This undertaking was authorized by Section 314 of Act 178 of 1996 (the "Appropriations Act"). The Legislature asked the Legislative Joint Fiscal Office to conduct a study of Vermont’s state taxes. Its purpose is to provide a base compilation of information to be used during legislative deliberations. [Act #178, Section 314 (the 1996 Appropriations Act) requires the following: "The Joint Fiscal Office, with assistance from the staff of the Legislative Council, under the direction of the Joint Fiscal Committee, shall conduct a study of Vermont state taxes. Said study shall analyze historical trends in Vermont tax levels as compared to other states, present state tax burdens on typical Vermont families of a variety of incomes and on typical Vermont business enterprises of a variety of sizes and types, and analyze trends in the payer base that state tax revenues derive from. It shall also analyze the stability, predictability and performance of the Vermont income, sales, rooms and meals, and state business taxes. The Vermont Department of Taxes shall cooperate with and provide assistance as needed to the Joint Fiscal Office to facilitate this study. The study, including recommendations for further research or analysis, shall be submitted the House Ways and Means Committee, the Senate Finance Committee, the Clerk of the House and the Secretary of the Senate on November 15th, 1996. There is appropriated $30,000 in General Funds to the Joint Fiscal Committee for consultant assistance, data analysis, and other expenses related to the study. "]

The study, which is a first step in examining Vermont’s tax system, originated from a recommendation by the Vermont Economic Progress Council for a more far-reaching examination of Vermont’s tax system. [In the 1995 and 1996 sessions, the Economic Progress Council proposed a $150,000 tax study which would develop an economic model and provide ongoing capacity to simulate impacts of changes in Vermont taxes.] This study, more limited in scope, is designed to provide a basic understanding of Vermont’s tax system and its relative levels of taxation compared to other states.

We believe that it will provide legislators with information that will serve as a guide toward developing future tax policy.



The study consists of two volumes:

Volume I: The first volume is an examination of historical trends in Vermont’s tax system and compares Vermont tax levels to those of other states. It focuses on total state tax burdens, and burdens and rates within the following major tax components: personal income taxes, sales & use (including rooms & meals) taxes, and corporate income taxes. It also includes a more limited discussion of Transportation Funds, Special Funds, and property taxes.

Volume II: The second volume reviews Vermont’s tax burdens on 20 individual and 10 business taxpayers, all hypothetical, and compares these burdens to those of similar taxpayers in other states.

We focus primarily on state taxes rather than local taxes (e.g., local property and/or local sales tax). We do provide some comparisons of local taxes, but a detailed analysis of local tax burdens would require a more comprehensive examination.

We used the following approaches:

First: In order to provide a historical perspective, we look at Vermont specific tax collections in 1975, 1985 and 1995. We drew upon two previous Vermont tax studies: Vermont Taxes: Goals and Recommendations, January 1987, and Vermont’s General Fund Taxes: A Study, October 1983. As all fiscal years have their one time occurrences, any choice of starting and ending fiscal years will impact overall findings. [The use of five-year cumulative data blocks, such as FY90 to FY95, would not have solved this problem because of the impact on tax tiers present from FY91 through FY94.] The 20-year-period covered by this study should minimize some of this comparative issue.

Because we primarily examined tax burden, throughout the study, we adjusted for inflation using the Consumer Price Index. Other inflation adjusted measures were suggested by study reviewers. [One of the additional recommended measures is the implicit price deflator for state and local governments. An analysis using this deflator is included in Appendix 3, Tables 5a and 7a. It shows inflation having a lessor impact and therefore more real growth.] While some of this data is included in the appendix, [See Appendix 3, Table 5a and 7a.] the identification of a substitute index or indexes to the Consumer Price Index may be an area for consideration in future studies.

Second: We compare the current Vermont state tax burden to that in all 50 states using broad measurements, such as total state and local revenue per capita, per $1,000 of personal income, and tax rates. As part of this study, we relied on census data, data from the Federal Tax Administrators, and other data sources. As in any comparison study, the varying data sources raise serious issues of comparability. For example, sales tax comparisons based on census data include Vermont’s rooms & meals tax revenues and purchase & use tax revenues. Where data is presented, we try to identify the data problems that exist.

