Download this document in MS Word format
BILL AS INTRODUCED 2007-2008

AutoFill Template

H.866

Introduced by   Committee on Ways and Means

Date:

Subject:  Education finance; education property tax; education adjusted gross

               income tax

Statement of purpose:  This bill proposes to replace the homestead education property tax with an education tax on adjusted gross income (“education AGI”) for persons domiciled in Vermont. 

     The proposal would repeal the education property tax on homesteads, and as a result, there would be no application of the common level of appraisal (CLA) for homestead owners.

     The base education income tax rate would be 1.82 percent of education AGI.  This base rate would be adjusted each year, based on projected revenues and spending, in the same way that the base education property tax rates are adjusted now.  Each district would then adjust that base rate to reflect its education spending in the same way the homestead property tax is adjusted now for education spending.       

     Renters would receive a credit against the education adjusted gross income tax equal to six percent of the rent that they paid during the year; or for renters with education AGI of $47,000.00 or less, a credit equal to 12 percent of the rent they paid.  

AN ACT RELATING TO REPLACEMENT OF HOMESTEAD EDUCATION PROPERTY TAX WITH EDUCATION ADJUSTED GROSS INCOME TAX

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

Sec. 1.  32 V.S.A. § 5402 is amended to read:

§ 5402.  EDUCATION PROPERTY TAX LIABILITY

(a)  A statewide education tax is imposed on all nonresidential and homestead property at the following rates:

(1)  the tax rate for nonresidential property shall be a rate of $1.59 per $100.00; and

(2)  the tax rate for homestead property shall be $1.10 multiplied by the district spending adjustment for the municipality, per $100.00, of equalized education property value as most recently determined under section 5405 of this title.  The homestead property tax rate for each municipality which is a member of a union or unified union school district shall be calculated as required under subsection (e) of this section.

(b)  Calculation of education tax.

(1)  The commissioner of taxes shall determine for each municipality the education tax rates rate under subsection (a) of this section, divided by the municipality's most recent common level of appraisal.  The legislative body in each municipality shall then bill each property taxpayer at the homestead or nonresidential rate determined by the commissioner under this subdivision, multiplied by the education property tax grand list value of the property, properly classified as homestead or nonresidential property and without regard to any other tax classification of the property.  Each homestead property tax bill shall include notice of the education spending per equalized pupil in the taxpayer's district and its relation to the base education payment; and the effect of the education spending in the district upon the homestead tax rate and the applicable percentage for income sensitivity; and shall also include an insert supplied by the commissioner of taxes which explains the relationship of district education spending and the common level of appraisal to property tax rates.  Tax bills shall show the tax due and the calculation of the rate determined under subsection (a) of this section, divided by the municipality's most recent common level of appraisal, multiplied by the current grand list value of the property to be taxed.  Each homestead property tax bill shall include a copy of the two page document attached to the May 11, 2007 memorandum from the speaker of the house to the commissioner of taxes, which shall be updated annually for each town by the commissioner of taxes.

(2)  Taxes assessed under this section shall be assessed and collected in the same manner as taxes assessed under chapter 133 of this title with no tax classification other than as homestead or nonresidential property.

(3)  If a district has not voted a budget by June 30, an interim homestead education tax shall be imposed at the base rate determined under subdivision (a)(2) of this section, divided by the municipality's most recent common level of appraisal, but without regard to any district spending adjustment. Within 30 days after a budget is adopted and the deadline for reconsideration has passed, the commissioner shall determine the municipality's homestead tax rate as required under subdivision (b)(1) of this subsection.

(c)  The treasurer of each municipality shall by December 1 of the year in which the tax is levied and on June 1 of the following year pay to the state treasurer for deposit in the education fund one half one-half of the municipality's statewide nonresidential tax and one half of the municipality's homestead education tax, as determined under subdivision (b)(1) of this section.  The commissioner of education shall determine the municipality's net nonresidential education tax payment, and its net homestead education tax payment to the state, and payment shall be accompanied by a return prescribed by the commissioner of education.  The municipality may retain 0.225 of one percent of the total education tax collected, only upon timely remittance of net payment to the state treasurer.

(d)  A municipality which has upon its grand list an operating electric generating plant subject to the tax under section 5402a of this chapter shall be subject to the nonresidential education property tax at three-quarters of the rate provided in subdivision (a)(1) of this section, as adjusted under section 5402b of this chapter; and shall be subject to the homestead education property tax at three-quarters of the base rate provided in subdivision (a)(2) of this section, as adjusted under section 5402b of this chapter, and multiplied by its district spending adjustment.

