View the complete text of this act

Special Session Act No. 1

(H.441)

Fiscal Year 2010 Omnibus Appropriations Act

This act is the fiscal year 2010 Omnibus Appropriations Act, which provides for the support of government for fiscal year 2010.

The following is a section-by-section summary of the tax provisions of this act:

* * * Department of Taxes Compliance Personnel * * *

Sec. H.1: The act appropriates money for the department of taxes to hire additional compliance personnel. For fiscal year 2010, $535,000.00 is appropriated to hire nine additional employees, and for fiscal year 2011, $935,000.00 is appropriated to continue the employment of the nine employees hired in fiscal year 2010 and to add six additional compliance personnel in fiscal year 2011. The act provides that the positions be limited-service positions transferred or converted from the vacant position pool, and that the positions be funded for no more than three years. Finally, it recommends that the 2011-2012 legislature appropriate money to the department of taxes to continue funding the 15 cumulative positions created in fiscal years 2010 and 2011 and to provide an additional amount to hire six more compliance personnel.

* * * Department of Labor Compliance Personnel * * *

Sec. H.2: The act appropriates money for the department of labor to hire four workers' compensation fraud investigators. For fiscal year 2010, $308,212.00 is appropriated to hire individuals who will investigate the classification of workers as either employees or contractors and to ensure that businesses classify workers correctly. The act provides that the positions be limited-service positions transferred or converted from the vacant position pool and that the positions be funded for no more than three years.

* * * Tax Amnesty Program * * *

Sec. H.3: The act directs the commissioner of taxes to create a six-week tax amnesty program to end by October 2, 2009. During the amnesty period, the commissioner may waive penalties that are generally assessed against a delinquent taxpayer without the taxpayer having to show reasonable cause or the absence of willful neglect, as long as the delinquent taxpayer files proper returns for and pays overdue tax obligations. This section also requires that the commissioner report to the legislature in December 2009 with details of the amnesty program.

Sec. H.4: The act appropriates $132,000.00 for the department of taxes for the purpose of marketing and implementing the tax amnesty program provided for in Sec. H.3.

* * * Surplus State Property * * *

Sec. H.5: The act directs all state departments and agencies to comply with 29 V.S.A. § 1556 by transferring surplus personal property to the commissioner of buildings and general services. It also authorizes the commissioner to sell unused personal property and directs that the net proceeds be deposited into the general fund.

* * * Transition to a Department of Revenue * * *

Sec. H.6: The act requires that the department of taxes be converted into a department of revenue by June 30, 2012. It creates a committee to review and approve the tax commissioner's plan of transition and requires that committee to report to the general assembly by February 15 of each of the next three years on the progress of the transition. The act provides criteria that the commissioner and the committee will use in evaluating the proper agency to be responsible for the state's various revenue sources.

Sec. H.7: The act directs the legislative council to undertake necessary and appropriate statutory revisions with respect to the transition from a department of taxes to a department of revenue, as provided for in Sec. H.6. For example, references to the "department of taxes" in Vermont statutes will, as appropriate, be revised to "department of revenue."

* * * Education Property Tax Base Rates * * *

Sec. H.8: The act sets the fiscal year 2010 base education property tax rates at $1.35 per $100.00 valuation for nonresidential property and $0.86 multiplied by the district spending adjustment for the municipality per $100.00 of equalized homestead property value. It also reduces the income sensitivity-applicable percentage in 32 V.S.A. § 6066 from 2.0 percent to 1.80 percent. This percentage multiplied by the district spending adjustment for the municipality is used to determine the maximum education property tax for income-sensitized households.

* * * Base Education Payment Amount * * *

Sec. H.9: The act sets the per-pupil base education payment amount from the statutorily mandated $8,544.00 to $8,485.00 for fiscal year 2010 only.

Sec. H.10: The act requires the department of taxes to develop an implementation plan for electronic filing of property transfer tax returns and electronic paying of property transfer taxes. It requires the department to report to the joint fiscal committee by August 1, 2009 on its implementation plan.

