Lawmakers in Vermont are considering a significant change to the state’s property tax classification system. A recent proposal by the House aims to expand the current two property classes into four, which could potentially affect property tax rates for small businesses across the state.
The House proposal, which passed the committee on April 8, suggests creating four classes: Homestead, Nonhomestead Apartment, Nonhomestead Nonresidential, and Nonhomestead Residential. Rates for these new classes have yet to be determined, and even if the proposal gains approval from the Senate and the governor, any changes would not take effect for several years.
According to a report by the Lincoln Institute of Land Policy, Vermont ranks high for property tax rates in both residential and commercial sectors, placing a heavy burden on businesses. “Vermont Businesses Have a High Relative Property Tax Burden,” noted the report, highlighting the impact on both urban and rural areas.
Business interest groups, such as NFIB VT, have voiced concerns over potential increases in business tax burdens. The organization emphasized the need for reforms that do not unduly shift the tax load onto businesses. “Making Property Tax Reform Work for Small Business,” stated NFIB VT, outlining the necessity of a limited market value exclusion for the nonresidential nonhomestead class, which would benefit smaller enterprises.
Both NFIB VT and lawmakers acknowledge the importance of evolving from an income-based property tax credit system to one that focuses on market value exclusion. NFIB advocates for a system similar to Minnesota’s, where the initial $150,000 of commercial property value is exempted from the statewide levy.
The original draft by the House Ways & Means Committee outlined ten classes, aiming to potentially increase taxes on high-value non-primary residences. The revised four-class plan is less directly focused on high-value secondary homes, although it still combines certain nonhomestead categories. Vermont holds the second-highest rate of non-primary residences in the U.S., and shifting property tax burdens has been a long-standing consideration.
As the legislative process progresses, NFIB VT continues to push for protective measures to shield small businesses from possible adverse consequences. Balancing these tax classifications will be crucial to maintaining economic stability for businesses already grappling with inflation and supply chain issues.
