Taxation / Fiscal Policy
Tax policy focused on federal conformity, transportation funding, housing incentives, local finance, and revenue stability. Lawmakers used the annual tax bill to preserve revenue, expand targeted economic incentives, redirect more transportation-related revenue back to transportation needs, and continue unresolved debates over property taxes, local option taxes, and higher-income tax proposals.
H.933 Miscellaneous Tax Bill
H.933 served as the Legislature’s annual tax omnibus bill and included a number of significant tax policy and revenue provisions. The bill updated Vermont’s tax code to reflect recent federal changes while continuing Vermont’s selective decoupling from certain federal business tax provisions. Larger businesses (generally those with more than approximately $31 million in annual receipts) will continue to spread certain deductions—including bonus depreciation and research and development expenses—over multiple years for Vermont tax purposes, preserving significant state revenue while exempting most smaller businesses.
The legislation also increased Vermont’s R&D tax credit from 27% to 75% of the federal credit beginning in tax year 2027 and closed a property transfer tax loophole involving second-home ownership structures. These changes were intended to support in-state innovation while strengthening tax administration and enforcement.
The bill further began reversing earlier revenue shifts that redirected Purchase and Use Tax revenues from the Transportation Fund to the Education Fund. H.933 increases the Transportation Fund’s share of Purchase and Use Tax receipts from 66.7% to 73% in FY27 and 79% in FY28, generating an estimated $10 million in FY27 and approximately $21 million annually thereafter for transportation needs. Corresponding adjustments to Meals and Rooms Tax allocations were included to largely offset impacts on the Education Fund. Additional provisions included Downtown and Village Center tax credit enhancements, VHFA down-payment assistance tax credits, Burlington Waterfront TIF clarifications, a framework for participation in a new federal scholarship tax credit program, Current Use and grand list administration updates, and authorization of a long-term study of Vermont’s tax system.
Wealth Tax and High-Income Tax Proposals (Not Enacted)
Legislators again debated proposals aimed at increasing taxes on higher-income Vermonters and wealthy households, including additional taxes on capital gains, investment income, and high-value assets. Supporters argued that Vermont’s ongoing education funding, housing, and affordability challenges require new progressive revenue sources, while opponents warned that such policies could discourage investment, accelerate outmigration, and further undermine the state’s economic competitiveness. Although no broad-based wealth tax was enacted, the debate remained a prominent feature of tax policy discussions throughout the session and is likely to continue in future years.
Local Option Taxes
Local option taxes did not see major statewide changes this year, but they remained part of the broader debate over municipal finance and transportation funding. Lawmakers discussed allowing municipalities with an existing 1 percent local option tax to adopt a second 1 percent tax for local transportation infrastructure, using a proposed “50-40-10” split between the municipality, a new municipal transportation fund, and PILOT. Separately, Stowe sought legislative approval for a voter-backed charter change allowing it to increase its local option taxes to 2 percent, but that proposal also did not pass. As property tax pressures continue and municipalities face rising road, infrastructure, public safety, and service costs, more towns may look to local option taxes as one of the few available alternatives for closing budget gaps.
