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H.462

Introduced by   Committee on Ways and Means

Date:

Subject:  Education finance reform

Statement of purpose:  It is the purpose of this bill to meet the Vermont Supreme Court’s Brigham decision requirements, to provide substantially equal education opportunity for all Vermont children.

The bill would:

(1)  Repeal the statewide education property tax on homesteads.

(2)  Impose an education income tax at a rate of 1.5 percent of taxable income, with revenues dedicated to the education fund.  Renters with adjusted gross income of $47,000.00 or less would be exempt from the education income tax.

(3)  Repeal the income sensitivity program, but leave in place the property tax and renter rebate system for persons with household incomes under $47,000.00.

(4)  Apply the statewide education property tax only to nonhomestead property and to homestead property in excess of $320,000.00 in value, at a rate of $1.59.

(5)  Raise the block grant to $7,000.00 for fiscal year 2005.

(6)  Apply a local education property tax on homesteads for spending in excess of the block, using a yield based on homestead value on the grand list.

(A)  The local education property tax would be split into two tiers:

(i)  The first tier would be based on a yield of $43.40 for spending up to 130 percent of the block, with towns below that yield receiving funds from the education fund, but towns over that yield not required to send additional revenues to the education fund.

(ii)  The second tier would be for spending over 130 percent of block, called “excessive local education spending.”  This tax would be based on a yield of $21.70, with towns below the yield not receiving funds and towns above the yield sending additional revenues to the education fund.  The “excessive local education spending” tax would be identified as such on the tax bill.

(B)  The structure of the education property taxes in the bill is intended to create an education funding law that eliminates the need or incentive for towns to conduct private fundraising to avoid education tax obligations.

(7)  Change the way equalization affects the taxable value of homestead property.  For purposes of the local education tax, a town’s homestead grand list value would not be equalized using the town’s common level of appraisal, but instead would be equalized using only the town’s sales ratio for the residential property category.

(8)  Extend the sales tax to:

(A)  personal services (excluding, among others, scientific research and development, advertising, and death care and health care services);

(B)  snack foods;

(C)  beer;

(D)  newspapers;

(E)  nonprescription drugs.

(9)  Impose the property transfer tax on the seller in the same amount as on the buyer.

     AN ACT RELATING TO EDUCATION FINANCE REFORM

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

* * * Repeal Statewide Property Tax on Homesteads * * *

Sec. 1.  32 V.S.A. § 5401(12), (13), and (14) are added to read:

(12)  “Equalized homestead value” means the current tax year listed value of the homestead, divided by the municipality’s residential class sales ratio used for the most recent equalization under section 5405 of this title for residential property in the town in which the residence is located.

(13)  “Excess homestead value” means the equalized homestead value in excess of the homestead base amount, and in the case of a homestead located in more than one town, includes a pro rata portion of excess homestead value located in each town allocated on the basis of actual list value in each town. 

(14)  “Homestead base amount” means $320,000.00 in fiscal year 2005, increased every year thereafter by the percentage increase during the 12‑month period ending with the previous October in the national average one‑family house price in the monthly survey of all major lenders conducted by the Federal Housing Finance Board.

Sec. 2.  32 V.S.A. § 5402 is amended to read:

§ 5402.  STATEWIDE EDUCATION PROPERTY TAX LIABILITY

(a)  A statewide education property tax is imposed on all nonresidential and homestead property and on the excess homestead value, at a rate of $1.10 $1.59 per $100.00 of nonresidential equalized education property value as most recently determined under section 5405 of this title; but the homestead property tax liability shall not exceed the adjusted liability for eligible claimants under chapter 154 of this title and per $100.00 of excess homestead value.

(b)  The commissioner of taxes shall determine the statewide education property tax liability for each municipality for the following school year by multiplying the tax rate adopted under subsection (a) of this section by the municipality’s equalized education tax grand list for the previous year most recent excess homestead value and equalized nonresidential property value.  On or before June 30 each year, the commissioner of taxes shall inform each municipality of its statewide nonresidential and homestead education property tax liability.  The legislative body in each municipality shall then bill each nonresidential property taxpayer for the nonresidential portion of the statewide education property tax, and shall bill each owner of excess homestead value for the homestead portion of the statewide education property tax on the education property tax grand list, and the legislative body may use tax classifications if authorized, to raise that amount those amounts.  Taxes assessed under this section shall be assessed and collected in the same manner as taxes assessed under chapter 133 of this title.  Taxes assessed on homesteads shall be assessed without regard to the adjustment for eligible claimants under chapter 154 of this title.

* * *

(d)  Annually, by January 15, the commissioner of education shall calculate the tax rate under subsection (a) of this section which is estimated to raise from the statewide education property tax on nonresidential property 31 percent of projected education spending for the following fiscal year, and report that calculation to the general assembly.

Sec. 3.  32 V.S.A. § 5401(7) is amended to read:

(7)  “Homestead” means the principal dwelling owned and occupied by a resident individual, as defined in section 5811 of this title, in which the individual claims residence for purposes of income tax liability and rights and privileges of residency.  A homestead also includes a dwelling owned by a farmer as defined under section 3752 of this title, and occupied as the permanent residence by a parent, sibling, child, grandchild or shareholder of the farmer-owner, provided that the shareholder owns more than 50 percent of a corporate farmer-owner, including attribution of stock ownership of a parent, sibling, child or grandchild.  A homestead includes as much of the parcel of land surrounding the dwelling as is reasonably necessary for use of the dwelling as a home, but in no event more than two acres per dwelling unit, up to a maximum of 10 acres per parcel, determined without regard to any road which intersects the land.  If two or more homestead dwellings are located on a single parcel, the value of the parcel allocated to each homestead shall be the total value of the parcel divided by the number of principal dwellings, unless otherwise determined by ownership of record of the land.  A homestead may consist of a part of a multi-dwelling or multi-purpose building, including cooperative property occupied as a permanent residence by a member of a cooperative housing corporation incorporated under 11 V.S.A. chapter 14, and a pro rata part of the land upon which it is built.  A mobile home may constitute a principal dwelling for purposes of this chapter.  A homestead does not include buildings or improvements detached from the home except for a building used as a garage for personal passenger vehicles and any sheds used for noncommercial purposes.  A homestead and used for business purposes; and does not include that portion of a principal dwelling used for business purposes if the portion used for business purposes includes more than 25 percent of the floor space of the building.

