Vermont Legislature SmartTranscripts:

[Unidentified speaker (likely staff/clerk early; bill sponsor during wetlands item)]: We are live. Yeah. Okay. We're going

[Sen. Ann Cummings (Chair)]: to start today with Carl Davis, who's research director from the Institute on Taxation and Economic Policy, and we're going to get another, I'm sure, uplifting presentation on federal tax and budget bill and the impact on Vermont. So we had some of those earlier this week and some more. Bill, yeah, Caledonia, we just ask you to introduce yourself to the record and then maybe tell us a little bit about yourself.

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: Absolutely, I can do that. For the record, I'm Carl Davis, research director with the Institute on Taxation and Economic Policy. I'd like to, of course, thank the chair and the whole committee for making time for me today. I'm very glad to be able to share some thoughts on the federal tax bill and what the implications are for Vermont. Also, very excited to be here in Vermont in general. I really do love this state. I'm not pandering. I I actually lived here for almost three years, two and a half tax years, probably two resident returnings, one part of your return. I was here for two two falls, but three mud seasons, so I feel like I should be allowed to round up to three, but yes. You got our best and our worst. I saw it all. But I it it it is a great state, and talk about taxes in Vermont. It's a dream come true. I am going to share my screen. I do have a slide deck, and I'm gonna be I I did a a version of this testimony in ways and means this morning, and I am going to skip a few slides along the way. So if you can go back to those if if you would like, but I'm gonna try to be respectful of your time and not drag this out more than I need to. But, anyway, for those of you who aren't familiar with ITAP, we are a nonprofit research organization. We're a national organization based in DC. We have separate policy teams, one dedicated to federal policy, one dedicated to state, and one dedicated to local. Our state team is our largest team. That's historically been our organizational focus. That's where I spend the bulk of my time. I think that's just the most interesting part of the work. We're very much a research data focused organization. The vast majority of our staff are analysts of some kind or another. We don't have as much expertise, say, on the legal side of things. We analyze a lot of data and produce a lot of numbers, and I'll I'll be sharing some of those with you today. But I this one this shouldn't be two it's not two numbers heavy of a presentation. Well, if you if you don't think I would love to, I promise you to tell me afterwards. Alright. HR one, the the one they do for bill act. I know that you've seen some had some presentations already on what was in the bill, so I don't know. Rehash everything in provision. Just a little bit of a refresher on the major aspects of it. It was a a a long list of different kinds of tax cuts, somewhat shorter list of of different types of tax increases to partly offset the cost. We saw reductions in tax rates, changes to the brackets. The QBI business income deduction, that's capacity businesses that aren't traditional c corporations. The standard deduction was increased. The child tax credit was increased. There are these new blockbuster deductions added that even people who care less about taxes than the folks in this room have probably heard about around tips and overtime and car loans and so on. A large number of business tax breaks as well, a lot of them related to depreciation. On the tax increases side, personal exemptions are now permanently repealed from federal law. This SALT cap has been made a permanent feature of federal law. That's a $10,000 cap on how much state tax you can write off. Temporarily increased to $40,000 and then it's supposed to snap back to around $10,000 and some of the, a lot of the green energy provisions tax credits for, renewable energy and so on enacted in 2022 were either repealed or significantly, curtailed in the bill. Those are some of the offsetting changes. Skip that slide. So what does this mean? We maintain a tax model that is capable of disaggregating the distributional impact of these changes in every state. Distribution is how are folks in different economic circumstances affected. On panel on the left, this is expressed relative to income, a very common measure of how families are actually impacted relative to their household budgets. What we see is a regressive tilt in the federal bill, and all regressive means is that the tax cuts tend to get larger as income rises. They get larger relative to income as income rises. So that's kind of textbook definition of of regressive in in public finance. And then you can see what that means in terms of actual dollars on the right panel. So this was a tax cut across the board, but the impact was not even across the income scale. It was around a $100 a year for low income earners, about $2 a week or so in their paycheck. For middle income earners, you're looking at maybe a thousand, $2,000 a year, it depends. And then from there, it keeps increasing to tens of thousands or we actually have another slide in the deck, you can look at that has very similar findings from Congress's official, Joint Committee on Taxation. They analyze it nationally and you can see in their findings that by the time you get to the top 21% of families or so, you're looking at hundreds of thousands of dollars in tax cuts each year. So that's the distribution of this. I don't think this is tremendously controversial. This was analyzed both by congress's swore heaters, also by outside entities like ours, they generally find the same pattern. These are our Vermont specific analyses, and as far as I'm aware of the renewal of an organization, that's done a Vermont specific analysis. So one thing I'd like to point out about, you know, how should we feel about the distributional impact of this bill? And then that's obviously that's not something I can can tell you. We can there was, I think, a very informative poll done by Gallup three months before three and a half months before the bill was signed into law, and they and they were asking folks of the American public in general nationally, not specifically in Vermont, how do you feel about the tax level being paid by by different sorts of things? And you saw relatively the majority is not the relatively narrow majorities of people saying that low and middle income people were paying too much. As you saw, the bill had some tax cuts for low and middle income people, more in the middle and at the low end. The low the low end tax cuts were were quite small on average for for working class lower companies. Just so I'm reading this right, it's not low income people are saying, I pay too little, I pay my fair share, or is it just a broad, any, I get pulled and I say lower income people pay too little, fair share of $200. That's a good clarification. Okay. Thank you. Yes. You know, most of the public feels that middle, low income people are paying too much. At the high end, we see a very, very, very different takeaway. So you had in March 2025, around 12% of the public saying that upper income families were paying too much, and then four months later, this bill signed into law and included very significant tax cuts for upper income families. So that I think this points toward a disconnect between what was contained in the bill and what the public has been saying they're hoping for in tax policy. I think this is potentially relevant for you as state lawmakers if if you're if you're seeing this kind of disconnect at the federal level, it's natural to ask, well, what can we do to help steer tax policy back in a direction that that better like, what we're hearing from some of folks about the level of tax that different groups are facing. And then you can see on the corporate side, especially, there's always nobody in the public who's saying that tech corporations are paying too much of tax, and there were the significant tax cuts for corporations in the bill. And then I these are some of our data at the bottom of the slide, flushing out exactly where the tax cuts are flowing, and just to emphasize, around half of the tax cuts in this federal bill are flowing to the top 5% of families nationally. That's around $360,000 or mean more income pretty comfortably. So the Vermont context, I'm gonna pivot now, gradually pivot to talking a little more about Vermont, what this means for Vermont. This is our analysis of what Vermont's tax code looks like, again expressed relative to income. And what we see is that Vermont has a tax code that is progressive through about the bottom 80% of the distribution. For low and middle income families. Can see that that upward progressive slope where where taxes are rising, alongside income. By by the time you get to the top 20% or so, the Vermont tax code is actually relatively flat or slightly regressive. You see this tailing off in the effective tax rates where high income earners are not paying meaningfully more and in fact are paying slightly less than some of those middle class and upper middle class families relative to the number. So again, if you're thinking about what's the role for Vermont tax policy in the wake of significant federal tax cuts, I showed in this previous slide, about half of them were going to operate on murders. I think this is a relevant piece of common text to Heather.

