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NO. 152.  AN ACT RELATING TO INCOME TAX.

(H.784)

It is hereby enacted by the General Assembly of the State of Vermont:

* * * Corporate Income Tax and Other Corporate Taxes * * *

Sec. 1.  STATEMENT OF INTENT

In recognition of the fact that corporate business is increasingly conducted on a national and international basis, it is the intent of the general assembly to adopt a unitary combined system of income tax reporting for corporations, and as an integral part of this proposal, to lower the corporate income tax rates.  Vermont’s separate accounting system is inadequate to measure accurately the income of a corporation with non-Vermont affiliates and creates tax disadvantages for Vermont corporations which compete with multistate and multinational corporations doing business in Vermont.  It is the intent of the general assembly, in adopting a unitary combined reporting system, to put all corporations doing business in Vermont on an equal income tax footing, and with the revenue from the expanded and more accurate tax base, to lower Vermont’s corporate income tax rates.

Sec. 2.  32 V.S.A. § 5811 is amended to read:

§ 5811.  DEFINITIONS

The following definitions shall apply throughout this chapter unless the context requires otherwise:

* * *

(18)  “Vermont net income” means, for any taxable year and for any corporate taxpayer, :

(A)  the taxable income of the taxpayer for that taxable year under the laws of the United States, without regard to Section 168(k) of the Internal Revenue Code, and excluding income which under the laws of the United States is exempt from taxation by the states, :

(A)(i)  increased by:

(I)  the amount of any deduction for state and local taxes on or measured by income, franchise taxes measured by net income, franchise taxes for the privilege of doing business and capital stock taxes; and

(B)(II)  to the extent such income is exempted from taxation under the laws of the United States by the amount received by the taxpayer on and after January 1, 1986 as interest income from state and local obligations, other than obligations of Vermont and its political subdivisions, and any dividends or other distributions from any fund to the extent such dividend or distribution is attributable to such Vermont state or local obligations.  However, “Vermont net income” shall not include; and

(ii)  decreased by:

(I)  the “gross-up of dividends” required by the federal Internal Revenue Code to be taken into taxable income in connection with the taxpayer’s election of the foreign tax credit or ; and

(II)  the amount of income which results from the required reduction in salaries and wages expense for corporations claiming the Targeted Job or WIN credits.

(B)  In the case of an “electing small business corporation” (“Subchapter S Corporation”) under the laws of the United States, “Vermont net income” shall include only the Vermont net income of the corporation (as defined in this section) which is taxable to the corporation under the provisions of the Internal Revenue Code.

(C)  For a taxable corporation that is a member of an affiliated group and that is engaged in a unitary business with one or more other members of that affiliated group, “Vermont net income” is the allocable share of the combined net income of the group.

* * *

(22)  “Affiliated group” means a group of two or more corporations in which more than 50 percent of the voting stock of each member corporation is directly or indirectly owned by a common owner or owners, either corporate or noncorporate, or by one or more of the member corporations, but shall exclude overseas business organizations or corporations taxable under section 6014 of Title 8.

(23)  “Unitary business” means one or more related business organizations engaged in business activity both within and without the state among which there exists a unity of ownership, operation, and use; or an interdependence in their functions.

(24)  “Overseas business organization” means a business organization that ordinarily has 80 percent or more of its payroll and property outside the 50 states and the District of Columbia.

Sec. 3.  32 V.S.A. § 5832 is amended to read:

§ 5832.  TAX ON INCOME OF CORPORATIONS

A tax is imposed for each calendar year, or fiscal year ending during that calendar year, upon the income earned or received in that taxable year by every taxable corporation, such tax being the greater of

(1)  an amount determined in accordance with the following schedule:

Vermont net income of the                   

corporation for the taxable

year allocated or appor-

tioned to Vermont under

section 5833 of this title                      Tax

       0-10,000.00                                7.00% 6.00%

   $ 10,001.00-25,000.00                   $700.00 plus 8.10% of the excess

                                                          over $10,000.00

                                                          $600.00 plus 7.0% of the excess over

                                                          $10,000.00

       25,001.00-250,000.00               $1,915.00 plus 9.20% of the excess

                                                          over $25,000.00

                                                          $1,650.00 plus 8.75% of the excess over

                                                          $25,000.00

     250,001.00 and over                   $22,615.00 plus 9.75% of the

                                                          excess over $250,000.00

                                                     $19,688.00 plus 8.90% of the excess over

                                                     $250,000.00;

or

* * *

Sec. 4.  32 V.S.A. § 5832 is amended to read:

§ 5832.  TAX ON INCOME OF CORPORATIONS

A tax is imposed for each calendar year, or fiscal year ending during that calendar year, upon the income earned or received in that taxable year by every taxable corporation, such tax being the greater of

(1)  an amount determined in accordance with the following schedule:

Vermont net income of the corporation

for the taxable year allocated or appor-

tioned to Vermont under section 5833

of this title                                             Tax

                    0-10,000.00                     6.00%

   $ 10,001.00-25,000.00                     $600.00 plus 7.0% of the excess over

                                                            $10,000.00

    25,001.00-250,000.00 and over      $1,650.00 plus 8.75% 8.5% of the

                                                            excess over $25,000.00;

     250,001.00 and over                       $19,688.00 plus 8.90% of the excess over

                                                            $250,000.00

or

* * *

Sec. 5.  32 V.S.A. § 5833(a) is amended to read:

(a)  If the income of a taxable corporation is derived from any trade, business, or activity conducted entirely within this state, the Vermont net income of the corporation shall be allocated to this state in full. If the income of a taxable corporation is derived from any trade, business or activity conducted both within and without this state, the amount of the corporation’s Vermont net income which shall be apportioned to this state, so as to allocate to this state a fair and equitable portion of that income, shall be determined by multiplying that Vermont net income by the arithmetic average of the following factors, with the sales factor described in subdivision (3) double‑weighted:

* * *

Sec. 6.  REPEAL

32 V.S.A. § 5836(e) (bank franchise tax limitation by federal taxable income) is repealed upon passage of this act, and no limit on bank franchise tax shall be available based on federal taxable income for a corporate taxable year ending on or after the effective date of this act.


Sec. 7.  32 V.S.A. § 5862(d) is added to read:

(d)  A taxable corporation which is part of an affiliated group engaged in a unitary business shall file a group return containing the combined net income of the affiliated group and such other informational returns as the commissioner shall require by rule.

Sec. 8.  REPEAL

32 V.S.A. § 5837 (limiting corporate income tax on holding companies to minimum tax) is repealed for taxable years beginning on or after January 1, 2006.

Sec. 9.  REPEAL

Subchapter 3 of chapter 211 of Title 32 (franchise tax on car and transportation companies) is repealed for taxable years beginning on or after January 1, 2006.

Sec. 10.  32 V.S.A. § 8522(c) is amended to read:

(c)  For any taxable year, a taxpayer shall give notice of its election to pay the tax imposed by this section by filing a quarterly gross receipts tax return no later than 25 days following the last day of the third month of the taxable year. Once made, an election shall remain in effect for at least three full taxable years. No election to pay the tax imposed by this section shall be made by a taxpayer that did not make the election in the previous year.


* * * Amusement Machines * * *

Sec. 11.  REPEAL

Chapter 201 of Title 32 (amusement machines) is repealed.

Sec. 12.  32 V.S.A. § 9771 is amended to read:

Except as otherwise provided in this chapter, there is imposed a tax on retail sales in this state.  The tax shall be paid at the rate of six percent of the sales price charged for the following:

(1)  Tangible personal property sold at retail in this state.

* * *

(4)  Admission to places of amusement, including athletic events, exhibitions, dramatic and musical performances, motion pictures, golf courses and ski areas, and access to cable television systems or other audio or video programming systems that operate by wire, coaxial cable, lightwave, microwave, satellite transmission, or by other similar means, and access to any game or gaming or amusement machine, apparatus or device, excluding video game, pinball, musical, vocal or visual entertainment machines which are operated by coin, token or bills.

* * *

* * * Taxation of Lottery Prizes * * *

Sec. 13.  REPEAL

31 V.S.A. § 664 and § 674(s) (lottery prize income tax exemption) are repealed for taxable years beginning on or after January 1, 2005.