Sec. 4.  32 V.S.A. § 5410 is amended to read:

§ 5410.  DECLARATION OF HOMESTEAD

(a)  A resident may shall declare one ownership of a homestead for purposes of this chapter education property tax and property tax rebate.

(b)  Annually on or before the due date for filing the Vermont income tax return, with without extension, each resident individual may shall, on a form prescribed by the commissioner, which shall be verified under the pains and penalties of perjury, declare his or her homestead, if any, as of, or expected to be as of, April 1 of the year in which the declaration is made.

(c)  [Repealed.]

(d)  The commissioner shall provide a list of homesteads in each town to the town listers by May 15.  The listers shall notify the commissioner by June 1 of any residences on the commissioner’s list which do not qualify as homesteads.  The listers shall separately identify homesteads in the grand list.

(e)  The commissioner shall adopt rules governing late filing of a homestead declaration and the eligibility requirements for declaring a homestead.

(e)(f)  Intention to establish a permanent residence is a factual determination to be made in the first instance by the commissioner.  No one factor is conclusive of whether a dwelling is a permanent residence; the commissioner may consider any relevant factors, including but not limited to the following: formal and informal statements of the declarant; the location of residences owned or leased by the declarant; where the declarant spends time; the declarant’s place of employment and business connections; the location of items of significant value (either monetary or sentimental) to declarant; where the declarant’s family lives, place of voter registration, place of issuance of automobile registration and driver’s license; previous permanent residency of the declarant; and address listed on federal and state income tax returns filed by the declarant.

(f)(g)  If the property identified in a declaration under subsection (b) of this section is not the taxpayer’s homestead, the commissioner shall assess the taxpayer a penalty in an amount equal to eight percent of the education tax assessed on the property, or if the declaration was filed with fraudulent intent, then the commissioner shall assess the taxpayer a penalty in an amount equal to 100 percent of the education tax assessed on the property plus interest from the original due date of the property tax on the property, at the applicable rate established in section 3108 of this title.  Any penalty imposed under this subsection may be recovered by assessment and enforcement and with appeal rights in the same manner as an income tax under chapter 151 of this title.  Amounts collected under this subsection shall be credited to the education fund.  The commissioner may waive or reduce the eight percent penalty under this subsection for good cause.  Education taxes assessed in the fiscal year upon property identified in a declaration of homestead, but which was not the taxpayer’s homestead, shall remain payable to the commissioner.

* * * Education Income Tax * * *

Sec. 5.  32 V.S.A. § 5822 is amended to read:

§ 5822.  TAX ON INCOME OF INDIVIDUALS, ESTATES AND TRUSTS

* * *

(c)  Education income tax.

(1)  In addition to the amount of tax determined under subsection (a) of this section, there is imposed upon the taxable income earned or received in that year by every individual, estate and trust, subject to income taxation under the laws of the United States, a tax in the amount of 1.5 percent of the taxpayer’s taxable income for the taxable year, up to a maximum of $150,000.00 taxable income.

(2)  Low Income Renter Exemption.  A taxpayer with adjusted gross income for the taxable year of $47,000.00 or less, who may not be claimed as a dependent by any other taxpayer under the federal Internal Revenue Code for the taxable year, and who as of April 1 of the current year rented his or her homestead and did not own a dwelling in this state, and who does not claim a credit under subsection 6066(a) of this title for the taxable year, shall be exempt from the education income tax under this subsection.

(3)  The education income tax shall not be subject to estimations of nonwithheld income tax under section 5851 of this title.

(c)(d)  The amount of tax determined under subsection (a) subsections (a) and (c) of this section shall be:

(1)  increased by 24 percent of the taxpayer’s federal tax liability for the taxable year for the following:

(A)  additional taxes on qualified retirement plans, including individual retirement accounts and medical savings accounts;

(B)  recapture of federal investment tax credit;

(C)  tax on qualified lump-sum distributions of pension income not included in federal taxable income; and

(2)  decreased by 24 percent of the reduction in the taxpayer’s federal tax liability due to farm income averaging.

(d)(e)  A taxpayer shall be entitled to a credit against the tax imposed under  this section of 24 percent of each of the credits allowed against the taxpayer’s federal income tax for the taxable year as follows:  retirement income credit, investment tax credit, child care and dependent care credits.

(e)(f)  The tax determined under subsections (a) through (d)(e) of this section shall be reduced by a percentage equal to the portion of adjusted gross income which is not Vermont income; provided, however, that if a taxpayer’s Vermont income exceeds the taxpayer’s adjusted gross income, no reduction shall be made and provided, further, that if a taxpayer has zero or negative Vermont income and the taxpayer’s Vermont income computed without regard to the reductions in subsection 5823(a) of this chapter does not equal or exceed the taxpayer’s adjusted gross income, no tax shall be due under this section.

* * * Repeal Income Sensitivity * * *

Sec. 6.  REDESIGNATION

     Chapter 154 of Title 32 (“Homestead Property Tax Income Sensitivity Adjustment”) shall be redesignated “Property Tax Rebates.”