[Sen. Ann Cummings (Chair)]: Question? Yes. Do you have

[Unidentified speaker (likely staff/clerk early; bill sponsor during wetlands item)]: that broken down in terms of income tax and property tax?

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: I do. If you go to whocays.org, it's disaggregated in about nine different categories.

[Sen. Ann Cummings (Chair)]: Okay, and this is total taxes, not just income taxes?

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: Precisely, yes. Income, sales, property, excise, all of the loans. I think it'd be around, in a typical stay, around 98, 99% coverage of all the different taxes laid.

[Sen. Ruth Hardy (Member)]: That was my question from your earlier slide. I'm sorry. I should've asked it then, but Okay. About, the in the OBPBA

[Sen. Ann Cummings (Chair)]: impacts by income level. Uh-huh.

[Sen. Ruth Hardy (Member)]: Is that all taxes or just income taxes?

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: That's all taxes. Overwhelmingly, that's the changes were on the personal income tax side. Incorporate income tax as secondary, and then the state tax after that, and the state tax did change, honestly. Okay. The federal government doesn't have the same array of taxes, Vermont, as you have a little bit more diversity in Medicaid.

[Sen. Ann Cummings (Chair)]: It doesn't include property taxes,

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: Correct, yeah.

[Sen. Randy Brock (Member)]: So we're forty ninth on here in Lexington.

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: Yeah. In level of in level of regressive. Yeah. Does that mean we're very progressive? The way I describe Vermont system is basically a a hybrid system where you I I do think you are progressive to the bottom 80% of the scale. If you were looking at, like, a textbook, like, example of progressive, the rates would keep rising alongside income, but you can see at the at, you know, roughly the middle or so of that graph, you know, it flattens out. So it's it's partly progressive and it's partly proportional to moderately aggressive.

[Sen. Ann Cummings (Chair)]: Do you I know what we've balanced or tried to or thought we were trying to in the past. But we reduced the top 20% or 10% in 50% of the state revenues. And there's an ongoing discussion about how high can you go with that top tax bracket before you start losing taxpayers. Given that New Hampshire with no income taxes next door, You do any data analysis on what is that well, one of the highest top end, and when our top end starts fairly low, how how much elasticity is there before it starts to become you know, we we start seeing declining returns because we lose folks.

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: Yeah. Yeah. I I can take that in in two parts. To your your first question about or your first point about, you know, the share of tax being paid by exceptionally high income people. In in a lot of states and nationally, that that will edge up over time in part because we're in an economic environment of expanding inequality. And so as with very high income people capture more income and a larger share of national income, a larger share of national wealth, If you have, let's say, a progressive tax code, they're gonna pay more tax because they're collecting more of the income for the wealth. So that affects it too. Like, we had a if we had less income, you would also see that share of tax pay come down even if you didn't touch the tax code at all. To the other point about migration, this is definitely debated and studied in the literature, there's a lot of very interesting studies on it. It's a difficult analysis to do because you're trying to analyze the counterfactual, know, who migrated for this reason or that reason, and yeah, mean, what we see with migration in general is the populations that migrate most tend to be lower and middle income families. How, oftentimes, it's housing related, because housing costs are are we've absolutely seen migration in The States with lower housing costs. You have folks be trying to to to put a roof over their head at an affordable price. So that's that's a factor. But just also lower middle income people moving to seek out job opportunities. You know, at the high end of the scale, with high income earners, you know, one of the nice things about having a high income is that you you have more options in in in where you live. You can afford to live more places. You're not, you know, you're not it's not a question of can I put food on the table, or can I afford my streaming subscription, or anything? You've got your basic needs of life met, and so the calculation looks a lot different for them when they're moving, and what matters, and so on. So, mean, I think the the the literature we we haven't done specific studies on migration, but I think there's a robust academic literature around it. And what it points to is that tax based moves happen occasionally, but it's not an overwhelming effect in in in the grand scheme of things. So you can find it in the data, especially in moves of Florida around which are hypothesized to be a mix of of tax effect and climate effect. But outside Florida, there's not like a groundswell of people moving to South Dakota or anything like that. You know? It's it's so it's it tends toward a nuanced picture of it not never happening, but it not being at as large a scale as as some of the the discussion points were.

[Sen. Ruth Hardy (Member)]: I I was gonna add to what you're saying. I I know I heard that when Massachusetts did their millionaire tax, they didn't actually see an exodus of of people. And it's funny because that's not what we hear anecdotally in the state of Vermont. Like, every time we try to do this kind of work, we get pushback because there's this sense that people are gonna leave. But to your point, I just don't think the data bear that out.

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: Yeah. Yeah. I think that's accurate. The Massachusetts millionaire's taxes raised more revenue than they expected. Yeah. It's But

[Sen. Ann Cummings (Chair)]: I'm told their millionaire tax is only a quarter percent higher than our top bracket, and our top bracket starts very low. They have a 5% flat tax. So lower income people are paying significantly more in Massachusetts, think more than three something, and dual professional families are paying that same tax bracket pretty close to that same tax as millionaires in Massachusetts are paying. I have a thousand millionaires.

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: We have a $340,000 tax.

[Sen. Ann Cummings (Chair)]: Yeah. I mean, it's

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: Yeah.

[Sen. Ann Cummings (Chair)]: So we've got a very different taxing structure.

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: I do believe our data bear out that Vermont has lower taxes for, say, lower income and working families than Massachusetts A lot of that is the progress that's been made around some of the refundable credits.

[Sen. Ann Cummings (Chair)]: Yeah, even with the refundable, do a lot of those too. Do you

[Sen. Randy Brock (Member)]: have any situations in which you have seen a state put on a significant revenue increase that affects higher level people? You have the Massachusetts example, which is somewhat nuanced because of that 5% to begin with, but have you seen any other state do what we time to time talked about, of increasing the taxes on the wealthy in order to deprive revenue and what the effect of that is

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: that you could point to specifically? The most recent example of one being implemented, I believe, is Maryland last year. There were both increases in the creation of a new top income tax bracket in general and also the addition of a surcharge specifically on cap meetings. So that that was that was two pronged in Maryland that was implemented last year. Before that, Washington State comes to mind. They they don't have a broad based income tax, but they created an a tax specifically on capital gains. And the governor, in the last month, six weeks or so, has, come out in favor of creating a income tax specifically narrowly on the top, 1% Mhmm. In Washington state. I believe also today, Rhode Island's governor in the reporting has indicated he was gonna release his budget proposal, and it's gonna include a 3%, addition to the top Rhode Island tax bracket for, again, calibrated to the top one percent, which I think they were estimating around 600,000 or so a year of income, or or maybe slightly more. And and I think that's a particularly notable example because this is a change for him. This proposal has been circulating around Rhode Island for several years. He's been opposed to it, and he's he's come around to this lately in part in response to what's happened at the federal level, both number one, the significant federal tax cuts for high income people, but also the spending the spending reductions that are gonna flow through to Rhode Island, some of the extra challenges Rhode Island's gonna face around running SNAP or healthcare and so on. He's actually changed to worse than that. I believe that budget proposal came out today. I haven't been able to look at it yet, but I will look at it next week for sure.