Sec. 14.  32 V.S.A. § 5823(b) is amended to read:

(b)  For any taxable year, the Vermont income of a nonresident individual, estate or trust is the sum of the following items of income to the extent they are required to be included in the adjusted gross income of the taxpayer for the taxable year:

* * *

(6)  Proceeds from any Vermont state lottery, tri-state lottery or multijurisdictional lottery ticket paid to a person who purchased the ticket in Vermont, including payments received from a third party for the transfer of the rights to future proceeds related to the ticket, and the commissioner may require withholding of any taxes due to the state under this subdivision from payments of lottery proceeds.

* * * Streamlined Sales Tax * * *

Sec. 15.  24 V.S.A. § 138(a) is amended to read:

§ 138.  LOCAL OPTION TAXES

* * *

(2)  a municipality opting to impose a local option tax may do so prior to July 1, 1998 to be effective beginning January 1, 1999, and anytime after December 1, 1998 a local option tax shall be effective beginning on the next tax quarter following 30 90 days’ notice to the department of taxes of the imposition; and all authority to opt to impose a local option tax under this section shall terminate September 1, 2007, and all authority to impose a local option tax shall terminate on December 31, 2008; and

* * *

Sec. 16.  32 V.S.A. § 9701(20), (22), and (29) are amended to read:

(20)  Vermont service address: means the location in Vermont of communications services equipment from which the telecommunications services are originated or at which communications services are received by a purchaser.  In the event this may not be a defined location, as in the case of maritime systems, air-to-ground systems and the like, Vermont service address shall mean the location in Vermont of a taxpayer’s primary use of the communications services equipment as defined by telephone number authorization code, or location in this state where bills are sent. In the case of charges for mobile telecommunications services, Vermont service address shall mean the location in Vermont of the customer’s place of primary use.

(22)  Place of primary use: means place of primary use as defined in 4 U.S.C. § 124.

(29)  Drug: means a compound, substance, or preparation, and any component of a compound, substance, or preparation, including blood, blood plasma, insulin, and oxygen, but not including food and food ingredients, dietary supplements, alcoholic beverages, or grooming and hygiene products, that is:

* * *

Sec. 17.  32 V.S.A. § 9741(2) is amended to read:

(2)  Drugs intended for human use, durable medical equipment, mobility enhancing equipment, and prosthetic devices and supplies, including blood, blood plasma, insulin, and medical oxygen, used in treatment intended to alleviate human suffering or to correct, in whole or in part, human physical disabilities.

Sec. 18.  32 V.S.A. § 9771(5) is amended to read:

(5)  Telecommunications service provided to a Vermont service address.

Sec. 19.  32 V.S.A. § 9772(a) is amended to read:

(a)  For the purpose of adding and collecting the tax imposed by this chapter, or an amount equal as nearly as possible or practicable to the average equivalent thereof, to be reimbursed to the vendor by the purchaser, the vendor shall use either the calculation in subdivision (1) of this subsection or the formula in subdivision (2).  The tax required to be remitted shall be the rate specified in section 9771 of this title multiplied by the total sales price of all the taxable transactions; provided, however, the tax required to be remitted shall be no more than the amount required to be collected.  The vendor shall be entitled to retain any amount lawfully collected by the person in excess of the tax imposed by this chapter.

(1)  The total sales price of the transaction multiplied by the rate specified in section 9771 of this title carried to the third decimal place and rounded up to the nearest whole cent if the third decimal point is greater than four and rounded down to the nearest whole cent if the third decimal point is four or less.  The tax may be computed on either the total invoice amount or on each taxable item.

* * *

Sec. 20.  32 V.S.A. § 9703(d) is added to read:

(d)  A person required to collect the tax may also refund or credit to the purchaser any tax erroneously, illegally, or unconstitutionally collected.  No cause of action that may exist under state law shall accrue against the seller for the tax collected unless the purchaser has provided written notice to a seller, and the seller has had 60 days to respond.  Such notice must contain such information necessary to determine the validity of the request.  A seller who uses either a provider or a system, including a proprietary system, that is certified by the state and who has remitted to the state all taxes collected less any deductions, credits, or collected allowances shall be presumed to have a reasonable business practice.

Sec. 21.  32 V.S.A. § 3201(e) is added to read:

(e)  Agreements with certified service providers.  The commissioner may enter into agreements with certified service providers, sellers using certified automated systems, and voluntary sellers for monetary allowances.  The tax required to be paid to the department shall be net of monetary allowances.