Sec. 7.  32 V.S.A. § 6066(a) is amended to read:

§ 6066.  COMPUTATION OF ADJUSTMENT

(a)  An eligible claimant who owned the homestead on April 1 of the year in which the claim is filed shall be entitled to an adjustment amount equal to the amount determined under subdivision (1) of this subsection plus the amount in subdivision (2), as follows:

(1)  Statewide property tax adjustment:

(A)  For a claimant with household income of $75,000.00 or more:

(i)  the statewide property tax rate under section 5402 of this title, multiplied by the equalized value of the homestead in the taxable year;

(ii)  minus (if less):  two percent of household income for the taxable year, plus the statewide property tax rate under section 5402 of this title, multiplied by the equalized value of the homestead in the taxable year in excess of $160,000.00.

(B)  For a claimant with household income of less than $75,000.00:

(i)  the statewide property tax rate under section 5402 of this title, multiplied by the equalized value of the homestead in the taxable year;

(ii)  minus the lesser of:

(I)  two percent of household income for the taxable year; or

(II)  the statewide property tax rate under section 5402 of this title, multiplied by the equalized value of the homestead in the taxable year reduced by $15,000.00.

(2)  Local share property tax adjustment.  The adjustment amount determined under subdivision (1) of this subsection shall be increased by:  the local share percentage rate established under Title 16 for the claim year for the municipality in which the homestead is located, multiplied by the adjustment amount determined under subdivision (1).

(3)  a A claimant whose household income does not exceed $47,000.00 shall also be entitled to a credit against the claimant’s tax liability under chapter 151 of this title equal to the amount by which the property taxes for the municipal fiscal year which began in the taxable year upon the claimant’s homestead owned on December 31 of the taxable year, reduced by the adjustment amount determined under subdivisions (1) and (2) of this subsection, exceeds a percentage of the claimant’s household income for the taxable year as follows:

If household income (rounded to           then the taxpayer is entitled to

the nearest dollar)  is:                            credit for the reduced property tax paid in

            excess of this percent of that income:

                        $0 - 4,999.00                                          3.5

            $5,000.00 - 9,999.00                                          4.0

        $10,000.00 - 24,999.00                                          4.5

        $25,000.00 - 47,000.00                                          5.0

            In no event shall the credit exceed the amount of the reduced property tax.

Sec. 8.  REPEAL

     32 V.S.A. § 6066a (payment of property tax adjustments) is repealed with respect to property taxes assessed for property tax years 2004 and after.

Sec. 9.  16 V.S.A. § 4025(b)(3) is amended to read:

(b)  Moneys in the education fund shall be used for the following:

* * *

(3)  To make payments required under subdivisions 6066(a)(1) and (2) of Title 32 and only that portion attributable to education taxes, as determined by the commissioner of taxes, of payments required under subdivisions 6066(a)(3) and 6066(b) of Title 32.

* * * Raise Block Grant to $7,000.00 * * *

Sec. 10.  16 V.S.A. § 4011(a) and (b) are amended to read:

(a)  Annually, the general assembly shall appropriate funds to pay for a general state support grant for each equalized pupil and a portion of a general state support grant for each adult diploma student.  In fiscal year 2002 2005, the general state support grant for each equalized pupil shall be $5,448.00 $7,000.00.  For each following fiscal year, the general state support grant shall be increased by the most recent cumulative price index, as of December 1, for state and local government purchases of goods and services from fiscal year 2002 2005 through the following fiscal year, as provided through the state’s participation in the New England Economic Project.

(b)  Annually, each school district shall receive a general state support grant for support of basic education costs.  Funds distributed under this section shall be allocated on the basis of the equalized pupils in each school district.  However, no school district shall receive more than its local education spending amount.  If the general state support grant exceeds the district’s local education spending per equalized pupil, the district shall receive its local education spending per equalized pupil plus 40 percent of the excess general state support grant over that amount, but only for deposit in a district’s education reserve fund, authorized in accord with section 2804 of Title 24, for expenditure on legitimate items of education expense.

* * * Apply Local Education Property Tax to Homesteads Only * * *

Sec. 11.  REPEAL

16 V.S.A. § 4001(4) (definition of “yield amount”) is repealed.

Sec. 12.  16 V.S.A. § 4001(13) and (14) are added to read:

(13)  “Residential yield” means a municipality’s equalized homestead value per equalized pupil.  The equalized value of any portion of a homestead within the municipality shall be included in the calculation of homestead yield.

(14)  “Excessive local education spending” means the excess of:

(A)  local education spending minus any capital expenditures or capital debt service payments for projects approved under section 3448 of this title, over

(B)  130 percent of the general state support grant amount.

Sec. 13.  16 V.S.A. § 428(b), (c), and (d) are amended to read:

(b)  Following adoption of a budget by the electorate and calculation of the yield amount pursuant to section 4027 of this title, if the district has voted a budget with local education spending in excess of the general state support grant amount, the commissioner of education shall determine the district’s local share education property tax percentage liability.  The selectboard shall then bill each property taxpayer homestead owner for the local share education property tax amount, and may use tax classifications if authorized.  Homesteads shall be billed without regard to the income sensitivity calculation under chapter 154 of Title 32.

(c)  Local share property tax amount is the education property tax liability due under section 5402 of Title 32, times the local share property tax percentage, minus any amount of education property tax assessed for that year on an electric generating plant subject to tax under chapter 213 of Title 32.  Local share property tax percentage means the percentage of the liability under chapter 135 of Title 32 necessary to raise per equalized pupil local education spending in excess of general state support amount, divided by the yield amount.  Local education spending shall have the same meaning in this section that it has in subdivision 4001(6) of this title.  The local education property tax liability under subsection (b) of this section shall mean the amount raised from applying the following tax rates to the municipality’s equalized homestead value, including any portion of equalized homestead value within the municipality:

(1)  local education spending up to 130 percent of the general state support grant amount, per equalized pupil, divided by the higher of $43.40 (adjusted under subdivision (3) of this subsection) or the town’s residential yield, divided by 100; plus

(2)  excessive local education spending, per equalized pupil, divided by the lower of $21.70 (adjusted under subdivision (3) of this subsection) or the town’s residential yield, divided by 100.  The tax for excessive local education spending determined under this subdivision shall be separately identified on the tax bill as the excessive local education spending tax.