(e)  The commissioner of taxes shall determine a homestead education tax rate for each municipality which is a member of a union or unified union school district as follows:

(1)  For a municipality which is a member of a unified union school district, use the base rate determined under subdivision (a)(2) of this section and a district spending adjustment based upon the education spending per equalized pupil of the unified union.

(2)  For a municipality which is a member of a union school district:

(A)  determine the municipal district homestead tax rate using the base rate determined under subdivision (a)(2) of this section and a district spending adjustment based on the education spending per total equalized pupil in the municipality who attends a school other than the union school;

(B)  determine the union district homestead tax rate using the base rate determined under subdivision (a)(2) of this section and a district spending adjustment based on the education spending per equalized pupil of the union school district; and

(C)  determine a combined homestead tax rate by calculating the weighted average of the rates determined under subdivisions (A) and (B) of this subdivision (2), with weighting based upon the ratio of union school equalized pupils from the member municipality to total equalized pupils of the member municipality; and the ratio of equalized pupils attending a school other than the union school to total equalized pupils of the member municipality. Total equalized pupils of the member municipality is based on the number of pupils who are legal residents of the municipality and attending school at public expense. If necessary, the commissioner may adopt a rule to clarify and facilitate implementation of this subsection.

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

§ 5402b.  STATEWIDE EDUCATION TAX RATE ADJUSTMENTS

(a)  Annually, by December 1, the commissioner of taxes shall recommend to the general assembly, after consultation with the department of education, the secretary of administration and the joint fiscal office, the following adjustments in the statewide education tax rates under subdivisions 5402(a)(1) and (2) rate under section 5402 of this title:

(1)  If there is a projected balance in the education fund budget stabilization reserve in excess of the five percent level authorized under section 4026 of Title 16, the commissioner shall recommend a reduction, for the following fiscal year only, in the statewide education tax rates rate which will retain the projected education fund budget stabilization reserve at the five percent maximum level authorized and raise at least 34 percent of projected education spending from the tax on nonresidential property; and

(2)  If there is a projected balance in the education fund budget stabilization reserve of less than the three and one-half percent level required under section 4026 of Title 16, the commissioner shall recommend an increase, for the following fiscal year only, in the statewide education tax rates rate which will retain the projected education fund budget stabilization reserve at no less than the three and one-half percent minimum level authorized under section 4026 of Title 16, and raise at least 34 percent of projected education spending from the tax rate on nonresidential property.

(3)  In any year following a year in which the nonresidential rate produced an amount of revenues insufficient to support 34 percent of education fund spending in the previous fiscal year, the commissioner shall determine and recommend an adjustment in the nonresidential rate sufficient to raise at least 34 percent of projected education spending from the tax rate on nonresidential property.

(4)  If in any year in which the nonresidential rate is less than the statewide average homestead rate, the commissioner of taxes shall determine the factors contributing to the deviation in the proportionality of the nonresidential and homestead rates and make a recommendation for adjusting statewide education tax rates accordingly.

(b)  If the commissioner makes a recommendation to the general assembly to adjust the education tax rates under section 5402 of this title, the commissioner shall also recommend a proportional adjustment to the applicable percentage base for homestead income based adjustments under section 6066 of this title, but the applicable percentage base shall not be adjusted below 1.8 percent.

Sec. 3.  32 V.S.A. § 5409(5) and (6) are amended to read:

(5)  In case of insufficient property tax payment by a taxpayer to a municipality, payments shall be allocated first to municipal property tax, and next to statewide education property tax.  In case of insufficient payment by a taxpayer to the department of taxes, payments shall be allocated first to liabilities other than education taxes, and next to education adjusted gross income tax under chapter 152 of this title and next to liabilities other than education adjusted gross income tax.

(6)  In case of overpayment by a taxpayer who has an income tax liability under chapter 151 or 152 of this title and a homestead property tax liability, a refund of the overpayment, after accounting for any benefit  amount allowed under chapter 154 of this title, shall be deemed to be a refund of income tax for purposes of, the overpayment shall be allocated first to any debt setoff under subchapter 12 of chapter 151 of this title.


