A fair, progressive taxation system is the cornerstone of healthy, equitable economy. The significant federal funds that flowed into Vermont due to the pandemic generated additional state revenues, meaning that unlike most years, we had sufficient capacity to provide targeted tax reductions for families and businesses who need it most.
Tax Relief for Families. We provided $40 million in targeted tax relief to individual Vermonters. The package prioritizes children and working families with a new $1,000 tax credit for most families with young children under 5 and an expanded child & dependent care tax credit for families with childcare, after-school & summer care expenses. The package supports working adults and college affordability with an expanded earned income tax credit (EITC) for working Vermonters with modest incomes and student loan interest deduction for middle- and modest-income Vermonters. Finally, the package enhances the financial stability of seniors and vulnerable adults with a more generous Social Security tax exemption for retired Vermonters, added military and federal employee retirement tax exemptions, increased support for vulnerable seniors, blind, and disabled Vermonters, and an expanded tax credit for families with eligible vulnerable adult or eldercare expenses.
Tax Changes for Businesses and Corporations. We passed a package of tax changes, S.53/Act 148 that modernizes our corporate tax structure, making it more consistent with trends in other states. While many of the changes are technical and difficult to understand without a more in-depth explanation, the three most significant changes include 1) a new formula that counts only sales, rather than also property and payroll, in the calculation of net income for taxation; 2) a switch to the methodology for determining whether a corporation has nexus in Vermont for tax purposes that will include an entire group of subsidiaries even if only one subsidiary is in Vermont; and 3) a restructuring of the corporate minimum tax brackets that will lead to the smallest corporations paying less and the largest corporations paying more minimum tax. Taken together the package of corporate tax changes is revenue-neutral and intended to simplify and enhance the fairness of our state’s tax structure. Finally, we expanded the sales tax exemption for manufacturing machinery and equipment to simplify tax reporting and compliance for manufacturers.
Property and Education Tax Reductions. As a result of a significant surplus in the Education Fund, we were able to both reduce tax rates and invest in key education priorities such as universal school meals and school building PCB mitigation. Overall, we put $20 million toward education tax rate reduction in FY23, which results in an average homestead property tax rate reduction of 14 cents and a uniform non-homestead property tax rate reduction of 15 cents. In addition, we enacted targeted property tax exemptions or income exclusions for refugees and immigrants seeking asylum and Vermont-recognized Native American tribes.