* * * VHFA Moral Obligation Bonding * * *

Secs. H.11-H.15: The act allows the Vermont Housing Finance Authority (VHFA) to use the moral obligation of the state in providing collateral for certain types of bonds. "Moral obligation" is a term of art in the finance world. The moral obligation of the state can only be created through specific legislation, and it is not a legally binding obligation. Instead, it is a statutory provision that permits a bond issuer to request an appropriation from the general assembly for certain limited purposes such as to replenish an account held by the issuer for the benefit of the bond owners and bond guarantors. The general assembly may choose to make the appropriation or may choose not to make the appropriation. By leveraging the state's favorable bond rating, providing moral obligation backing can be expected to improve VHFA's ability to access the capital markets and allow VHFA to borrow money at more favorable rates than would otherwise be available. Other state inst rumentalities that receive moral obligation support include the Vermont Municipal Bond Bank, the Vermont Student Assistance Corporation, the Vermont Economic Development Authority, the Vermont Telecommunications Authority, the University of Vermont, and the Vermont State Colleges.

* * * Tax Expenditure Reporting * * *

Secs. H.16-H.17: The act amends sections 306 and 307 of Title 32 to require that the governor's budget proposal include a separate tax expenditure budget that will go to the senate committee on finance and the house committee on ways and means for recommendation to the senate and house's respective committees on appropriations.

* * * State-Sponsored Affinity Card Program * * *

Sec. H.18: The act authorizes the state treasurer to partner with a financial institution to develop and implement a Vermont affinity credit card program. The treasurer will consult with other state agencies to designate public purpose projects to which cardholders will be able to designate the state's portion of proceeds from the affinity card. The projects will be limited to sustainable agricultural programs, renewable energy programs, and state parks and forest land programs.

* * * Government Licenses and Employment * * *

Sec. H.19: The act prohibits the state from hiring anyone who has not certified that he or she is in good standing with respect to all state taxes. It also requires that Social Security or tax identification numbers be provided on lists used to match payments due from the state to vendors against delinquent tax liabilities.

Sec. H.20: The act provides for setoff of tax delinquencies against unclaimed property reported to the state treasurer.

* * * Mapping Program * * *

Sec. H.21: The act provides for the transition of the responsibility for creating and distributing orthophotographic maps from the department of taxes' property valuation and review ("PV&R") division to the nonprofit Vermont Center for Geographic Information ("VCGI") under a memorandum of understanding. Current law requires PV&R to prepare and provide orthophotographic maps to each municipality. Under this change, VCGI will undertake this responsibility.

* * * Property Tax Appeals in Unorganized Towns and Gores * * *

Sec. H.22: The act provides that the supervisor of an unorganized town or gore ("UTG") assemble a board of no fewer than three and no more than six members to act as a board of civil authority for purposes of property tax appeals. The members shall be the supervisor and one member from each of at least three and not more than five of the UTG's adjoining municipalities' boards of civil authority, appointed by the respective adjoining municipality's board.

* * * Education Property Tax Information Insert * * *

Sec. H.23: The act repeals the requirement that the commissioner provide in each homestead property tax bill the document "About Your 20XX Taxes `The more you spend the more you pay'."

* * * Unsigned Declaration of Homestead * * *

Sec. H.24: The act allows the commissioner to deem an unsigned declaration of homestead that is filed with a state income tax return as signed.

* * * Unrelated Business Income of Nonprofits * * *

Sec. H.25: The act provides for the taxation of income from business of nonprofits that is unrelated to the mission of the nonprofit by amending the definition of corporation and imposing income tax on unrelated business income and income from debt-financed property, if such income is subject to federal income tax. This change will take effect for taxable years beginning on or after January 1, 2010 and will make Vermont's tax law conform with federal tax law regarding the taxation of unrelated business income of nonprofits.