Sec. 4.  32 V.S.A. § 3112 is amended to read:

§ 3112.  ALLOCATION OF PAYMENTS

(a)  Any payment received by the commissioner from any taxpayer may, notwithstanding any direction by the taxpayer to the contrary, be applied to the taxpayer's liability for any tax administered by the commissioner and for any period.  Any payment may, with respect to any taxable period, be applied first to the amount of any interest; next to the amount of any penalty; next to the amount of any fee; next to any unpaid education adjusted gross income tax liability under chapter 152 of this title for that period; and finally to the amount of any other unpaid tax liability for that period.

* * *

Sec. 5.  32 V.S.A. § 5410(g) is amended to read:

(g)  If the property identified in a declaration under subsection (b) of this section is not the taxpayer's homestead, or if the owner of a homestead fails to declare a homestead as required under this section, the commissioner shall notify the municipality and the municipality shall issue a corrected tax bill.  The municipality shall also assess the taxpayer a penalty in an amount equal to one percent of the education tax on the property, calculated as if the property were nonresidential property; or if the commissioner determines that the declaration or failure to declare was with fraudulent intent, then the municipality shall assess the taxpayer a penalty in an amount equal to 100 percent of the education tax on the property; plus any interest and late-payment fee or commission which may be due, calculated as if the property were nonresidential property.  Any penalty imposed under this section and any additional property tax interest and late-payment fee or commission shall be assessed and collected by the municipality in the same manner as a property tax under chapter 133 of this title.

Sec. 6.  32 V.S.A. § 6066(a), (b), and (h) are amended to read:

(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 determined as follows:

(1)(A)  For a claimant with household income of $90,000.00 or more:

(i)  the statewide education tax rate, multiplied by the equalized value of the housesite in the taxable year;

(ii)  minus (if less) the sum of:

(I)  the applicable percentage of household income for the taxable year; plus

(II)  the statewide education tax rate, multiplied by the equalized value of the housesite in the taxable year in excess of $200,000.00.

(B)  For a claimant with household income of less than $90,000.00 but more than $47,000.00, the statewide education tax rate, multiplied by the equalized value of the housesite in the taxable year, minus the applicable percentage of household income for the taxable year.

(C)  For a claimant whose household income does not exceed $47,000.00, the statewide education tax rate, multiplied by the equalized value of the housesite in the taxable year, minus the lesser of:

(i)  the applicable percentage of household income for the taxable year; or

(ii)  the statewide education tax rate, multiplied by the equalized value of the housesite in the taxable year reduced by $15,000.00.

(D)  A claimant whose household income does not exceed $90,000.00 shall also be entitled to an additional adjustment amount under this section of $10.00 per acre, up to a maximum of five acres, for each additional acre of homestead property in excess of the two-acre housesite. The adjustment amount under this section shall be shown separately on the notice of property tax adjustment to the claimant.

(2)  "Applicable percentage" in this section means two percent, multiplied by the district spending adjustment under subdivision 5401(13) of this title for the property tax year which begins in the claim year for the municipality in which the homestead residence is located; but in no event shall the applicable percentage be less than two percent.

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

                                                                                    excess of this percent of                                                                                    that income:

                        $0 - 9,999.00                                       2.0 0.7

            $10,000.00 - 24,999.00                                   4.5 1.5

            $25,000.00 - 47,000.00                                   5.0 1.7

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

(b)  An eligible claimant who rented the homestead on the last day of the taxable year, whose household income does not exceed $47,000.00, and who submits a certificate of rent constituting property taxes shall be entitled to a credit against the claimant's tax liability under chapter 151 of this title equal to the amount by which the rent constituting property taxes upon the claimant's housesite exceeds a percentage of the claimant's household income for the taxable year as follows:

If household income (rounded to                       then the taxpayer is                   the nearest dollar) is:                            entitled to credit for                                                                                           rent constituting property

                                                                        tax paid in excess of this                                                                                    percent of that income:

                        $0 - 9,999.00                                                               2.0

            $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 rent constituting property tax.

(h)  State property tax reduction incentive. A homestead owner shall be entitled to an additional property tax adjustment amount equal to one percent of the amount of income tax refund which the claimant elects to allocate to payment of homestead property tax under section 6068 of this title.

Sec. 7.  REPEAL

32 V.S.A. § 6066a (adjustment of property tax bills) is repealed effective January 1, 2010.

Sec. 8.  REPEAL

Chapter 154 of Title 32 (homestead property tax income sensitivity adjustment) is repealed effective January 1, 2011.


