The Vermont House has passed tax reform legislation that, if enacted, would make significant changes to Vermont tax law, including changes to the personal income tax rate and deductions, expansion of the sales and use tax and meals and rooms tax base, elimination of the employer’s health care fund contribution effective April 1, 2014, expansion of the fuel gross receipts tax, creation of a new property tax exemption for blighted property, and increases to the cigarette tax and certain tobacco product tax rates.
Personal Income Tax
The legislation would eliminate the 8.8% tax bracket and all income in the 8.8% tax bracket would be included in the 8.95% tax bracket, beginning with the 2014 tax year. In addition, for a taxpayer with taxable income in the highest bracket, the tax would be calculated as if all of the taxpayer’s income in the lowest bracket was taxed at the rate in the next highest bracket and the remainder of his or her income was taxed under the remaining brackets. Finally, itemized deductions would be capped at two and one-half times the amount of the standard deduction allowable to the taxpayer, and the addition adjustment for state and local income taxes in excess of $5,000 would be repealed.
Sales and Use Taxes
Beginning July 1, 2013, the sales and use tax would be imposed on candy, soft drinks, dietary supplements, and bottled water. In addition, the exemption for clothing would be limited to clothing with a purchase price of less than $110.
Meals and Rooms Tax
Beginning July 1, 2013, the meals and rooms tax would be imposed on food and beverages sold through vending machines. Also, the tax on meals would be temporarily increased from 9% to 9.5% from July 1, 2013, to July 14, 2014.
Fuel Gross Receipts Tax
The legislation would eliminate the $10,000 annual revenue threshold for collecting the 0.5% fuel gross receipts tax on:
- heating oil, kerosene, and other dyed diesel fuel delivered to a residence or business;
- natural gas;
- electricity; and
If enacted, the legislation would create an exemption on municipal taxes for improvements to certified blighted property. The exemption would have to be authorized locally and could not extend beyond five years.
Cigarette and Tobacco Product Taxes
The legislation, if enacted, would increase the tax rate on cigarettes and little cigars to 156 mills per cigarette (currently 131 mills) and increase the per-ounce tax rates for snuff and new smokeless tobacco to $2.60 per ounce (currently $1.87 per ounce) and increase the per package rate on new smokeless tobacco to $3.12 (currently $2.24 per package). Additionally, the legislation would enact a floor stock tax to account for the new rates.
H.B. 528, as passed by the Vermont House on March 28, 2013