* * * Update Links to Federal Tax Law * * *

Sec. H.26: The act updates Vermont's links to the Internal Revenue Code for purposes of computing taxable income. This is done annually.

* * * Collection of Delinquent Taxes - Trustee Process * * *

Sec. H.27: The act allows the attorney general to simultaneously file an action for delinquent taxes and move for trustee process. Under current law (in Title 12), trustee process motion must be brought at a later date.

* * * Repeal of Underutilized Tax Expenditures * * *

Sec. H.28: Based upon the Tax Expenditure Report, the following underutilized credits are repealed:

* * * Property Tax Adjustments * * *

Sec. H.29: The act changes the date after which the department of taxes will handle refund claims from December 31 to September 15.

* * * Homestead Declaration Clarification * * *

Sec. H.30: The act requires the commissioner of taxes to clarify in tax forms that (1) a homestead declaration must be filed annually, (2) a homestead declaration must be filed regardless of whether the taxpayer is applying for an income sensitivity adjustment, and (3) a homestead declaration must be timely filed even though a taxpayer is granted an extension of time to file a tax return.

* * * Estate Taxes * * *

Secs. H.31-H.35: Effective January 1, 2009, the act fixes the Vermont estate tax exclusion amount at $2 million (federal exemption increased to $3.5 million on January 1, 2009); requires estates to file a state return even if there is no federal estate tax return required; requires that an estate file a pro forma federal return to the state if the estate would not have to file a federal return because of the higher federal exemption; amends language prescribing when estate tax returns are due; and adopts federal estate tax law, which is done annually, excepting the estate tax tables and the deduction amounts.

* * * Cigarette and Tobacco Taxes * * *

Sec H.36: The act amends the definition of "snuff" to exclude certain new smokeless tobacco products. It also amends the definition of "tobacco products" to include all tobacco products except cigarettes, little cigars, roll-your-own tobacco, snuff, and new smokeless tobacco. The act adds a definition of "new smokeless tobacco" to include newly developed or developing products that are derived from tobacco and are not meant to be smoked. It also provides for a distinction between new smokeless tobacco and traditional snuff.

Sec. H.37: The act increases the per-cigarette tax from 99 mills to 112 ($0.25 per-pack increase). Note that a prior statutory increase that became effective July 1, 2008 (increase from 89.5 mills to 99 mills) was not reflected in 32 V.S.A. § 7771(c) (see subsection 40(b) of No. 191 of the 2005 Adj. Sess. (2006)).

Sec. H.38: The act increases the tobacco products tax from 41 percent of wholesale price to 92 percent and sets the tax rate for snuff and new smokeless tobacco at $1.66 per ounce. The rate for new smokeless tobacco will be $1.66 per ounce or, if sold in units weighing less than one ounce, at $1.99 per unit.

Sec. H.39: The act imposes a floor stock tax on cigarettes held by a retailer prior to the effective date of the rate change in Sec. H.37.

* * * Sales and Use Tax on Digital Downloads * * *

Sec. H.40: The act adds new definitions to the sales and use tax chapter for the terms "transferred electronically," "specified digital products," "digital audio-visual works," "digital audio works," "digital books," "ringtones," and "end user." These definitions are taken from the Streamlined Sales Tax Project and comport with the Streamlined Sales Tax Agreement, to which Vermont is a signatory.

Sec. H.41: The act amends the imposition of the sales tax to include the purchase of those items defined in Sec. H.40.

Sec. H.42: The act makes a technical correction to the "breakage/retainage" rules imposed prior to Vermont's entering into the Streamlined Sales Tax Agreement.

Sec. H.43: The act amends the compensating use tax provision to include the use of those items defined in Sec. H.40 (when such items are purchased outside the state and therefore not subject to the sales tax).

* * * Sales Tax on Spirituous Liquor * * *

Sec. H.44: The act amends the sales tax exemptions section to allow sales tax on spirituous liquor in state-controlled liquor retailers.