[Sen. Randy Brock (Member)]: And the real question is what is the effect on the economy to population loss for tax increases? For example, if you have a state that has relatively few millionaires or billionaires, and the amount that those people pay in taxes in the existing system can change if there's significant increase in taxes focused on the wealthy. And the question is, how

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: much revenue do we lose on average when something like that happens compared to the amount of revenue we lose from the people who make $38,000 per year. You know, I'm not aware of any evidence of any high, targeted increase on high income people actually leading to a loss of revenue. Mean, on net, there might be a modest Does measure that? In other words,

[Sen. Randy Brock (Member)]: measure and report on it on a consistent basis. Is anybody looking for that as a question that needs to be answered?

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: I I mean, I think it's there there's some yeah. I mean, there there's some literature on that, and the effect is generally kind of small. It's not you know, it's nuanced. You can't say the effect is zero if I sat here and told you no one's ever moved your tax bill. That that wouldn't be true. But I think the effect is small enough that these proposals end up being significant net revenue raisers on the whole, which I think is what the Massachusetts example illustrates, for example. They have seen a significant uptick in revenues since

[Sen. Randy Brock (Member)]: the thousand. The thing I would worry about is just the optical illusion, which I don't think is an illusion that I have seen. I had a property in Florida that I had a political event for when I was running for statewide office, I compared that to the events that I had in Vermont. I raised much more money in Florida with the relatively few people who had moved to Florida because there were a significant number of providers who were in Florida who spent six months in a day. Just the question is, how much money do we lose when that happens? Compared to how much money do we lose when we lose a $38,000 a year person, and how many of those $38,000 a year people do we have to lose to equal one of those people who leaves?

[Sen. Ann Cummings (Chair)]: That might be

[Sen. Randy Brock (Member)]: a And is anybody tracking that?

[Sen. Ann Cummings (Chair)]: That might be a question for the tax department. Yes. Because they would know what you filed here and when you didn't file next year. But something would happen.

[Sen. Randy Brock (Member)]: They don't know necessarily where you went. No. In other words, we pick up the people who move in and we measure that, but we don't pick up what happens to the people who leave. There is no measurement that I have seen that does that. You own it.

[Sen. Ann Cummings (Chair)]: Is not fault, Paul. Statistics I have seen was American Van Lines. Yeah, right. Which is one class of families that Yeah. Can afford an American van line. Not I've never moved. We had a roofing truck once, but never moved with a van line. Did a lot of U Haul. So I do it. I saw Senator Hardy, and then

[Sen. Ruth Hardy (Member)]: Yeah. I was move along here. Yeah. I was just gonna say, I mean, I think as our guest said earlier, there's not a lot there's not research that shows that the effect of higher income people moving out of the state when taxes change. That there's not a lot of evidence that that happens. There's more evidence that that people of moderate or lower income are more mobile because they're moving for jobs or housing or whatever. And so I think that your your example, which, you know, obviously, is just a one time anecdotal example, is just because a lot of the people who moved to Florida or spend part time in Florida tend to be older. And once you're older, you tend to have more means. Your income tends to be higher. My income is higher. Sure. My family's income high is higher now than it was thirty years ago. Just because And mine

[Sen. Randy Brock (Member)]: was too before they joined the legislature.

[Sen. Ruth Hardy (Member)]: Yeah. It's that's I was that's why I stopped and I said mine was not really me against. But but that's the I I think I think it's it's you know, and I'm I'm I can try to find some articles or maybe you have some suggestions that there has been research done on this, and that the impact is just that's not there. I haven't seen a whole

[Sen. Randy Brock (Member)]: lot of research, and that's why I asked the question, because it's research that I'm certainly looking for, because it's a question that we get asked over and over again, it would be good to have an answer that we were comfortable with.

[Unidentified speaker (likely staff/clerk early; bill sponsor during wetlands item)]: And I

[Sen. Ann Cummings (Chair)]: think there was academic research, but it may take some digging to find it. And I now I think we've demonstrated why I have banned this discussion in this committee because everyone has an opinion and no one.

[Sen. Randy Brock (Member)]: It

[Sen. Ann Cummings (Chair)]: is a subject that comes up regularly when we talk about any kind of tax increase or decrease.

[Sen. Randy Brock (Member)]: Trust foundation for another viewpoint would be one organization that I think has a slightly different viewpoint. Again, which is right, I don't know.

[Sen. Ann Cummings (Chair)]: Yeah, I mean, there's opinion off those sides.

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: So I'm gonna move on to to talking about

[Sen. Ann Cummings (Chair)]: That would be good.

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: Okay. The other what you you were asking us. One I know someone one author to look up is Christopher Young. He's an academic. Crystal Crystal Ball, c r I s Crystal Ball? Chris Crystal Ball, c r I s t e

[Sen. Ann Cummings (Chair)]: d o l. O b

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: a l. O b a l. Thank you.

[Sen. Randy Brock (Member)]: Crystal Ball. Crystal Ball.

[Kirby (Legislative Counsel, Office of Legislative Counsel)]: I love that.

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: Yes. Young? Yes. And he's and the reason I mentioned him specifically, he's done some work with with confidential IRS tax return data with the academic researcher. Mhmm. And you can do such a higher quality analysis with that.

[Kirby (Legislative Counsel, Office of Legislative Counsel)]: With that

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: Yes. So but there are other papers too, but he's I know he's he's doing a lot of work on this. Okay. So conformity, this is how you link up to to the federal tax code. Conform large scale conformity debates are kinda like they're like the cicadas. You know, they show up every eight years, every ten years or so. You have to deal with one of these things. The federal government passes a lot of the tax changes. You have to think about how many of these do we wanna go along with, how many of these are we gonna pass on, and I would have definitely encouraged you to to to look at them on a case by case basis. I know our recommendations around this aren't toward, you know, pure conformity to everything, but they're also not toward pure decoupling from everything. I think there's a middle ground that's that that that would point that would be the right balance.

[Sen. Ann Cummings (Chair)]: I think we did a lot of that after the first tax cut jobs bill Yes. Where Vermont made $30,000,000 from middle class Vermonters. And so we did rewrite the personal income tax code. We may need to look at that, but it sounds like it may be the corporate tax, which we just rewrote three years ago, where we may be seeing the biggest hit this time. And because since Wade and Mead did the bulk of the work in rewriting it, and it's a revenue bill. They will be doing that this time, and then it will come here.