(1)  The allowance for a certified service provider shall be funded entirely from money collected by the provider and shall be either a base rate applied to taxable transactions processed by the provider or, for a period not to exceed 24 months following a voluntary seller’s registration through the streamlined sales tax agreement central registration process, a percentage of tax revenue generated for the state for which the seller does not have a requirement to register to collect the tax, or both.

(2)  The allowance for a seller using a certified automated system shall be for a period not to exceed 24 months following a seller’s voluntary registration and may include a base rate applied to taxable transactions and a percentage of tax revenue generated for the state for which the seller does not have a requirement to register to collect the tax.

(3)  The allowance for a voluntary seller shall be for a period not to exceed 24 months following a seller’s voluntary registration and shall be based on a percentage of tax revenue generated for the state for which the seller does not have a requirement to register to collect the tax.

* * * Report * * *

Sec. 22.  REPORT; RECOMMENDATION

The Department of Taxes shall report to the House Committee on Ways and Means and the Senate Committee on Finance by February 1, 2005, on the department’s proposed rules and its recommendations for legislation with respect to implementation of unitary combined reporting.  The department shall also include in its report (1) proposed details on the inclusion of subpart F, corporate inversion, or other tax-haven deemed income in the unitary tax base; (2) an estimate of the cost and effects of allowing a double-weighting of the sales factor in corporate income apportionment, a recommendation of whether the throwback rule for taxation of sales income should be retained and if not, whether it should be replaced with any other method of taxation; and (3) alternative measures for encouraging business growth which are estimated to cost the same as allowing double-weighting of the sales factor.

* * * Effective Dates * * *

Sec. 23.  EFFECTIVE DATES

This act shall take effect upon passage, except:

(1)  Secs. 2, 3, and 7 (unitary combined reporting and tax rates) shall apply to taxable years beginning on or after January 1, 2006.

(2)  Sec. 4 (corporate tax rates) shall apply to taxable years beginning on or after January 1, 2007.

(3)  Sec. 5 (double-weighting of sales factor) shall apply to taxable years beginning on or after January 1, 2006.

(4)  Sec. 14 (taxation of lottery proceeds) shall apply to taxable years beginning on or after January 1, 2005.

(5)  Secs. 15 through 22 (streamlined sales tax conforming technical amendments) shall take effect on the first day of the second quarter following the date of Vermont’s membership in the multistate streamlined sales and use tax agreements, but no earlier than July 1, 2005.


* * * Update of Link to Federal Laws * * *

Sec. 24.  32 V.S.A. § 5824 is amended to read:

§ 5824.  ADOPTION OF FEDERAL INCOME TAX LAWS

The statutes of the United States relating to the federal income tax, as in effect for taxable year 2002 2003, but without regard to federal income tax rates under Section 1 of the Internal Revenue Code, are hereby adopted for the purpose of computing the tax liability under this chapter.     

Sec. 25.  32 V.S.A. § 7475 is amended to read:

§ 7475.  ADOPTION OF FEDERAL ESTATE AND GIFT TAX LAW

The laws of the United States, relating to the federal estate and gift taxes as in effect on January 1, 2003 2004, are hereby adopted for the purpose of computing the tax liability under this chapter, except with the credit for state death taxes under Sections 2011 and 2604 as in effect on January 1, 2001, of the Internal Revenue Code, and without any deduction for state death taxes under Section 2058 of the Internal Revenue Code.

Sec. 26.  EFFECTIVE DATES

Sec. 24 of this act (update of link to Federal income tax laws) shall apply to taxable years beginning on and after January 1, 2003; and Sec. 25 of this act (update of link to Federal estate and gift tax laws) shall apply to estates of decedents with a date of death on or after, and gifts made on or after,

January 1, 2004.


Sec. 27.  Sec. 87 (17) of No. 68 of the Acts of 2003 is amended to read:

(17)  Secs. 51-67, relating to streamlined sales tax provisions, including provisions relating to alcoholic beverages, clothing, and $20.00 telecommunications credit, and provisions relating to local option taxation of telecommunications and exemption of clothing, shall take effect on the first day of the second quarter following the date of Vermont’s membership in the multistate streamlined sales and use tax agreement, but no earlier than January 1, 2005 July 1, 2005.

Approved:  June 7, 2004



Published by:

The Vermont General Assembly
115 State Street
Montpelier, Vermont


www.leg.state.vt.us