* * * Returns Upon Business Closing * * *

Sec. H.45: The act requires any collector of sales tax who files annually to file a final return within 60 days of canceling a sales tax account.

* * * Land Gains Tax * * *

Sec. H.46: The act makes a technical correction to chapter 236 of Title 32 (land gains tax) to provide for assessment of interest and penalties under chapter 103 of Title 32.

* * Capital Gains Exemption and Limitation of

Deduction for State Income Taxes Paid * * *

Sec. H.47: The act provides that only the first $5,000.00 of deductions to federal gross income for state and local taxes paid in Vermont or another state may flow through when calculating Vermont taxable income. Thus, amounts over $5,000.00 will be added back in. The act also changes the exemption from taxable income of capital gains from 40 percent of gains to a flat $5,000.00. Both changes are effective for tax years beginning on or after January 1, 2009.

Note: Sec. H.47 was further amended by No. 2 of the Acts of the 2009 Special Session. Please see the summary of that act for additional information.

* * * Exclusion of Deduction for Sales and Use Tax on Purchase of New Vehicle * * *

Sec. H.47b: The act disallows the one-time deduction from federal gross income on sales and use tax paid on the purchase of a qualifying new vehicle. This provision prevents a taxpayer from including the deduction when calculating Vermont taxable income.

* * * Lower Income Tax Marginal Rates * * *

Sec. H.48: The act lowers state income tax rates as follows: 3.55%, 6.80%, 7.80%, 8.80%, and 8.95%.

Note: State income tax rates were further amended by No. 2 of the Acts of the 2009 Special Session. Please see the summary of that act for additional information.

Sec. H.48a: The act directs the legislative council to codify the rate reductions in Sec. H.48.

* * * Health Care Reform Property Tax Exemption * * *

Sec. H.49: The act provides for exemption from education property taxes of certain recreational health centers in Springfield and in Derby.

* * * Digital Business Entities * * *

Sec. H.50: The act describes the legislative intent to develop a niche market for digital business entities in Vermont.

Sec. H.51: The act defines a new type of entity to be called "digital business entities," which may choose different tax treatment under Vermont's business tax laws.

Sec. H.52: The act provides for digital business entities to elect to pay a franchise tax in lieu of the Vermont corporate tax.

Sec. H.53: The act sets forth the formulas by which a digital business entity will calculate its alternative tax as either a percentage of value of the entity's tangible and intangible assets or a sum based on the number of shares of authorized capital stock of the entity. In no case will the electing entity's annual tax be less than $250.00 or more than $500,000.00.

Sec. H.54: The act provides for a qualifying corporation to elect to be taxed as a digital business entity.

Sec. H.55: The act requires the commissioner of taxes to provide the general assembly with information on the digital business entity tax each January beginning in 2011.

* * * Blue Ribbon Tax Structure Study Commission * * *

Sec. H.56: The act provides for a tax study commission to review the state's revenue system. The commission will be composed of three to five members selected as follows: The governor, the speaker of the house, and the president pro tempore of the senate shall each appoint one member, and those three members may, in their discretion, appoint up to two other members.

* * * Education Financing Study * * *

Sec. H.57: The act provides for the creation of a committee to examine potential improvements to the structure and funding of the Vermont educational system. The committee will be composed of the following 15 members: the chairs or their designees of the house committees on education, on appropriations, and on ways and means, and one additional representative appointed by the speaker of the house; the chairs or their designees of the senate committees on education, on appropriations, and on finance, and one additional senator appointed by the senate committee on committees; the commissioner of education or designee; six members from constituencies such as the business community, superintendents, school boards, teachers, parents, and community members selected as follows: two by the governor, two by the speaker of the house, and two by the senate committee on committees.

* * * Effective Dates * * *

Sec. H.58: This section sets forth the various effective dates of the tax provisions of this act.

Vetoed by the Governor: June 1, 2009

Veto overridden by vote of the General Assembly: June 2, 2009

Effective Date: July 1, 2009, though some provisions have other effective dates.