(3)  Annually, by January 15, the commissioner of education shall calculate the most recent average residential yield for all municipalities in the state, and shall adjust the dollar amount under subdivision (2) of this subsection to equal that average residential yield, and shall adjust the dollar amount under subdivision (1) of this subsection to equal twice that average residential yield, and shall notify all municipalities of the adjusted amounts.  Annually, by December 1, the commissioner of education shall estimate the adjustments to be made under this subdivision on the following January 15, and shall notify all municipalities of the estimated adjustments.

(d)  The treasurer of each school district which has voted a budget with local education spending in excess of the general state support grant and which can raise more than the yield amount shall, on December 1 in the year in which the tax is levied and on June 1 of the following year, pay to the state treasurer for deposit into the education fund one-half of the municipality’s local education property tax liability net payment revenue which exceeds its local education spending in excess of the general state support grant, as determined by the commissioner of education.  Payment shall be accompanied by a return prescribed by the state treasurer in consultation with the commissioner of education.  Any portion of local share education property tax liability due to the treasurer and paid before the due date shall be discounted on a per diem basis at an annual rate of six percent.  A district which has not voted a budget and for which the commissioner has used the most recently adopted budget in calculating the yield amount under section 4027 of this title, shall be subject to this subsection, based on its most recently adopted budget and shall borrow the funds necessary to make payments to the state treasurer.

Sec. 14.  16 V.S.A. § 511(b), (c), and (d) are amended to read:

(b)  Following adoption of a budget by the electorate and calculation of the yield amount pursuant to section 4027 of this title, if the incorporated district has voted a budget with local education spending in excess of the general state support grant amount, the commissioner of education shall determine the district’s local share education property tax percentage liability.  The prudential committee shall then bill each property taxpayer homestead owner for the local share education property tax amount, and may use tax classifications if authorized.  Homesteads shall be billed without regard to the income sensitivity calculation under chapter 154 of Title 32.  The prudential committee shall have the same authority to enforce collection and payment of this tax, including the collection of interest on overdue taxes, as selectmen have in enforcing collection and payment of town taxes.

(c)  Local share property tax amount is the education property tax liability due under section 5402 of Title 32, times the local share property tax percentage, minus any amount of education property tax assessed for that year on an electric generating plant subject to tax under chapter 213 of Title 32.  Local share property tax percentage means the percentage of the liability under chapter 135 of Title 32 necessary to raise per equalized pupil local education spending in excess of general state support amount, divided by the yield amount.  Local education spending shall have the same meaning in this section that it has in subdivision 4001(6) of this title.  The local education property tax liability under subsection (b) of this section shall mean the amount raised from applying the following tax rates to the municipality’s equalized homestead value, including any portion of equalized homestead value within the municipality:

(1)  local education spending up to 130 percent of the general state support grant amount, per equalized pupil, divided by the higher of $43.40 (adjusted under subdivision (3) of this subsection) or the town’s residential yield, divided by 100; plus

(2)  excessive local education spending, per equalized pupil, divided by the lower of $21.70 (adjusted under subdivision (3) of this subsection) or the town’s residential yield, divided by 100.  The tax for excessive local education spending determined under this subdivision shall be separately identified on the tax bill as the excessive local education spending tax.

(3)  Annually, by January 15, the commissioner of education shall determine the most recent average residential yield for all municipalities in the state, and shall adjust the dollar amount under subdivision (2) of this subsection to equal that average residential yield, and shall adjust the dollar amount under subdivision (1) of this subsection to equal twice that average residential yield, and shall notify all municipalities of the adjusted amounts.  Annually, by December 1, the commissioner of education shall estimate the adjustments to be made under this subdivision on the following January 15, and shall notify all municipalities of the estimated adjustments.

(d)  The treasurer of an incorporated district which has voted a budget with local education spending in excess of the general state support grant and which can raise more than the yield amount shall, on December 1 in the year in which the tax is levied and on June 1 of the following year, pay to the state treasurer for deposit into the education fund one-half of the municipality’s local education property tax liability net payment revenue which exceeds its local education spending in excess of the general state support grant, as determined by the commissioner of education.  Payment shall be accompanied by a return prescribed by the state treasurer in consultation with the commissioner of education.  Any portion of local share education property tax liability due to the treasurer and paid before the due date shall be discounted on a per diem basis at an annual rate of six percent.  An incorporated district which has not voted a budget and for which the commissioner has used the most recently adopted budget in calculating the yield amount under section 4027 of this title, shall be subject to this subsection, based on its most recently adopted budget and shall borrow the funds necessary to make payments to the state treasurer.

Sec. 15.  16 V.S.A. § 4025(a)(2) is amended to read:

(2)  Local share property tax revenues from those school districts which adopt budgets with local education spending in excess of the general state support grant and which are able to raise more than the yield amount All revenue paid to the state from the local education property tax under sections 428 and 511 of this title.