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: Yeah. You're exactly right on on the move from you know, the states a lot

[Kirby (Legislative Counsel, Office of Legislative Counsel)]: of states

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: have gradually moved toward being a little less closely linked up with the federal tax. Several decades ago, it used to be a lot of states

[Sen. Ann Cummings (Chair)]: We were totally tied with the percentage of your federal

[Unidentified speaker (likely staff/clerk early; bill sponsor during wetlands item)]: tax liability. Mhmm.

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: So that I mean, that's as close as you can get. Because then any any change congress enacts at all to the impact of state tax bill, then you move one step less linked up to moving taxable income. Now you're even less linked up with AGI, which is the sweet spot I think where most states have landed now. That's teamwork.

[Sen. Ann Cummings (Chair)]: So Just before the last tax cut bill.

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: Yes. Yes. And I, you know, I think I I think, personally, I would be grateful for that. I think that was a smart thing to do. I think that's the gold standard in the space. And it means that a lot of these, you know, these blockbuster Yeah. New tax changes aren't gonna automatically impact you. You You know, you're not automatically offering a new deduction for tips or car loan interest and so on. And I I think that, you know, these are not especially beloved among the tax policy community. You mentioned Tax Foundation earlier. I don't think you brought them in here. They're not gonna express a lot of love for these for these items either. So I I I would I would I would largely encourage you passing on on on these kind of things. That being said, I think there are some things in the bill that that actually move things in the right direction. There were there were some modest improvements to the dependent care credit and also the flexible spending accounts that folks use to pay for dependent care expenses. We know that childcare is tremendously expensive in this country, and some of these credits and FSAs were due for an update. And I think those were expansions that have some policy merit and also simplicity benefit there to you of going along with those sorts of changes. There are there are also some business side changes related to how international taxation is administered, And and so there there are some things in there that I think will will worthwhile. What what I'm hoping to focus on for the rest of my slide deck are some of these items where I think they're they're worth putting under the microscope and thinking and and part of the reason I think you should put them under the microscope, there's a couple levels here. First, you have to ask, was this good federal policy? Was this good tax policy at the federal level? Was this a mistake or not? And then separate from that question, you ask, okay. If it made sense at the federal level, does it make sense for Vermont? Because sometimes there's a translation problem, where just because something makes sense in federal code, you might not get a lot of benefit out of it for your state from administering this kind of thing. And I and I have some examples that that I'm gonna walk through specific to to that point. And the other thing to think about just, you know, I mentioned we we've seen a lot of changing at the federal level lately with other just briefly, we've seen a lot of cutbacks at the IRS, very significant historic reductions in IRS funding. Some states are thinking now about what does that mean for tax enforcement in general if you're linked out to the federal tax code in any way. If the IRS isn't monitoring that AGI definition quite as close as it used to, that could be bad for your state too. So thinking about what you should be doing with tax compliance, if there's any way to fill gaps being created by layoffs at the IRS. And then, to the to the point I was making earlier about Rhode Island, we're I think part of the Rhode Island governor's pivot on this topic has been an explicit response, to to to the federal tax bill. So thinking about beyond just conformity, I'm gonna focus most of what I have to say here about conformity. Was there anything happening federally that would change, you know, if it's the tax cuts at the high end, if it's the spending reductions impact, but is there anything more generally that would change what what you'd like to see in your law policy? So this is one that you are conformed to. This impacts AGI, administered as an exclusion, and this has been around since the 90s, and it's flown under the radar until very recently. It started off as a very, very small tax break, ostensibly aimed at small business, so most people were, you know, in favor of it and didn't pay a whole lot of attention to it. And what's happened over the years is this has gotten much larger than people realize. I was at a treasury conference in 2024 where some economists there presented data on, on this particular tax break, and it just blew away everyone in the room about how large this thing had gotten. We had no idea because the it's administered as an exclusion. The IRS data around this aren't particularly robust. You don't get this in the normal IRS data tables every year, so this is a special one off study they did on the size of this. What this is, it's a tax rate for early stage investors, basically in tech companies. And the reason for that is there's a lot of industry carve outs. You know, if you're running a restaurant, if you're running a hotel, if you're running a farm, you're flat out not eligible for this. You have to be in certain industries. You have to be organized as a c corporation, sole partnership, sole proprietor. You're not gonna get it. And it's early stage. You have to get the stock directly from the company, and it has to be a company that at the time you acquire the stock is worth used to be 50,000,000 or less, now 75,000,000 or less. This is being expanded. And this is siphoning off around 3% of all federal government gains tax revenue without anyone knowing it until about a year ago. And I I I think I have seen if you want to look at my slide deck afterwards, I have some some quotes from a range of organizations expressing a lot of skepticism about this federally. It's tremendously complicated. It's extremely regressive. 94% of the benefit is going out to millionaire households, not millionaire wealth, households with more than a million dollars of income per year. And it doesn't translate well to Vermont in the sense that there's no mandate whatsoever. You couldn't, as far as I'm aware, create a mandate that these companies be located in Vermont. These aren't these aren't Vermont based tech companies. This is for an investor likely investing in a company in California or in Seattle or so on. There's no in state targeting here. So whatever rationale there is for it federally, which is pretty disputed, that is significantly weaker at the state level. This has been it's it's expanded in the federal bill. The federal bill, the information you get from JFO, which is accurate, is that there's not a big immediate revenue impact to this because the expansion takes time to take effect. It's for newly acquired stock that you have to hold for a certain number of years, so it takes a few years for the expansion to have effect. But this is drawing a lot of attention now because the the break itself that was already on the books before the HR one expansion was a lot larger than people realized. And so we just saw DC a month or two ago decouple from this, basically using HR one as wake up call and saying, wait wait a minute. We have this thing in our code. What are we getting out of this? Do we really wanna do this? And they decided to decouple before that, and I'm expecting we will see more states decouple this year, but before that, states that were already decoupled were Alabama, California, Mississippi, Pennsylvania. I'm not again

[Sen. Randy Brock (Member)]: So

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: Can I

[Sen. Randy Brock (Member)]: just can I make sure that I understand the effect of this? When the state decouples from this, it means that that revenue can be taxed at state level?

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: Yes, you add back that income. This income that's missing on the federal forms. Yes. It's income.

[Sen. Randy Brock (Member)]: So you add that back in on the state form, and

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: then the state can tax it. You're broadening the tax base for now.

[Sen. Randy Brock (Member)]: The question is, what effect does that have on the resident who is sitting in a state that does not have that decoupling? Does that encourage that person to leave that state and go someplace else? Just as if they were going to a tax free area? It would kind of have the opposite effect.

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: So you have a 0% tax rate on this certain type of capital gains and Correct.

[Sen. Randy Brock (Member)]: Unless it's because Right now.

