CCH Tax Day Report
The Vermont Senate has passed a proposal of amendment to the miscellaneous tax bill that, as previously reported, was passed by the Vermont House of Representatives. (TAXDAY, 2017/04/05, S.20) As passed by the Senate, the bill includes a change to federal conformity for Vermont corporate and personal income tax purposes; an update the due date for S corporation returns; changes to certain tax credits, additional sales and use tax notice requirements for noncollecting vendors; changes to the provision requiring use tax reporting on individual income tax returns; changes to the sales and use tax exemptions for aircraft and for aircraft parts, machinery, and equipment; extension or repeal of sunset dates on health care taxes and the clean water surcharge; and other changes.
Personal income tax starting point: The Senate version of the legislation does not contain the House passed provision that would have changed the starting point for calculating Vermont personal income tax to federal adjusted gross income. The House version would have changed the starting point to federal adjusted gross income and then allowed a taxpayer to subtract from federal adjusted gross income the deductions and exemptions that they are allowed to take for Vermont purposes. Currently, the starting point for Vermont personal income tax is federal taxable income and taxpayers are required to add back deductions they are not allowed to take.
IRC conformity: The bill passed by the Senate and House would also update the IRC conformity date for Vermont personal and corporate income tax purposes to the IRC as in effect for the 2016 tax year. The IRC conformity would take effect retroactively and apply to tax years beginning on and after January 1, 2016.
S corporation returns: As passed by both houses the legislation would update the due date for S corporation returns so that it is tied to and continues to align with the federal due date (March 15 for calendar year filers). Currently, the due date for the Vermont S corporation return is statutorily tied to the due date of the Vermont C corporation return.
Downtown and village center tax credit: The Senate version of the legislation includes an increase in the total amount of credits that may be awarded each year (together with reallocated sales tax) to $2.4 million (previously $2.2 million). This credit may be awarded against the corporate income, personal income, bank franchise, and insurance premiums tax for qualified historic rehabilitation, facade improvement, code improvements, and qualified technology improvement and technology infrastructure projects.
Sales and Use Taxes
Noncollecting vendor notice requirements: The bill passed by the House provides that, on or before January 31 of each year, noncollecting vendors would be required to file a copy of the notice they will be required provide to certain purchasers indicating that sales or use tax is due on nonexempt purchases that the purchasers made from the vendor and that Vermont requires the purchaser to file a sales or use tax return. This notice requirement would apply only to noncollecting vendors who made $100,000 or more of sales into Vermont in the previous calendar year. [Note: “Noncollecting vendor” means a vendor that sells tangible personal property or services to purchasers who are not exempt from Vermont sales tax and that does not collect the tax. Also, the requirement of notifying purchasers is scheduled to take effect on the earlier of July 1, 2017, or beginning on the first day of the first quarter after the sales and use tax reporting requirements challenged in Direct Marketing Assoc. v. Brohl, 814 F.3d 1129 (10th Cir. 2016), are implemented by the state of Colorado.]
Use tax reporting on individual income tax returns: The provision requiring reporting of use tax on individual income tax returns would be amended to provide that taxpayers would not be required to pay more than $500 for such use tax liability arising from total purchases of items with a purchase price of $1,000 or less. Also, the percentage-of-income amount that a taxpayer may elect to report as use tax, as shown on a table published by the Commissioner of Taxes, would be decreased to 0.1% adjusted gross income (currently, 0.2% of Vermont adjusted gross income) and the percentage amount would no longer be indexed annually. [Note: A taxpayer’s use tax liability arising from the purchase of each item with a purchase price in excess of $1,000 must be added to the table amount.]
Aircraft exemptions: The sales and use tax exemption for commercial aircraft would be amended to exclude drones. Also, parts, machinery, and equipment for drones would be excluded from the exemption.
Insurance Gross Premium Tax
Newly licensed captive insurance company credit: The Senate bill would allow a nonrefundable credit against Vermont captive insurance gross premiums insurance tax is available to a captive insurance company that is first licensed after January 1, 2017. The credit is equal to $5,000 and may only be claimed against the aggregate gross premium insurance taxes owed by the taxpayer for the first taxable year. Previously, the credit was $7,500 for a captive insurance company first licensed after January 1, 2011.
Affordable housing credit: The Senate version of the legislation would also allow taxpayers that develop affordable housing projects (both rental and owner-occupied housing) that qualify for the federal low-income housing credit a Vermont credit against the captive insurance premium tax. Previously, the tax credit was only available against the insurance premium tax, corporate income, personal income, and bank franchise (income) tax.
Other Tax Provisions
Sunset date for health care claims tax: If enacted, the bill would extend the sunset date on the health care claims tax for one year, from July 1, 2017, to July 1, 2018.
Health Care Contribution Assessment: The bill would transfer responsibility for the administration of the Health Care Fund Contribution Assessment from the Department of Labor to the Department of Taxes. The assessment is a contribution for each full-time equivalent uncovered employee employed during that quarter in excess of four full-time equivalent employees. Under the bill, the amount of the contribution would be $158.77 for each full-time equivalent employee in excess of four. Beginning in calendar year 2018, the amount of the contribution would be adjusted by a percentage equal to any percentage change in premiums for the lowest-cost silver-level plan in the Vermont Health Benefit Exchange. Assessments would be determined on a calendar quarter basis, due and payable on or before the 25th day of the calendar month succeeding the close of each quarter.
Home health care provider tax changes: Additionally, the bill would change the methodology for calculating the home health agency provider tax, in addition to changing the assessment on home health agencies of 19.30% of net operating revenues from core home health care services, to 4.25% of net patient revenues from home health services. For fiscal year 2017, the amount of the home health agency assessment is set at 3.63% of annual net patient revenue. For fiscal year 2018 only, the Commissioner of Vermont Health Access may determine the amount of a home health agency’s provider tax based on such documentation as the Commissioner deems acceptable. The bill would repeal the home health agency assessment effective July 1, 2019.
Clean water working group and extension of surcharge: The bill would create a Working Group on Water Quality Funding to develop a recommended method of assessing a statewide impervious surface fee, per parcel fee, per acre fee, or combination of the three, in order to generate revenue for deposit in the Clean Water Fund. Additionally, the bill would extend the sunset date on the 0.2% clean water surcharge imposed on the value of property subject to the property transfer tax, from July 1, 2018, to July 1, 2019.
Changes to recalculation of municipal tax liability: If enacted, the bill would remove the 1% limitation on current property tax appeal adjustments and replace it with an annual cap of $1 million for total reimbursements. Pursuant to these changes, the Director of Property Valuation and Review would be required to submit a report to the Legislature on or before December 1, 2019. The report must include the annual number of reductions to the education grand list, the annual amount reimbursed to municipalities from the Education Fund, and the annual increase, if any, to the education grand list.
Background investigations for certain department employees: The bill would also require the department to conduct an initial background investigation of any individual, including current or prospective employees, volunteers, contractors or subcontractors, who would be permitted access to federal tax information. Periodic background checks of individuals with federal tax information access would be required a minimum of every 10 years.
Department outreach to small business taxpayers: Further, the bill would require the department to convene a small business compliance working group, to examine the ways the department can improve outreach and education to small business taxpayers.
Subscribers can view the bill passed by the House and the Senate’s proposal of amendment.
VT HB 516 passed House 3-31-17
VT HB 516 passed Senate 4-27-17
H.B. 516, as passed by the Vermont Senate on April 27, 2017