Third: We selected a sample of 11 other states, 20 individuals, and 10 businesses for more specific use in comparison analyses. The 11 comparison states are:

MaineMinnesotaNorth Carolina
New HampshireNew YorkOregon

We used the 11 comparison states, for a total of 12 states (including Vermont), to provide a sample small enough to enable us to carry out analysis for which there is no published data. This proved most useful in calculating local tax burdens and creating the tax comparisons for the individual and business taxpayers.

To insure some consistency in the state analysis, the comparative states were drawn from those states identified in the 1993 Vermont Business Roundtable study, "Working Paper - A Critical Look at Vermont’s Economy: Past, Present and Future," January 1993. The study identified sixteen "key competitor states and areas in continental North America." It employed a methodology developed by Jeffrey Carr of Economic Policy & Resources Inc. and the Business Roundtable Economic Development Committee, using "a series of 45 indicators, which were chosen to provide an objective framework for gauging Vermont’s performance and/or its position versus primary competing states and areas on broad fronts of availability of capital, infrastructure quality, labor force quality and costs, social policy and quality of life." [Vermont Business Roundtable study, "Working Paper - A Critical Look at Vermont's Economy: Past, Present & Future. " January 1993, Part III, The Competitive Position of Vermont. p. 4.]

We chose to limit the comparison states to 12, including Vermont, due to the time constraints and resources of this study. From the Roundtable states, we selected Vermont’s border states, the Roundtable New England states, and another five states that were selected after advice from a number of individuals involved in the design phase of the study. [See Appendix 1 for a list of individuals and organizations who participated in these discussions. ] The four Roundtable states not utilized for this tax study are California, Idaho, South Carolina, and Tennessee. We also did not include comparative data from Quebec.

Selection of the individuals and businesses for comparative analysis was similarly based on comments and suggestions generated from interviews conducted during the study-design phase. [See Appendix 1, and Volume II.]

For the 12-state comparisons, we used the fiscal year from July 1, 1994 to June 30,1995. Vermont is one of 11 of the 12 states which uses this time frame as FY95. [New York ’s fiscal year runs from April 1 to March 31. ] FY95 is the most recent year for which published national, comparative financial data could be obtained. Also, FY95 is comparatively free of the income generated by the temporary tiered income tax rates put in place for tax years 1991 through 1993. [FY95 tax revenue may still be impacted by income tax refund activity due to the prior years ’ tiered tax.] Those tiers were used to generate revenue to retire the General Fund deficit.

In Volume II, the hypothetical individual and business taxpayers are identified, and their state tax burden is calculated for Vermont and each of the comparison states.

Fourth: Where appropriate, we suggest subjects for further research. Again, this is not a comprehensive work, such as was originally proposed by the Economic Progress Council and a number of legislators.



We identify a number of characteristics of Vermont’s tax system and compare them to other states. In doing so, we do not evaluate whether the tax system is appropriate or successful in accomplishing legislative objectives.

A number of goals and standards have been developed in other studies to judge the appropriateness of tax systems. [See Appendix 2, Tables 1 and 2, for more information on goals and standards discussed in other studies.] For example, the National Conference of State Legislatures’ (NCSL) Principles of a High Quality State Revenue System, 1992, established a set of separate goals upon which to build a tax system. The studies we reviewed, including Vermont’s 1987 and 1993 tax studies, show a variety of different goals. A future step would be to develop consensus about the goals that are important to Vermont tax policy. In the event that the Legislature decides to conduct an analysis beyond this work, we would urge that tax-system goals be developed to guide that further research, or such research be done under a legislative commission which could establish goals as necessary.

Appendix 2 presents these goals and 32 "Standards Of Measurement" that are used in other recent tax analyses. This study uses a number of the standards listed to look at Vermont’s taxes on a historical basis and in comparison with other states. The standards used here include: tax rates, tax revenue per capita, tax revenue per $1,000 personal income, revenue from selective taxes as a percentage of total tax revenue, and historical trends in state revenue collections.