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: Yeah. I mean, if they if they I I think that is the exception rather than the one. I I I don't Has anybody measured that? Well, California is well, California, the the background the the most robust discussion of if you wanna look at the legislative record, the most robust discussion of this has occurred in California, what happened in California was they they had a lot of these venture capital investors Mhmm. And they were losing a lot of revenue. And they said, wait a second. You know, it turns out that a lot of these investors are investing in, like, Utah companies or or Washington companies, and why are we offering a tax break on this? So what they did was they tried to say, okay. We're only gonna offer this tax break for investments in California companies, and it got struck down in court. Yeah. And because that's discrimination against interstate commerce. And so they said, you know what? This isn't worth it for us at all. You know, if we're if we're offering a large windfall of these out of state investments, we're not gonna do it. So if you wanted to look at the I guess the shorter answer to your question is the migration literature in general doesn't point a lot to a large a lot a lot of these tax induced moves. If you're looking for literature around this specifically, I would look to California first, because they've debated this most robustly, then there's also the Treasury Department study that. I would

[Sen. Randy Brock (Member)]: think that anybody, that you have a wealthy person, as a general rule, has tax counsel and has probably pretty good tax people. That would be one of the first things that I would certainly look at. And I would say, I have a company that is likely going to be extremely successful based on where it is right now. And I see that a bill comes up in the legislature that would penalize me by taxing a substantial amount of income that I now have, I would be thinking very seriously about where could I put my tax home because it's movable.

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: So there's an interesting story in the New York Times lately where they were interviewing a lot of accountants who were working with high net worth clients and were thinking about what to make of foreclosed hire brackets in New York City, And a lot of a lot of clients came to to their accountants and said, oh, you know, rates are going up. We we think we we're, you know, we're we're thinking about moving. And what these accountants said is for every every person that comes and floats that idea to them, For every 10 that come and floated, at least nine of them don't end up doing it because it turns out what what often the first reaction to that Mhmm. Is to from high net worth people is to try to move the money. So they'll say, okay. I'm gonna park it in a trust, or I'm gonna not really move, let's say, moved into that sort of thing. And those are kind those are the kinds of things you actually can address Mhmm. Through policy intervention, making sure that you have tight laws that are governing, you know, how trusts are taxed and how easy or difficult it is to move money into a trust than just sidestep paying state tax, or or your your your, enforcement of residency rules about how long someone's gonna be in the state to pay tax and that sort of thing. I think taking that enforcement seriously because that's usually the first thing that high income people are looking to do when they see a change like this. They say, how can we avoid our way out of this? And if you make it too easy, they will. Mhmm. But but there are there are measures that can be taken to to to be to have more robust enforcement on these questions.

[Sen. Ann Cummings (Chair)]: I have to. Okay.

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: Alright. What time are we shooting for?

[Sen. Ann Cummings (Chair)]: We've got about seven or eight minutes, but, Kirby, what's your schedule like?

[Kirby (Legislative Counsel, Office of Legislative Counsel)]: You can run over.

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: Don't worry about me. Well, I'll go I'll go I'll speed it up. So on It's not you. On on depreciation, you've seen in the JFO scores likely that these are the largest business tax the largest tax cuts period from from conformity. Worth worth being put under the microscope for that reason alone. And again, this is a similar theme of a lot of my remarks that whatever the rationale federally is, we're definitely advanced federally as economic development tools. That rationale does not translate as well to the state level because it comes out of pre abortion income. So what that means is if you are offering a tax break for a certain kind of investment, you're gonna have to offer across the board whether the investment is in Nevada or Oregon or not. So yeah. So for that reason, we we have seen there's an article from Mike Gulick and Bloomberg earlier this month, run down some of the decoupling actions. We have seen some states decoupling from this because, number one, like I said, it's the largest revenue loss of all of conformity items. And number two, they're worried about it not being especially targeted to growing that state specific economy because it's a broad aspect for investment penny per day. So wanted to wanted to flag that. The other thing oh, my third bullet point here, what this is in reference to is there are certain parts of the depreciation breaks that are for investments that already occurred. I would consider with the way time works, you know, it's impossible to incentivize something that already, yeah, it's impossible to incentivize something that already happened. So I would be especially skeptical of that.

[Sen. Ann Cummings (Chair)]: Yeah.

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: Okay. International is the other area I would really take a close look at. We've seen confirmation now twice from the at the federal level. First in 2017 with TCJA, again in 2025 with HR one, that if you're administering a corporate income tax as you are and as the federal government is, you can't put on blinders tune out what companies are reporting internationally. At the federal level, these profits that are being booked internationally are coming into the tax calculation through things like the NCTI and subpart F and so on. You have to be attuned to this because if you're not, what we see again and again and again across a wide range of literature and just the practical experience of practitioners is that if you're not paying attention to what's happening internationally, companies claim that they're earning just huge and outsized shares of their profits in foreign tax savings. The other thing you say, where did you make your money? Oh, no. Not in Vermont. You know, we made this money in The Cayman Islands. We made this money in Switzerland, and, you know, in these zero tax places. This is not really a controversial thing. It's pretty well documented that this is going on. That's why the federal government has has some of these provisions that I think are worth are worth thoughtfully coupling to. And that word thoughtful is the point of my second bullet here, which is that you also need to be aware that your corporate income tax, the foundation of it, is meaningfully different from the federal corporate income tax. The federal level is basically a worldwide system with these partial deductions and with foreign tax credits that are designed to help tax the right amount of income. In Vermont, you're using sales factor formula portion. And so that's what I'm gonna walk through this sales factor quickly because I think to understand how you should link up to the federal international provisions, you have to understand how the sales factor works because it's fundamentally different from the federal code, it it definitely impacts what makes sense as logical principle and policy in Vermont. So a very simplified example of how a company pays tax under a single sales factor apportionment. Let's say you have a company with a billion dollars of sales, they're making a 10% profit, that's a $100,000,000 profit. Vermont doesn't get to tax all 100,000,000 of that. That's not the goal of Vermont's corporate income tax. You're gonna tax your appropriate share of it. You determine what the appropriate share is, you could ask the company. What'll probably happen is they'll tell you they made most of money in Nevada, not in Vermont. So what's happened over the years is states moving toward a combined reporting formulary system where you say, okay, put aside the accounting structure that you've come up with for your business. What is the economic reality? Where are your customers located? If you don't have customers, you don't have a business. So they know where their sales are. They know you know, where the money is flowing in from those sales. So let's say it turns out this company makes 5% of their sales in Vermont, that means Vermont is allowed to tax 5% share of that $100,000,000 pie. So that that's the way that it is the system works. When it comes to the international income items, the goal of bringing international income into the system is not to raise taxes on these companies. It's to make sure you have a more thoughtful and forcible calculation of what they should owe. And so here's an example of that. Let's say now instead of only looking at the same company's US profit, let's look at their worldwide profit. They're making they're making a $200,000,000 worldwide profit in this case off of $22,000,000,000 in sales. Well, your sales factor is now shrunk. Now, Vermont doesn't get a 5% sharing work. You approach the math this way. You only get a two and a half percent share, but it's a two and a half percent share of a larger pie. And you can see that this, you know, you end up taxing $5,000,000 of profit either way. So whether you're bringing a a a broader international view or a or a more myopic, you know, domestic view to it, you end up with the same slice of the pie, the same amount being taxed in this case, and in this simple example where you don't have any kind of shenanigans going on with the profit shifting and so on. And then just really to hammer this point home, and it's gonna be relevant to to I'm gonna have a more practical application of this on the next slide. Let's say this company expands its overseas sales. Now it's got, you know, another, 500,000,000 in overseas sales, another 50,000,000 in profit. Your your sales factor is shrinking even more. Now you're only taxing 2% of this company's profit, and yet, even so, your tax base is $5,000,000 in all these cases. And what what this emphasize is is that the point of sales factor apportionment in Vermont is to make sure you're not, you know, you're not trying to tax overseas and okay. That's not the goal. That's have an example of a company here that's expanded its overseas operations, and its tax bill doesn't change at all because that's not what you're trying to tax. You're trying to tax what's happening here in Vermont. And so the reason this matters, again, the federal government doesn't do this. You do almost all states with corporate income taxes do. Federal government doesn't. And what the federal government is doing instead,

