ACT NO. 185
Education finance law
This act makes various amendments to education finance laws, as follows:
Sec. 1. Current law uses the upcoming property tax rate for the prebate benefit calculation. This section amends the law to use the prior-year tax rate. The consolidated, two-part, property tax adjustment will now be based on prior-year information for all three components (household income, property tax rate, and homestead value).
Sec. 2. This section makes two more changes to consolidate the prebate and rebate into a single, two-step adjustment:
First, the new law will look to homestead ownership as of April 1 for both adjustments. The December 31 ownership date for rebates is struck.
Second, the new law will pay both adjustment amounts to the town for property taxes. The rebate income tax credit language is struck.
Sec. 2a. Provides an incentive to the taxpayer to allocate the income tax refund to property tax payment. The incentive is a further reduction of the property tax by one percent of the refund amount allocated.
Sec. 3. Payments to towns, not to claimants; adjusted property tax bills. Current law directs the commissioner to pay prebates directly to claimants. This section requires the commissioner:
i. to pay: the entire adjustment amount to the town on July 1 for timely claims and on September 15 for late claims filed by September 1; any voluntary refund requested by the taxpayer to the town on July 1; any unresolved property tax adjustment claims at time of resolution;
ii. to reduce late claims by $15 and pay the $15 to the town for cost of reissuing the adjusted bill;
iii. to notify the claimant of the amount sent to the town, with the breakout of the step 1 (prebate) amount, the step 2 (prebate) amount, and voluntary income tax refund amount, if the taxpayer so chooses.
This section requires the town:
i. to adjust initial homestead property tax bills by the total amount received from the Tax Department on July 1 for that owner;
ii. to issue a new homestead property tax bill adjusted for the total late-filer amount received on September 15 and for later resolved claims;
iii. to allocate the amount received first to current-year tax, interest and penalties; next to prior year interest, penalties and tax; and any remaining amount to be paid to the taxpayer by the town.
The voters of a town may vote to apply the adjustment amount to property tax installments in order or pro rata. In the absence of a vote on this issue, the town government may decide how to apply the adjustment amount to property tax installments.
Sec. 4. No interest paid to taxpayer on refund designated for property tax. Under current law, if the tax department pays a taxpayer's refund more than 45 days after the taxpayer files the income tax return, the Department must pay interest to the taxpayer on the refund amount. This section provides that no interest will be paid when the refund is paid over to the town at the taxpayer's request.
Secs. 5, 6, 7. Filing deadlines and penalties. Homestead declarations and property tax adjustment claims are both due April 15. Both may be filed late until September 1. Usual late-declaration penalties apply, plus property tax adjustment amount is reduced by $15, which is paid to the town for reissuing the bill.
"Unadjusted property tax" and Adjusted property tax" are defined, so that when parties at a closing are discussing pro-rating the property tax, there will be common terminology.
Sec. 8. Appropriation to the tax department of $542,000 for implementation costs.
Sec. 9. Provides that any person who has received a homestead property tax break in another state will be ineligible for income sensitivity in Vermont in that same year.
Also limits the total property tax adjustment amount related to any one property tax year to $10,000.00.
Sec. 10. Provides that when the homestead and nonresidential property tax rates are adjusted, the two-percent household income floor will not be adjusted below 1.8%.
(Two percent of household income is the minimum that a person must pay toward homestead education property tax. This base is then adjusted for education spending in excess of the base per pupil amount.)
Sec. 11. Adjusts the education property tax rates for fiscal year 2007 only, to $0.98 homestead rate and $1.47 nonresidential rate.
Also adjusts the applicable percentage to 1.8 percent for fiscal year 2007. This section is overridden by Section 19.
Sec. 12. Expands the rebate payment for homeowners and renters in the lower income brackets.
Secs. 13, 14. Makes amendments to the definition of "household income" for purposes of the property tax adjustment calculation:
Includes total gifts to the household in excess of $6,500 in cash or cash-equivalents, beginning 2007.
Excludes the first $6,500 of income received by a disabled adult dependent child of the claimant, beginning 2007.
For 2005, 2006 and 2007, excludes all payments made for flexible family funding or difficulty of care payments for care of a disabled adult member of the household. Only the first $6,500 of these payments will be excluded beginning in 2008.
Allows 2005 and 2006 claimants to amend their claims or to file new claims, but only for the purpose of excluding the disability payments. New and amended claims must be filed by September 1, 2006.
Because the property tax adjustment form instructions related to 2004 household income were confusing, this section also requires abatement of any assessments based on exclusion of disability payments in 2004 household income or 2005 household income.
Sec. 13a. Makes a technical change to conform a Title 18 provision to the Title 32 "household income" definition.
Sec. 15. Provides that the commissioner of disabilities, aging and independent living will study whether the exclusion of adult disability care payments from household income is necessary to maintain the system of care for the developmentally disabled; and will also analyze the composition of "homeshare" and "adult foster care" payments. The report is to committees of jurisdiction and is due by January 15, 2007.
Sec. 16. Requests that the joint fiscal office create a fiscal model of a proposal made by the income-based education finance summer study committee in 2005. The proposal would lower the homestead education property tax to a very low base rate (e.g., $0.30). This would minimize the effect of the common level of appraisal on tax rates. The rate would then be adjusted for education spending. In addition, the prebate program would be replaced by an education income tax, at a possible rate of 1.5 percent of taxable income.
The fiscal model would allow legislators to see how varying the homestead base rate and the education income tax rate would affect tax burdens among different income classes.
Sec. 17. Effective dates.
Sec. 18. For fiscal year 2007 only, makes the education property tax rates $1.44 nonresidential and $0.95 homestead, and makes the "applicable percentage" for calculating the prebate 1.80 percent of household income (multiplied by the town's education spending adjustment).
Sec. 19. Provides that Sec. 18 takes precedence over Sec. 11, if the first eight sections of the bill are enacted.
Sec. 20. Allows active-duty military personnel serving in a combat zone or contingency zone an extension of time to file property tax adjustment claims otherwise due in 2005 and after. The extension is 180 days after service in that area ends or 180 days after the end of hospitalization for physical or mental injury or disability arising out of that active duty.
Sec. 21. Creates an advisory working group to aid in implementation of the bill, with the tax commissioner as chair, to convene upon the Commissioner's request. The commissioner is to report any recommended follow-up legislation by January 15, 2007.
Sec. 22. Makes a technical amendment to conform to other provisions of the bill (any tax liability due from a claimant may be subtracted by the commissioner from the property tax adjustment amount as of July 1 each year).
Sec. 23. Requires a joint fiscal office analysis of education tax burdens, with a report to the general assembly January 15, 2007. JFO also to study how the cap on property tax adjustments could be modified.
Sec. 24. Appropriates $28.4 million from the general fund for school capital construction authorized in the 2006 capital bill.
The Vermont General Assembly
115 State Street