Sec. 16.  REPEAL

     16 V.S.A. § 4027 (determination of yield amount) is repealed.

* * * Sales Tax Revenues For Education * * *

Sec. 17.  32 V.S.A. § 9701(4), (5), (6), (13), and (15) are amended to read:

(4)  Receipt:  means the amount of the sales price of any property and the charge for any service or amusement taxable under this chapter valued in money, whether received as money or otherwise, without any deduction for expenses or early payment discount; but excluding any amount for which credit is allowed by the vendor to the purchaser; and excluding any allowance, including core charges, made for a trade-in of like-kind property; and excluding any allowance in cash or by credit made upon the return of merchandise pursuant to warranty or the price of property returned by customers when the full price thereof is refunded either in cash or by credit; and excluding the price received for labor or services used in installing or applying to repairing the property sold, if separately charged or stated, and the cost of transportation from the retailer’s place of business or other point from which shipment is made directly to the purchaser provided those charges are separately stated and provided the transportation occurs by means of common carrier, contract carrier or the United States mails.  Beverage container deposits required to be paid by chapter 53 of Title 10 on beverages subject to tax under this chapter shall constitute receipts for the purposes of this chapter.  Receipt shall also mean the charge for any telecommunications service excluding any amounts added to a purchaser’s bill for federal excise taxes applicable to said services and excluding the surcharge imposed under 30 V.S.A. § 7521.

(5)  Retail sale or sold at retail:  means the sale of tangible personal property or telecommunications service or amusement to any person for any purpose, other than for resale (except resale as a casual sale).  Sales of tangible personal property to all contractors, subcontractors or repairmen of materials and supplies for use by them in erecting structures for others, or building on, or otherwise improving, altering, or repairing real property of others are deemed to be retail sales.  Sales of tangible personal property to an advertising agency for its use in providing advertising services or creating advertising materials for transfer in conjunction with the delivery of advertising services are also deemed to be retail sales.

(6)  Sale, selling or purchase:  means any transfer of title or possession or both, exchange or barter, rental, lease or license to use or consume, or performance of a service, conditional or otherwise, in any manner or by any means whatsoever for a consideration, or any agreement therefor.

(13)  Use:  means the exercise of any right or power over tangible personal property by the purchaser thereof and includes, but is not limited to, the receiving, storage or any keeping or retention for any length of time, withdrawal from storage, any installation, any affixation to real or personal property, or any consumption of that property; or the use of a service in this state.

(15)  Property and services the use of which is subject to tax:  include all property or services sold to a person within the state, whether or not the sale is made within the state, the use of which property or service is subject to tax under section 9773 of this title or will become subject to tax when such property is received by or comes into the possession or control of such person within the state or when such service is used within the state.

Sec. 18.  32 V.S.A. § 9701(23), (24), (25), and (26) are added to read:

(23)  Personal services:  

(A)  means all activities engaged in for other persons for a consideration which involve the performance of a service, including professional services, as distinguished from the sale of property or amusement; and includes ancillary services performed by employees of the person providing the service and any documents which represent, record or memorialize the services rendered; but shall not include

(B)  the following services:  health care and social assistance services; educational services; agricultural, logging, forestry, fishing and hunting services; publishing, broadcasting and motion picture production services; transportation services; sightseeing and guide services; warehousing and storage services; support services for transportation, including arrangement of passenger or freight carriage, but excluding repair services; utility services, including water system services; securities and other financial investment services; financial services provided by an institution subject to tax under Title 8; insurance carrier, broker or agent services; real estate broker or agent services; motion picture rentals to a commercially operated theater primarily engaged in the exhibition of motion pictures; actuarial services; child care services; scientific research and development; death care services; executor services performed by the child, parent or sibling of the deceased; and advertising services;

(C)  services performed by an employee for his or her employer, or services provided by one member of a controlled group of business entities to another member of the controlled group as determined by the commissioner; and

(D)  services which are otherwise subject to the sales and use tax under this chapter, including amusements and telecommunications services.

(24)  Snack food:  means any of the following:  candy; soft drinks; corn chips, potato chips and sticks, vegetable chips, cheese puffs, pork rinds, popped corn, pretzels, roasted nuts, or any combination containing one or more of the foregoing; dips, salsa; beef jerky; granola bars, breakfast bars; pastries, doughnuts, cakes, pies, cookies, toaster pastries; sherbet or other frozen confection other than ice cream, ice milk, and frozen yogurt; ice cream sauces or syrups; ready-to-eat puddings; processed fruit snacks, fruit rolls, fruit bars, but not jams, jellies, preserves, dried fruits or fruit prepared in a sweetened syrup.  

(25)  Soft drinks:  means non‑alcoholic beverages that contain natural or artificial sweeteners.  Soft drinks do not include beverages that contain milk or milk products, soy, rice, or similar milk substitutes, or greater than 50 percent of vegetable or fruit juice by volume.

(26)  Candy:  means a preparation of sugar, honey, or other natural or artificial sweeteners in combination with chocolate, fruit, nuts, or other ingredients or flavorings in the form of bars, drops, or pieces.  Candy does not include any preparation containing flour and does not require refrigeration.

Sec. 19.  32 V.S.A. § 9741 is amended to read:

§ 9741.  SALES NOT COVERED

Receipts from the following shall be exempt from the tax on retail sales imposed under section 9771 of this title and the use tax imposed under section 9773 of this title.

* * *

(2)  Sales of medicines and drugs sold for human use only if sold pursuant to a doctor’s prescription for human use, oxygen for medical purposes, blood, blood plasma, artificial components of the human body, prosthetic devices, medicinal appliances, corrective appliances, corrective optical devices, dentures, hearing aids, seeing eye dogs, crutches, wheelchairs, hospital type beds, medical and dental devices and instruments, medical and dental equipment (including component parts thereof) and supplies used in treatment intended to alleviate human suffering or to correct, in whole or in part, human physical disabilities, and stairlift chairs, motorized carts and other devices used primarily to afford mobility to persons with physical disabilities.