[Sen. Randy Brock (Member)]: it's

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: it used to offer what was called a FDI production. Now it's been renamed today. I come up with these acronyms. Just messenger. What this is, it's a category of income. Basically, income that US companies are are generating from their export profits. So your company's exporting, and what the federal government says is, you know, we we want we like exports. We we wanna offer an export subsidy, and we're gonna let you deduct around a third of that income from your federal forms, and then we're gonna tax the rest. Whether subject of foreign tax credits to prevent double taxation, but, you know, it's pretty explicitly trying to tax this this these profits derived from exports. Your system in Vermont is already calibrated that tax exports. You're not trying to tax exports as the previous slide show. We had a company dramatically expand exports, it's Vermont tax ability to change by a dime. Use your sales factor of fortunate based on where your customers are located. By definition, if it's an export, the customer's not in Vermont. So the point of this is that, really, the Fide deduction makes sense federally, arguably, but in a single sales factor apportionment environment, you're already not trying to tax exports. And so because of that, we've seen a lot of states decoupled from this, and I have a Colorado is the most recent addition to this list. These are the states that have decoupled. Colorado decoupled in August just a few months ago. I think that this the green states here have decoupled. I think you would see a the the reason that this map isn't even more green than it was was in part with the way that the TCJA changes went down. They were signed in the law in December 2020 or 2017, took effect 01/01/2018. And I gotta tell you, was following this at the time, and it was it was wild. I'm sure a lot of you were as well. People were trying to make sense of this. It was hard to understand what was in the bill bill federally, much less what was what the implications were for states. And so there wasn't a lot decoupling from from today writing the immediate aftermath of the enactment of the 2017 law. And I think one lesson from this is why I think it's especially important to take conformity now. It's to take conformity seriously now. It's because decisions that tend to get made in that first legislative session following a big federal bill, there's a momentum tool. You You know, you can change your length up to federal law at any time, but oftentimes, those decisions made in that first session tend to stick around, and I think that's why this map looks the way it does. It's because there was so much confusion in early twenty eighteen about what these things really meant, what they were gonna do. Ultimately, the Chase and T scores around this provision ended up not not really reflecting reality either. There was a lot everybody was everybody was very scrambling to wrap their heads around these things. Okay, and this is my last talk, if I can find that you ask.

[Sen. Randy Brock (Member)]: Just one more question. In terms of states that are making a decision based on this, is it because of where the sales occur by state as opposed to nationally?

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: Why a state would choose to decouple? Yeah. All of these things use formulary apportionment, and 98% of them use sales factor formulary, so you're all coming at it from pretty much the same starting point. Is

[Sen. Randy Brock (Member)]: that formularity based on simply an algorithm, or is it based on the fact of sales? Yeah. It's based

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: on the location of the sales. Okay. Yeah. The formula used to be more nuanced and considered where property was located, where payroll was located, and so on, and that's that's that's been largely abandoned. Okay. So I don't think it's really tax policy differences. You're all starting from very similar foundations. So I I would say the momentum is is gradually moving toward more decoupling, and I think we'll see this is you know, anytime a federal bill is an active, it sparks debate, and that's where you see what changes.

[Sen. Randy Brock (Member)]: Is it relatively easy, or is it difficult for

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: a state to model what would happen if it I was actually just talking with Pat Tittenden and Jay Phil about this, so they are looking into that. It is helped by the fact that these are federal income concepts, so we have federal tax return data, so you're not talking about bringing some unknown into the system, talking about detailed federal forms that you can run, But the calculation is complicated by the difference between the federal and the monk code. So I know I I believe that JFO is working through this, but I I can't speak for them. That that's wrong. I apologize. K. So the last concept I wanted to cover in this You know what? I'm gonna skip this slide, so this will be my last slide. The other thing to keep an eye on, federally, is NCTI. This is a nested acronym. We have an acronym inside an acronym here, net CFC, tested income, net controlled foreign corporation, tested income.

[Sen. Ann Cummings (Chair)]: Vebri Gulick.

[Unidentified speaker (likely staff/clerk early; bill sponsor during wetlands item)]: It's okay.

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: It's it's the new GILTI. And there's a debate about whether we should pronounce it Nick T or Necktie. I'm firmly team necktie myself, but everybody's got their own view of that. What this is, it's another category of corporate profit, and it's totally different category than today. By legal definition, there's not a lot overlap at all. This is the profit that foreign subsidiaries of US companies are are booking abroad. And what that is, it's a mix of legitimate foreign profits. You have US companies with a, you know, with a foreign arm that that making real sales, making real money overseas. And it's also a mix of these shifting profits where companies are saying, you know, we we earned our profits in Bermuda. We earned our profits in Singapore, that country. So it's a mix of both of these. So it's not appropriate for Vermont to try to tax all of this. You don't wanna tax legitimate foreign income. The federal government is not trying to fully tax this either. They've historically allowed a 50% deduction for this income that's being was reduced on January 1 to 40%. So they do a partial taxation of this, and then they apply foreign credits. Vermont, again, your your the goal of your system is not to go out and tax all of this income. You have single sales factor, which helps you isolate which part of any pool of profits. And, again, I had that, you know, that three step slide earlier where you saw water's edge and worldwide and so on. What what no matter how big the initial pool is, if you grow the pool, you're gonna shrink your sales factor. The goal is to tax the appropriate share. In Vermont, instead of right in instead of going out and and taxing 50% of it or taxing 60% of it, you have single sales factor which helps you identify what part of all this profit is really attributable to Vermont because that's when Vermont custom what you wanna do. And so I I I think the the federal deduction is serving a different purpose of the federal line of trying to reduce taxes on this category of profit, and it doesn't serve that same purpose in Vermont because you're already, you know, you're already taxing a percentage of this profit built into your sales factor. You don't have to write a percentage into the law and say 40%. You already are taxing a percentage.

[Sen. Ruth Hardy (Member)]: Is it I I with this one and the previous one, is it mostly to make our our our statutes, our corporate income taxes cleaner? Because it doesn't it's at least in your example of the other one, it didn't change the amount. So it's not about the amount. It's about the the cleanliness or the easy ease of of calculation. Is

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: Yeah. Practically, rubber meets the road, you're looking at you're and you're appealing two deductions. If you were to do this, you would repeal the two fifty deduction per day and put the day and repeal the two fifty deduction for for next time.