Sec. 9.  32 V.S.A. chapter 152 is added to read:

CHAPTER 152.  EDUCATION ADJUSTED GROSS INCOME TAX

§ 6001.  DEFINITIONS

For purposes of this section:

(1)  “District spending adjustment” shall have the same meaning as in the definitions in 5401(12) and (13) of this title.

(2)  "Education AGI" means federal adjusted gross income of the individual earned or received during any period of Vermont domicile in the taxable year, adjusted by the amount of the following items related to any period of Vermont domicile in the taxable year:

(A)  Increased by interest income from non-Vermont state and local obligations, and dividends or other distributions from any fund to the extent they are attributable to non-Vermont state or local obligations; to the extent such income is excluded from federal adjusted gross income.

(B)  Decreased by income from United States government obligations and any other income exempted from state taxation under the laws of the United States to the extent such income is included in federal adjusted gross income.

(3)  "Individual" means a natural person.

(4)  "Rent" means the rent actually paid during the taxable year by the individual solely for the right of occupancy by the individual of the domicile in Vermont during the taxable year.

(5)  "Taxable year" means the calendar year with respect to which the tax is imposed.

§ 6002.  IMPOSITION OF EDUCATION ADJUSTED GROSS INCOME

               TAX

(a)  There is imposed annually an education adjusted gross income tax upon each individual who was domiciled in this state during any portion of the taxable year.  The tax shall be imposed upon the education adjusted gross income and of the taxpayer at the base rate of 1.82 percent; multiplied by the district spending adjustment, or adjusted under section 6003 of this chapter, for the school district in which the taxpayer was last domiciled in the taxable year.

(b)  The education tax imposed under this section shall be subject to all the provisions of subchapters 4, 5, 6, 7, 8, 9, 10, and 12 of chapter 151 of this title, including, without limitation, provisions relating to filing returns, employer withholding, quarterly estimated payments, debt setoff, assessments, penalties and interest, notice, appeals, enforcement, and collection, except:

(1)  any real property lien that shall arise under section 5895 of this title out of an unpaid education adjusted gross income tax liability shall be a lien thereon, underlying all mortgages, attachments, liens, or other encumbrances thereon, and all estates for the term of a natural life or lives, for a term of years or for any other duration, subject only to any property tax lien already created on that parcel under section 5061 of this title;

(2)  employer withholding and quarterly estimated payments shall only be required for individuals domiciled in the state, and employers may rely upon the statement of the employee with regard to domicile;

(3)  a taxpayer may file a written election with the commissioner to substitute quarterly payments of the education adjusted gross income tax under this chapter for employer withholding which would otherwise be required and upon receiving certification from the commissioner, shall file that certificate with the taxpayer’s employer.

(c)  Renter credit.  A person who rented his or her principal residence in Vermont during any portion of the taxable shall be entitled to a credit against the tax determined under subsections (a) and (b) of this section in an amount equal to 12 percent of the rent paid by the individual during the taxable year if the individual’s education AGI does not exceed $47,000.00 or in an amount equal to six percent of the rent paid by any other individual during the taxable year.  The general fund shall transfer to the education fund each year one-half of the cost of the 12 percent renter credit claims.


§ 6003.  UNION AND UNIFIED UNION DISTRICT BASE RATE

               EDUCATION SPENDING ADJUSTMENT

The commissioner of taxes shall determine an education adjusted gross income tax rate for each municipality which is a member of a union or unified union school district as follows:

(1)  For a municipality which is a member of a unified union school district, using the base rate under subsection 6002(a) of this chapter and a district spending adjustment based upon the education spending per equalized pupil of the unified union.

(2)  For a municipality which is a member of a union school district:

(A)  determine the municipal district education adjusted gross income tax rate, using the base rate under subsection 6002(a) of this chapter and a district spending adjustment based on the education spending per total equalized pupils in the municipality who attend a school other than the union school;

(B)  determine the union district education adjusted gross income tax rate, using the base rate under subsection 6002(a) of this chapter and a district spending adjustment based on the education spending per equalized pupil of the union school district; and

(C)  determine a combined education adjusted gross income tax rate by calculating the weighted average of the rates determined under subdivisions (A) and (B) of this subdivision (2), with weighting based upon the ratio of union school equalized pupils from the member municipality to total equalized pupils of the member municipality; and the ratio of equalized pupils attending a school other than the union school to total equalized pupils of the member municipality.  “Total equalized pupils” of the member municipality is based upon the number of pupils who are legal residents of the municipality and attending school at public expense.  If necessary, the commissioner may adopt a rule to clarify and facilitate implementation of this section.

