research and development, private research and development, that these changes would make it limited to that research and development that's happening in Vermont only. And there could be instances where big deductions are taken at the federal level, which means that no credit is taken at the federal level. And therefore the Vermont credit is also not since it's piggybacking off that federal credit. To put this in a simple way, the way that different things interact, it could be that there's some research that happens in Vermont that doesn't end up getting claimed in Vermont because specifically because of decisions the taxpayer is making on their federal return. They could, a lot of the times these very large corporations are going to be making their decisions on their federal return based off of It's likely that they're not going to care much about a little Vermont credit. Like they're going to make their decisions based off of what's the best way to do this for us on our whole big federal return. What's like best outcome for us overall. So they'll make those decisions, but based on those decisions may not end up getting to take a Vermont credit that they could have taken. Does that make sense?

[Emilie Kornheiser (Chair)]: Yes, but there can't be very many of those. They're tiny. I didn't think of any. So I sent around, and Sorcha's can post, the link to the list of all of the companies right now that are taking the Vermont specific credit, because it's required in statute for those all to be listed so we can see them all. And by moving up to 75, if we do do that, we would be by far have the highest percentage in the country. And so if you're worried about Vermont's tax competitiveness for businesses, this could be a big headline. So the other second highest state is 50%, and that's New York. So we would really be blowing past the competition on this. Sorcha's Okay. Gonna post some more background information. Thanks.

[Kirby (Legislative Counsel)]: Can you continue to walk through the other decoupling? The section two fifty thing that goes to a deduction for foreign derived income. This is enough, it's just like this other corporate stuff. The income itself that you're taxing more here is definitely not from Vermont. Because it's foreign, all of it, when it comes to section two fifty. So it's not income that's coming from Vermont. And it is going to apply across the board. It does not matter where the company is based. If they have to pay Vermont corporate income tax because they're making sales in Vermont, they pay it. Vast majority of these are going to be corporations that are not located Bravant, are having to pay extra here. And they're paying it off of the income that they're getting from other countries, not from The US. Or that's generated from those banks.

[Emilie Kornheiser (Chair)]: Nexus is because they sell here in Bravant?

[Kirby (Legislative Counsel)]: Yes. Maybe they're making some things in Europe, and they're selling those things into Vermont.

[Emilie Kornheiser (Chair)]: I feel like we need some sort of diagram that we keep on the wall instead of that really beautiful painting for everyone to remember the apportionment. Because it's so easy. Even Kirby, you once defaulted to an example that wasn't proportionate. It's very counter intuitive. Though I like the painting, so maybe can use the best painting. Rebecca Holcombe.

[James Masland (Member)]: And I completely agree, and I appreciate the stuff that we've gotten from you in text this year that's graphically represented as well as it works because some of lists are graphically oriented. Oh, I can see it. That would be cheers.

[Emilie Kornheiser (Chair)]: Maybe Charlotte can just wait

[Rebecca Holcombe (Member)]: for it. Anyway, that would be very helpful.

[Unidentified Committee Member (Ways and Means)]: Obviously, like on the other, I appreciate the point about the R and D tax credit and Vermont business competitiveness because it seems like that HR1 was a large tax giver to large multinational corporations. And I appreciate that this bill is saying, we're not going to take that approach. We're going to invest in the companies. We're going to try to attract to the companies that are making an investment directly. So I really appreciate that. And I just have to say that we talked about earlier, the small representative Holcombe brought up earlier that the folks who are able to take advantage of the personal income tax pieces that we're talking about in this bill are the same ones who just got a very large tax break on their federal income taxes. And I hope we're going to continue to have the conversation of, we're doing our best here to stop the loss of state revenue, which should stop worsening of income inequality, but we have to be making progress on income inequality. So I hope that we're gonna continue to have that conversation as we talk about the impacts of HR, because it's all, I understand that this bill is focused on stopping the loss of revenue to the state, but it's all interconnected, we just have to be honest about that dynamic when we're talking about our tax code in totality. And that could go down with the next part. Mic

[Kirby (Legislative Counsel)]: drop.

[Emilie Kornheiser (Chair)]: Harvey, have you?

[Kirby (Legislative Counsel)]: I'm just here for questions. Good

[Unidentified Committee Member (Ways and Means)]: So for the research and development credit for Vermont, reading through language is not a refundable tax credit to carry forward. So if somebody doesn't have that, doesn't have income because their sales are all outside of the state of Vermont, theoretically, then they don't get a check from the state of Vermont. They just have that carry forward tax credit in the future tax years.

[Unidentified Committee Member (Ways and Means)]: They also don't have taxes.

[Unidentified Committee Member (Ways and Means)]: Right, they don't pay taxes at this point. They may in the future.

[Kirby (Legislative Counsel)]: In a situation like that might be one where they choose to do their federal return in a way in which they don't try to claim their Vermont credit because there's nothing for them to gain from it. They would instead maybe expense it at the federal level, which would make it so they can't take the credit, but lower their taxes that way instead.

[James Masland (Member)]: So if they did that for, it takes them five years, ten years, and then started selling some of their products in Vermont, how far back can they go for that credit?

[Kirby (Legislative Counsel)]: The carry forward is ten years. Is that what you are asking about the payoff credit? Yeah, so they have ten years to use it in a future year. So they would have to go, to not be able to use it, would have to go longer than ten years without on paper taxable income.

[James Masland (Member)]: What I'm saying is when they switch to having taxable income here, how far back can they go for that? Is it a carry forward?

[Kirby (Legislative Counsel)]: Ten. It's ten years. Yeah.

[Emilie Kornheiser (Chair)]: Okay. Let's all digest for five minutes, and then we're gonna wait, 11:15? Yeah. Okay. And then we're going to switch topics to cost of computing adjustment, H88E6. We're going to come back to this maybe Friday. I want to give the tax department time to catch up with their own themselves.

[James Masland (Member)]: Sure.

[Emilie Kornheiser (Chair)]: It's busy over there

[Kirby (Legislative Counsel)]: right now.

[Emilie Kornheiser (Chair)]: Mhmm. I mean, just as busy as we are, except well, I guess they also have finance. So yep.