[Sen. Ruth Hardy (Member)]: Right. So it's it's basically simplifying our tax code. It's not about changing revenue necessarily because we're still just taxing the sales in Vermont.

[Unidentified speaker (likely staff/clerk early; bill sponsor during wetlands item)]: Yes, sir.

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: Yeah. There would be a revenue implication to it.

[Sen. Ruth Hardy (Member)]: Oh, there

[Unidentified speaker (likely staff/clerk early; bill sponsor during wetlands item)]: would Okay.

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: AFFO would would be able to score that highest. Okay. But that's not the primary motivation of it. And this is more taking these federal concepts, and I think there's value, especially with necktie. This is a federally defined thing, audited by the IRS. We know what these amounts are, you know, being able to piggyback on IRS audited things is useful for the state, starting from that and then translating it into something useful further on. And and so, you know, you start with the you start saying stuff early. You start with neck time, but the question is do you lop off 40 or 50% of it, or do you not need to do that? Because you're already on taxing a percent via the sales factor.

[Sen. Ruth Hardy (Member)]: Oh, I see. So you're suggesting just decoupling from the deduction itself, not from the whole concept of

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: Exactly. Necktie. Yes. Yes. Okay. So you're already arguing necktie in the code.

[Unidentified speaker (likely staff/clerk early; bill sponsor during wetlands item)]: Uh-huh.

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: The question is, is it appropriate to allow this 40% write off? Or it's 50% now. If you just do it with vanilla coupling federal law, that 50% deduction will shrink to 40. I think the tax policy principles you know that would be, wait a second, why are we writing percentages into the law when we're already taxing the percentage by virtue of the sales factor? We can rely on the sales factor to help line up our tax with economic reality.

[Kirby (Legislative Counsel, Office of Legislative Counsel)]: Got it, okay, thanks.

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: And, yeah, that's all I have. Again, thank you very much. Thank

[Sen. Ann Cummings (Chair)]: you. This has been helpful. It will take a while to digest it all. Which is, I do remember guilty, daptized nuke, but I know JFO is working on this, and I know Ways and Means is working on this because it's revenue bill, but they also revoked our corporate tax structure maybe three years ago. Mhmm. So they are very familiar with ins and outs and we'll see what they send us,

[Unidentified speaker (likely staff/clerk early; bill sponsor during wetlands item)]: and then we'll work on it.

[Sen. Ann Cummings (Chair)]: But it gives us some good things to be aware of and to to look for, things I hadn't thought. Randy, any last questions? Okay. Thank you.

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: Thank you very

[Sen. Ann Cummings (Chair)]: Are you leaving today?

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: No. I'm leaving on Saturday. Oh. We're have a a little fun tomorrow, so I'm be skiing tomorrow.

[Sen. Ann Cummings (Chair)]: Well, what? Jeez. Maybe it snowed in on Saturday and Sunday.

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: Is that what it's called?

[Sen. Ann Cummings (Chair)]: I think this my thing this morning said snow. I don't know.

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: I'll say, perhaps. Yeah. Let's take a closer look at that.

[Sen. Ann Cummings (Chair)]: Yeah. But enjoy skiing.

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: Thank you. Happy.

[Sen. Ann Cummings (Chair)]: Okay. Yeah. I'll get to see Vermont at its best. This is not its best for me now. But it is supposed to be cold by tomorrow.

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: I didn't notice that. Okay.

[Sen. Ann Cummings (Chair)]: So we're going to move on. A couple minutes late, we've got an ad relating to granules families on parcels with wetlands. Peppermint is here and the sponsor, and we just introduce yourself to the record and just tell us

[Unidentified speaker (likely staff/clerk early; bill sponsor during wetlands item)]: what you were trying to accomplish when you did that, and hopefully you'll walk the street away. Thank you. Thank you, Martine Larocque. Steve Beckerman, Addison County Senator for that. S-one 165, I came up, decided to put this forward, this billboard, to help get a more standardized value for the listers to mark on their, their list. Right now, every town, it says there's not a a a straight formula to say wetlands. If we can't use it the other reason I started it, if we can't use it, we shouldn't be billing out at a very minimal amount, like $200 an acre, just enough to cover administration fees and what have you for the listeners to have to do their work and the town to have to do their work. After talking to some listeners, they also believe that, like, wildlife corridors, flood plains, all those areas that Vermont says, hey, this land is not usable because of these factors, that we should find a more,

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: lower price when we go

[Unidentified speaker (likely staff/clerk early; bill sponsor during wetlands item)]: and put it out per acre. The downside is it will affect rent less, but if you can't use your land, I feel for Vermont, it's unfair to Limonters that they get taxed at rates that whatever the listeners decide is what the value is. So, Kirby helped instruct the bill, and that's So, my little thanks for your time. Okay. Thank you. Back to back to education. Yeah. Thank you all.

[Sen. Ann Cummings (Chair)]: Thank you. We will take a look at that. Alright. Do you wanna? Good

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: afternoon.

[Kirby (Legislative Counsel, Office of Legislative Counsel)]: So I let senator Caledonia know who's gonna wanna share a little bit of contrary information with you. He's aware of it.

[Sen. Ann Cummings (Chair)]: Okay.

[Kirby (Legislative Counsel, Office of Legislative Counsel)]: Some background. I drafted I think there's three bills floating around right now that that valuation when it comes to state restrictions on development in some way or another. I'm gonna take some responsibility to say that I don't think that I informed some people well enough that this already exists. In each case, though, there might be reasons why you want to elaborate on that, and I think that's what this bill is up to. This bill and suspenders elaborating alarms exist. So first, I'll share with you current law. And that's, like, See all the fun things.

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: Yeah. All the attendance didn't say.

[Kirby (Legislative Counsel, Office of Legislative Counsel)]: What's that?

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: Right.

[Kirby (Legislative Counsel, Office of Legislative Counsel)]: Yeah. Yeah. Yeah. This is the definition of appraisal value in statute. This is the starting place that I'll start with, but there are chapters that they have to continue as of all the different factors that go into appraisal value. I'm gonna highlight part of this. Appraisal value means a lot of things. The estimated fair market value of property is the

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: price of property that will bring to

[Kirby (Legislative Counsel, Office of Legislative Counsel)]: the market when offered for sale or purchased by another. Taking into consideration all the elements of the availability of the property, its use, both potential and perspective, any functional deficiencies, and all other elements such as age and condition that combine to give property a market value. So when you hear fair market value being discussed in property valuation context, the illustrators and assumptions are already told to take anything into account that's going affect value. It's not or it's more of an I don't believe this is not an important part of in the art of science, it's in and then you take a lot into it. It's not just a single formula.