* * *

(5)  Sales of malt beverages taxed or exempted under chapter 15 of Title 7.

* * *

(10)  Sales of meals taxed or exempted under chapter 225 of this title or exempted under subdivision 9202(10)(D)(ii) of this title.

* * *

(13)  Sales of food, food Food stamps, purchases made with food stamps including snack food, food products and beverages sold for human consumption off the premises where sold other than snack food.

* * *

(14)  Tangible personal property which becomes an ingredient or component part of, or is consumed or destroyed or loses its identity in the manufacture of tangible personal property for sale; machinery and equipment for use or consumption directly and exclusively, except for isolated or occasional uses, in the manufacture of tangible personal property for sale, or in the manufacture of other machinery or equipment, parts or supplies for use in the manufacturing process; and devices used to monitor manufacturing machinery and equipment or the product during the manufacturing process; and services used directly and exclusively in the manufacture of tangible personal property for sale.  Machinery and equipment used in administrative, managerial, sales or other nonproduction activities, or used prior to the first production operation or subsequent to the initial packaging of a product, shall not be exempt from tax, unless such uses are merely isolated or occasional.  Machinery and equipment shall not include buildings and structural components thereof.  For purposes of this subdivision, it shall be rebuttably presumed that uses are not isolated or occasional if they total more than four percent of the time the machinery or equipment is operated.  For the purposes of this subsection, “manufacture” includes extraction of mineral deposits, the entire printing and book-making process, and the entire publication process. 

(15)  Sales of newspapers and sales of tangible personal property which becomes an ingredient or component part of or is consumed or destroyed, or loses its identity in the manufacture of newspapers, whether sold or distributed without charge.  A publication shall not be considered a newspaper unless, on an average for the taxable year, at least ten percent of its printed material consists of news of general or community interest, community notices, editorial comment, or articles by different authors.

* * *

(25)  Sales of agricultural machinery and equipment for use and consumption directly and exclusively, except for isolated or occasional uses,  in, or services related directly and exclusively to, the production for sale of tangible personal property on farms (including stock, dairy, poultry, fruit and truck farms), orchards, nurseries, or in greenhouses or other similar structures used primarily for the raising of agricultural or horticultural commodities for sale.  It shall be rebuttably presumed that uses are not isolated or occasional if they total more than four percent of the time the machinery or equipment is operated.

* * *

(37)  Charges for documents, the sole purpose of which is to record or memorialize professional personal services rendered, such as, but not limited to, charges for briefs, memoranda, agreements, and wills prepared by lawyers; charges for tax returns and reports produced by accountants; charges for drawings produced by architects; which are not subject to taxation under this chapter or charges for insurance policies.

* * *

(48)  Sales of snack foods to be used in producing a meal taxed under chapter 225 of this title or exempted under subdivision 9202(10)(D)(ii) of this title.

(49)  Sales of services by a subcontractor for resale by a contractor.

(50)  Sales of services performed in Vermont for use exclusively outside Vermont.

Sec. 20.  32 V.S.A. § 9743(3)(E) is added to read:

(E)  Sales of snack food by members of a qualified 501(c)(3) organization on the premises of the organization shall be exempt if the organization’s gross sales of snack food which would be subject to tax under this chapter but for this subdivision, in the prior year, did not exceed $20,000.00; and all sales of snack food by members of a qualified 501(c)(3) organization off the premises shall be exempt.

Sec. 21.  32 V.S.A. § 9771 is amended to read:

§ 9771.  IMPOSITION OF SALES TAX

Except as otherwise provided in this chapter, there shall be paid a tax of five percent upon the receipts from:

* * *

(7)  Personal services sold at retail.

Sec. 22.  32 V.S.A. § 9773 is amended to read:

§ 9773.  IMPOSITION OF COMPENSATING USE TAX

Unless property has or services have already been or will be subject to the sales tax under this chapter, there is imposed on every person a use tax at the rate of five percent for the use within this state, except as otherwise exempted under this chapter:

* * *

(4)  Of personal services sold at retail.

* * * Property Transfer Tax Revenue for Education * * *

Sec. 23.  32 V.S.A. § 9602 is amended to read:

§ 9602.  TAX ON TRANSFER OF TITLE TO PROPERTY

A tax is hereby imposed upon the transfer by deed of title to property located in this state.  The amount of the tax equals one and one quarter 2.5 percent of the value of the property transferred, or $1.00, whichever is greater, except as follows:

(1)  with respect to the transfer of property to be used for the principal residence of the transferee the tax shall be imposed at the rate of five-tenths of one percent of the first $100,000.00 in value of the property transferred and at the rate of one and one quarter 2.5 percent of the value of the property transferred in excess of $100,000.00, provided that no tax shall be imposed on the first $100,000.00 in value of the property if the purchaser obtains a purchase money mortgage that the Vermont housing finance agency has committed to make or purchase;

(2)  with respect to the transfer of property which is enrolled at the time of the transfer in a program under chapter 124 of this title, or is otherwise a working farm at the time of the transfer if not so enrolled, the tax shall be imposed in the amount of five-tenths of one percent on the entire value of the property transferred; provided, however that no part of the property is converted to a use which would subject it to the land use change tax or an obligation to repay property tax benefits under chapter 124 of this title for a period of three years following the date of the transfer, or if it is a working farm which is not enrolled under chapter 124, that the property is not taken out of agricultural production for a period of six years following the date of the transfer.  For the purposes of this subdivision, a working farm shall mean a parcel of land actively used by a farmer, as that term is defined under section 3752(7) of this title.  If the conditions of this subdivision are breached by the buyer, the buyer shall be obligated to pay the full transfer tax in the amount of one and one-quarter 2.5 percent and this obligation shall run with the land.