§ 6004.  ANNUAL ADJUSTMENT OF EDUCATION ADJUSTED GROSS

               INCOME BASE TAX RATE

Annually, by September 1, the commissioner of taxes shall recommend to the general assembly, after consultation with the department of education, the secretary of administration, and the joint fiscal office, the following adjustments in the education adjusted gross income tax base rate under section 6002 of this title, as follows:

(1)  If there is a projected balance in the education fund budget stabilization reserve in excess of the five-percent level authorized under section 4026 of Title 16, the commissioner shall recommend a reduction, for the following fiscal year only, in the base rate which will retain the projected education fund budget stabilization reserve at the five-percent maximum level authorized and raise at least 34 percent of projected education spending from the property tax on nonresidential property; and

(2)  If there is a projected balance in the education fund budget stabilization reserve of less than the three-and-one-half-percent level required under section 4026 of Title 16, the commissioner shall recommend an increase, for the following fiscal year only, in the base rate which will retain the projected education fund budget stabilization reserve at no less than the

three-and-one-half-percent minimum level authorized under section 4026 of Title 16, and raise at least 34 percent of projected education spending from the property tax on nonresidential property.

(3)  In any year following a year in which the nonresidential property tax rate produced an amount of revenues insufficient to support 34 percent of education fund spending in the previous fiscal year, the commissioner shall determine and recommend an adjustment in the nonresidential property tax rate sufficient to raise at least 34 percent of projected education spending from the  nonresidential property tax.

§ 6005.  ADOPTION OF FEDERAL INCOME TAX LAWS 

The statutes of the United States relating to the federal income tax, as in effect for taxable year 2010, 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 education adjusted gross income tax liability under this chapter.    

Sec. 10.  16 V.S.A. § 4025(a) is amended to read:

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

(1)  All revenue paid to the state from the statewide education tax on nonresidential and homestead property under chapter 135 of Title 32 and from the education adjusted gross income tax under chapter 152 of Title 32.

* * *

Sec. 11.  16 V.S.A. § 4025(b) 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.

* * *

Sec. 12.  STATUTORY REVISION

     The statutory revision committee shall change all references to “nonresidential” education property tax in Title 16 and Title 32 to “nonhomestead” education property tax.

Sec. 13.  EFFECTIVE DATES AND TRANSITION RULES

     This act shall take effect as follows:

(1)  Secs. 1 (repeal of homestead property tax), 2 (annual adjustment of homestead property tax rate), 3 and 4 (allocation of education adjusted gross income tax payments), and 5 (homestead declaration penalties) shall take effect July 1, 2010.

(2)  Secs. 6 (repeal of homestead owner education property tax adjustment; leaving rebate program still in effect for the municipal tax for owners, and for rent constituting education and municipal property taxes for renters) and 7 (repeal of provisions which apply the property tax adjustment amount to upcoming property tax bills) shall apply to claims filed in 2010 only. 

(3)  Sec. 8 (repeal of property tax adjustment chapter) shall take effect January 1, 2011, and no claims may be filed in 2011 or after.

(4)  Sec. 9 (education adjusted gross income tax chapter) shall take effect July 1, 2010, applicable to the second half of the taxable year in 2010, and applicable to all taxable years 2011 and after; except that 32 V.S.A. § 6005 in Sec. 9 (adoption of federal income tax law for purposes of the education adjusted gross income tax) shall take effect upon legislative adoption of that section in the 2011 session of the general assembly.  No penalty shall apply to any taxpayer for underpayment prior to April 15, 2011, of education adjusted gross income tax for taxable year 2010.

(5)  Sec. 10 (education fund will receive education adjusted gross income tax revenue) shall take effect July 1, 2010.

(6)  Sec. 11 (repeal of education fund payment of a portion of property tax adjustment amounts) shall take effect January 1, 2011.

(7)  Sec. 12 (statutory revision) and this section (effective dates) shall take effect upon passage.



Published by:

The Vermont General Assembly
115 State Street
Montpelier, Vermont


www.leg.state.vt.us