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: But specifically,

[Kirby (Legislative Counsel, Office of Legislative Counsel)]: current law says those elements shall include the effect of any state or local law or regulation affecting use of land, including some of the land restrictions in Title X. The current state of things is that the LISTR handbook, the training the PBR does, it it all is to inform Lister's ancestors to pay into account these restrictions on the We know that there's inconsistency from municipality and municipality because there's different individuals doing these things. So one thing I'm curious about is whether there's one instance of maybe that not being taken into account enough, or if there's this particular fact pattern that exists in which maybe PBR can be asked to do some further instruction with people or something like that.

[Sen. Randy Brock (Member)]: One question, Kirby, is when you have a situation in which you have the property has been sold recently, isn't the fair market value

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: the price, at least taking into consideration the price that it's sold at? The listeners and listeners are trained to not chase sales because

[Kirby (Legislative Counsel, Office of Legislative Counsel)]: they're supposed to use the same consistent process for it. Mhmm. So so it starts to be inequitable when you chase a sale that doesn't match your process. So it's more important to follow a same consistent process to have equity within the

[Sen. Randy Brock (Member)]: town than to do that. Even even though, for example, you have enough sales that it's evident that the listeners are wrong.

[Kirby (Legislative Counsel, Office of Legislative Counsel)]: I mean, sometimes that comes in the play of appeals and things. The equalization study also, you it does use sales when that happens. So that's probably the only to turn around.

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: Okay.

[Sen. Ruth Hardy (Member)]: I I was just gonna say and also on appeal, if a property is appraised at a value that the owner thinks is too much because they have restrictions on part

[Sen. Ann Cummings (Chair)]: of their property and what they can do. They can take that up and appeal already for current law.

[Kirby (Legislative Counsel, Office of Legislative Counsel)]: Yes. That's true. I tend to try to advise to be as efficient as possible, though, with the tax code and Yeah. You know, appeals like, if people are having to go through appeals order to make the process work, then, you know, that's not Yeah.

[Sen. Ruth Hardy (Member)]: For sure. For sure.

[Sen. Ann Cummings (Chair)]: But

[Sen. Randy Brock (Member)]: Yeah. Well, I just ran into this, you know, Board of Civil Authority, for example, in Swanton where people were appealing the the issue of, you know, I have all this wetland here. What am I gonna do with it? Why is it so high? And what the board typically did was follow the advice of the listers and so on. The person then appeals to the next level and we've a couple of significant cases of that ending right now. I'm just curious how the state, the highest appeal level deals with that. Because people are saying, I can't use this plant because it's wet. It's underwater. I can't plan on it. I can't do it. I can't even walk on it. And yet you tell me it's worth x

[Kirby (Legislative Counsel, Office of Legislative Counsel)]: number of dollars per acre. I know this sometimes these appeals can come down to competing experts Yeah. The evaluation experts on each side. And then I I I find it a little bit humorous. Sometimes if it goes if this ends up in trial court, you have a judge who's not, and that's per evaluation making the call. But it's which experts they believe or which you know?

[Sen. Ann Cummings (Chair)]: I think listeners are more of a science. If you go to a realtor, they'll do a market appraisal for you, a market study. That will be based on similar homes and sale price.

[Kirby (Legislative Counsel, Office of Legislative Counsel)]: Yeah.

[Sen. Ann Cummings (Chair)]: And you you'll get what the list you know, what the realtor thinks your house will sell for, which is frequently different than what an appraiser says your house is valued at. The bank wants to know what the appraiser says because they need to protect their mortgage. But it there's more of a structure and a science whereas

[Kirby (Legislative Counsel, Office of Legislative Counsel)]: Yeah. When when I was when I was saying my listeners through this part earlier, I was just getting at the the, like, flexibility and the interpretation of sometimes things having to take place, but, yes, they certainly follow. Okay. Like, there's a land schedule for the town that they use, and there's there's formulaic aspects to it.

[Sen. Ann Cummings (Chair)]: And there are professional listers, and then there are towns who just have a board of listers and your boards of civil authority who usually is the first to appeal know nothing.

[Sen. Randy Brock (Member)]: Yeah. But with the least least qualified people to make a judgment, we're we're we're called on

[Sen. Ann Cummings (Chair)]: to None. Many of the events. I've seen no idea. You know, many, many years ago when I think a third of the appraisals at Montpelier were peeled. We found more dogs and cats out. And it was an interesting year, but it's we're we're coming a long way in getting our our visitors up to a more professional level, but we aren't there yet.

[Kirby (Legislative Counsel, Office of Legislative Counsel)]: That was background saying that Senator Hetenden's concern is in the law. I'm not saying that it's being applied correctly everywhere, not saying it's not a problem, But what we put together to resolve his request was to add a section also within the property valuation sections law saying that parcels with wetlands shall be listed and taxed on the same basis as other real estate, provided the assessing official accounts for any reduction in value of the parcel due to development of these restrictions caused by stating this belong. That's very similar to what we read before. One is just specific to wetlands, And and it does do a little bit more in defining what wetlands are based off of state law. But I would say that this does overlap basically entirely with what we already read before. If you did wanna move forward with this more specific provision, it would probably be a good idea to have me add a provision that this is intended to be to work with the other provision as opposed like, would you wouldn't want

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: a court to ever be in

[Kirby (Legislative Counsel, Office of Legislative Counsel)]: a position to think there's two different provisions that say kind of the same thing and then for them to try to interpret a reason for that. So to be clear that, you know, that one of these isn't meant to contradict the other,

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: I think, would be important.

[Sen. Ann Cummings (Chair)]: We might just wanna strike the one that's there and put the new one in if we decide.

[Kirby (Legislative Counsel, Office of Legislative Counsel)]: The other one's more broad.

[Sen. Ann Cummings (Chair)]: It's more broad.

[Kirby (Legislative Counsel, Office of Legislative Counsel)]: Yeah. So that that one, you know, for instance, actually 50 That's right. Got it. Yeah.

[Sen. Ann Cummings (Chair)]: But this one is is specifically for wetlands. We kinda put some magnifying glass or almost like a footnote on the existing wall.

[Carl Davis (Research Director, Institute on Taxation and Economic Policy)]: If

[Sen. Ann Cummings (Chair)]: you say wetlands, this is what we need.

[Kirby (Legislative Counsel, Office of Legislative Counsel)]: It provides some additional ways for a reserve assessor to identify what is wetlands by by indicating by defining them. But that's that's mostly what it does beyond what already exists.

[Sen. Ann Cummings (Chair)]: Okay. That's it.

[Kirby (Legislative Counsel, Office of Legislative Counsel)]: So

[Sen. Ann Cummings (Chair)]: For maybe questions? Alright. I think you've got a break. That's enough.

[Kirby (Legislative Counsel, Office of Legislative Counsel)]: Great if I had checked that.

[Sen. Ann Cummings (Chair)]: Just It's great.

[Kirby (Legislative Counsel, Office of Legislative Counsel)]: It's good. We have great.

[Sen. Ann Cummings (Chair)]: 03:00, we we're gonna do s 02:08. Back