(3)  with respect to the transfer to a housing cooperative organized under chapter 7 and whose sole purpose is to provide principal residences for all of its members or shareholders, or to an affordable housing cooperative under chapter 14 of Title 11, of property to be used as the principal residence of a member or shareholder, the tax shall be imposed in the amount of five-tenths of one percent of the first $100,000.00 in value of the residence transferred and at the rate of one and one-quarter 2.5 percent of the value of the residence transferred in excess of $100,000.00; provided that the homesite leased by the cooperative is used exclusively as the principal residence of a member or shareholder.  If the transferee ceases to be an eligible cooperative at any time during the six years following the date of transfer, the transferee shall then become obligated to pay any reduction in property transfer tax provided under this subdivison subdivision, and the obligation to pay the additional tax shall also run with the land.

Sec. 24.  32 V.S.A. § 9604 is amended to read:

§ 9604.  LIABILITY FOR TAX

The tax imposed by this chapter upon any transfer of title to property is the liability of the transferee of the title and transferor in equal shares, unless fixed otherwise by agreement of the parties.

* * * New Revenues to Education Fund * * *

Sec. 25.  16 V.S.A. § 4025(a)(14), (15), and (16) are added to read:

(a)  An education fund is established to be comprised of the following:

* * *

(14)  23.8 percent of the revenues raised by the sales and use tax imposed by chapter 233 of Title 32.

(15)  Fifty percent of the revenues raised by the property transfer tax imposed by chapter 231 of Title 32.

(16)  21.4 percent of the revenues raised by the individual income tax imposed by chapter 151 of Title 32.

Sec. 26.  32 V.S.A. § 435(5), (10), and (11) are amended to read:

(5)  Individual 78.6 percent of individual income taxes levied pursuant to chapter 151 of this title;

(10)  33 16.5 percent of the revenue from the property transfer taxes levied pursuant to chapter 231 of this title and the revenue from the gains taxes levied each year pursuant to chapter 236 of this title;

(11)  Sales 76.2 percent of the revenue from sales and use taxes levied pursuant to chapter 233 of this title;

Sec. 27.  24 V.S.A. § 4306(a) is amended to read:

(a)  A municipal and regional planning fund for the purpose of assisting municipal and regional planning commissions to carry out the intent of this chapter is hereby created in the state treasury.  The fund shall be comprised of 17 8.5 percent of the revenue from the property transfer tax under chapter 231 of Title 32 and any moneys from time to time appropriated to the fund by the general assembly or received from any other source, private or public.  All balances at the end of any fiscal year shall be carried forward and remain in the fund. Interest earned by the fund shall be deposited in the fund.  Of the revenues in the fund, each year 10 percent shall be disbursed to the Vermont center for geographic information; 70 percent shall be disbursed to regional planning commissions and 20 percent shall be disbursed to municipalities.

Sec. 28.  10 V.S.A. § 312 is amended to read:

§ 312.  CREATION OF VERMONT HOUSING AND CONSERVATION

            TRUST FUND

There is created a special fund in the state treasury to be known as the “Vermont housing and conservation trust fund.”  The fund shall be administered by the board and expenditures therefrom shall only be made to implement and effectuate the policies and purposes of this chapter.  The fund shall be comprised of 50 25 percent of the revenue from the property transfer tax under chapter 231 of Title 32 and any moneys from time to time appropriated to the fund by the general assembly or received from any other source, private or public, approved by the board.  Unexpended balances and any earnings shall remain in the fund for use in accord with the purposes of this chapter.

* * * Studies * * *

Sec. 29.  EDUCATION QUALITY STUDY AND APPROPRIATION

     (a)  The General Assembly finds that a thorough study of educational quality and efficiency in Vermont will assist it and Vermont schools in improving educational opportunities for Vermont students.  Accordingly, the commissioner of the Department of Education shall contract for the performance of a study to ascertain what funding level or range of funding levels, per pupil or otherwise, is necessary and sufficient to enable a Vermont school district to provide a sound education to its students in compliance with state educational quality standards and other state laws applicable to public schools.  The study shall analyze the educational methods and spending strategies used in the different types and structures of Vermont public schools and school districts to educate students.  The study shall provide also for an evaluation of small schools and their support through small school grants, and evaluate the costs resulting from geographical differences.  The study shall include a report with findings and recommendations.  The recommendations shall give due weight to the practical needs of Vermont schools and students and shall promote substantially equal educational opportunities to all Vermont students.

     (b)  The contract firm shall have the assistance of the Department of Education and shall consult with the commissioner, educators, school board members, superintendents, and others.  The contract firm must have extensive consulting and analytical experience in education funding systems.

     (c)  The department shall not award the contract until the Secretary of Administration and the Joint Fiscal Committee issue written approval of the contract and the related work plan.  The department and the contract firm shall submit to the Secretary of Administration, the House and Senate Committees on Education, on Appropriations, on Finance, and on Ways and Means a progress report by January 15, 2004, and a final report by September 15, 2004.

     (d)  For the purposes of this study, the amount of $100,000.00 is appropriated for fiscal year 2004 from the education fund to the Department of Education, and is hereby authorized as an expenditure under section 4025 of Title 16.

Sec. 30.  JOINT LEGISLATIVE EDUCATION COST CONTAINMENT

             STUDY

     (a)  There is created a joint legislative committee, to be known as the Joint Legislative Education Cost Containment Study Committee, to consider ways to contain education costs throughout the system of education finance.  The joint committee shall take testimony on the cost drivers facing public education and the impact of future trends on these cost factors.  The joint committee’s review shall include but not be limited to the following:

          (1)  special education uniform standards of service and litigation reduction strategies;

          (2)  review of district size to identify opportunities for economies of scale in administrative services;

          (3)  potential for savings through coordinated staff and teacher recruitment and screening and possible state‑funded assistance with teacher and staff bargaining support;

          (4)  cost savings resulting from a review of state and local mandates;

          (5)  opportunities for joint purchasing of services or centralized services, including insurance products, supplies, materials, and uniform computer systems;

          (6)  review of health insurance and workers’ compensation as to budget impacts, including levels of premiums, copayments, and plan quality as compared to that provided to other public sector employees, including the state employees;

          (7)  potential for technology‑related savings, including use of remote communication and video technology to increase class offerings and other initiatives;

          (8)  opportunities for improved facilities utilization strategies, including program colocation or other initiatives;

          (9)  opportunities for efficiencies in funding technical education facilities and programs, and alternatives for payment of technical education costs; and

          (10)  various costs, incentives, and disincentives through the interplay of current state funding provided to special education, technical education, and local schools.

     (b)  The joint committee shall comprise four members of the House, not all from the same political party, appointed by the Speaker, including one each from the House Committees on Ways and Means, Education, and Appropriations, and one additional House member appointed at large; and four members of the Senate, not all from the same political party, appointed by the Senate Committee on Committees, including one each from the Senate Committees on Finance, Appropriations, Education, and one additional Senator appointed at large.

     (c)  The joint committee shall meet no more than eight times and hold at least one public hearing.  The joint committee shall seek comment and participation from the Vermont Association of School Business Officers, the Vermont N.E.A., the Associations of School Superintendents, Principals, School Boards, and Directors of Special Education, from representatives of the business community, and the public at large.  It shall submit a report by January 15, 2004, to the Clerk of the House of Representatives and the Secretary of the Senate.  Members of the joint committee shall be entitled to compensation and expenses as provided in 2 V.S.A. § 406.  The joint committee shall be entitled to the services of the legislative council and the joint fiscal office, and shall be assisted, upon request, by other state agencies.

Sec. 31.  GRAND LIST ISSUES STUDY

     The Legislative Council and Joint Fiscal Office, in consultation with the department of taxes, Vermont League of Cities and Towns, and Vermont Assessors and Listers Association, shall study the issues affecting grand list valuation and their impact on property tax equity, including the following:

(1)  factors contributing to fluctuations in common levels of appraisal and variations in coefficients of dispersion;

(2)  local capacity for appraisal of utility, commercial, and industrial property; and shall report to the General Assembly by January 15, 2004, on legislative options to address these issues.

* * * Miscellaneous * * *

Sec. 32.  GENERAL CONFORMING AMENDMENT

     The Legislative Council is directed to amend all references to “local share” education property tax in Titles 16 and 32 to read “local education” property tax in the codification and publication of the statutes as appropriate. 

Sec. 33.  16 V.S.A. § 4025(e) is added to read:

     (e)  The general assembly shall transfer for each fiscal year to the education fund from the general fund, in addition to any general fund revenues which are dedicated to the education fund, an amount equal to the prior fiscal year’s transfer from undedicated general fund revenue, adjusted by the growth rate in the general fund projected for the fiscal year over the prior fiscal year, as forecast by the emergency board at its most recent January meeting.

Sec. 34.  16 V.S.A. § 4010(b) is amended to read:

(b)  The commissioner shall determine the long-term membership for each school district for each student group described in subsection (a) of this section.  The commissioner shall use the actual average daily membership over two consecutive years, the latter of which is the current school year.  If, however, in one year, the actual average daily membership increases by at least 20 students over the previous year, the commissioner shall compute the long‑term membership by adding 80 percent of the actual increase, to a maximum increase of 45 equalized pupils.

* * * Effective Dates and Transition Rules * * *

Sec. 35.  EFFECTIVE DATES AND TRANSITION RULES

This act shall take effect upon passage, except as follows:

(1)  Secs. 1 through 4 (statewide education property tax) shall take effect January 1, 2004, and shall apply to property tax years 2005 and after; except subsection (e) of 32 V.S.A. § 5402, in Sec. 2, shall take effect January 1, 2005 for property tax year 2006.

(2)  Sec. 5 (education income tax) shall apply to taxable years 2004 and after.

(3)  Secs. 6 through 9 (property tax rebates) shall take effect January 1, 2004, and shall apply to claims filed in 2004 and after.

(4)  Sec. 10 (block grant amount) shall apply to fiscal years 2005 and after.

(5)  Secs. 11 through 16 (local education property tax) shall take effect January 1, 2004, and shall apply to property tax years 2005 and after.

(6)  Secs. 17 through 22 (sales tax amendments) shall take effect April 1, 2004, and shall apply to sales and uses on and after April 1, 2004.

(7)  Secs. 23 and 24 (property transfer tax) shall apply to transfers on and after July 1, 2004

(8)  Secs. 25 through 28 (new revenues to education fund) shall take effect for fiscal years 2004 and after, except that the transition allocations to the education fund under Sec. 25 for fiscal year 2004 shall be as follows:  five percent of the revenues raised by the sales and use tax imposed by chapter 233 of Title 32; zero percent of the revenues raised by the property transfer tax imposed by chapter 231 of Title 32; and 10.5 percent of the revenues raised by the individual income tax imposed by chapter 151 of Title 32 shall be deposited into the education fund; and the allocations described in Secs. 26 through 28 for fiscal year 2004 shall be adjusted to conform with the transition allocations under Sec. 25.

(9)  Sec. 32 (conforming amendment) shall take effect January 1, 2004.

(10)  Sec. 33 (general fund transfer index) shall apply to transfers beginning in fiscal year 2006.

(11)  Sec. 34 (increase in students) shall apply to school years 2005 and after.



Published by:

The Vermont General Assembly
115 State Street
Montpelier, Vermont


www.leg.state.vt.us