Last week the Senate Finance Committee took testimony from representatives of two groups, bank officials and lobbyists for employer associations, who are affected by tax increases. Meanwhile a new $2.5 million dollar budget hole was created by the Labor Relations Board decision in favor of a two-year package of raises for state employees. Senate Finance Committee Chair Tim Ashe has stated publicly that he does not favor another round of increases in the bank franchise tax or employer assessment tax but the outcome is anyone’s guess given budget pressures.
The Bank Franchise Tax. This tax is computed monthly on average monthly deposits for the previous 12 months and is paid quarterly; this tax is in lieu of corporate income tax. The miscellaneous tax bill under consideration creates a higher tax for banks with larger deposits, in excess of $75 million dollars, jumping the rate from .000096 to 000121.
This translates into large payments and comes on top of an increase last year. Thomas Leavitt, President and CEO of the Northfield Savings Bank (NSB), the second largest bank in Vermont, testified that given projected deposits for 2016 at a rate of .000118 the tax obligation would be $849, 600 dollars (a 23%increase). He contrasted this with what would be owed if they paid an income tax, a considerably lower amount. NSB Is a “mutual bank” owned by depositors, with 13 locations in central Vermont and Chittenden County. Mr. Leavitt cautioned that they are facing stiff competition from credit unions that do not pay the franchise tax and the number of independent banks in Vermont is decreasing. Vermont banks are major employers, important partners in community development, and they are active in community contributions (both financially and by way of volunteered time and resources to nonprofits). The loss of independent banks will eliminate local decision-making and result in a lack of focus on Vermont.
Sarah Cowan, Senior Vice President of the National Bank of Middlebury, gave similar testimony. The National Bank has seen their franchise tax obligation increase from $260 thousand dollars to $291 thousand dollars over the past three years. The proposed franchise tax rate would increase this obligation by $77 thousand dollars. Due to increasing costs in key areas such as cyber security and regulatory compliance, the National Bank has not been able to increase staff or offer more than 2% annual salary increases. They are not a “high performing bank” that could absorb a tax rate increase. Like NSB, the Middlebury National Bank is active in its community.
Employer Assessment Tax. The employer assessment tax is intended to offset Medicaid costs for uninsured Vermonters by way of a tax on employers who do not offer health insurance plans for full- time workers. The quarterly tax assessment calculation includes employees who receive Medicaid as well as people who elect not to participate in employer health care plans, usually because of the co-pay. Businesses that employ part–time workers with varying shifts may find that the hours accumulate to the equivalent of full-time employees.
This tax has been expanding since 2007 to capture smaller and smaller businesses while the rate has increased. In 2014 the rate was $133. 30 and in 2015 it was adjusted per a formula tied to health exchange insurance costs. The proposed tax is tiered. An employer with between one and 19 full time equivalent (FTE) “uncovered” employees would pay $151.12 for every employee over 4. An employer with 20-99 FTE uncovered employees would pay $210 per employee and for larger employers the assessment is $249 per uncovered employee.
Opponents testifying in the Senate Finance Committee included lobbyists for the Vermont Retailers and Grocers Association, the Vermont Ski Areas Association and the Vermont Chamber of Commerce. As pointed out by the Retailers and Grocers Association, the employer assessment tax is “unique to Vermont” and is on top of the federal Affordable Care Act (ACA) assessment on employers not offering health care benefits. Most retailers have a mix of seasonal (busy-season), part-time and full-time employees. Small convenience stores estimate a 53 % increase in their tax obligation under the proposed rate while larger statewide convenience stores expect a 68% increase.
The Ski Areas Association offered similar objections to the tax increase. Although Vermont ski areas offer health care plans for full-time employees the industry relies heavily on seasonal workers. In the ski industry there is no “ bight line “ for full-time workers and seasonal workers. Larger ski areas are anticipating a “north of 65% increase” in employer assessment tax obligations. This is particular punishing for the industry given the mild winter.
A more general opposition to the employer assessment tax came from the Vermont Chamber of Commerce. From their perspective the employer assessment tax is just plain bad for business. They pointed out that "uncertainty is a business obstacle.” Employers crave stability so they can create long term business plans but Vermont has had years of continuous uncertainty around health care policy. The Chamber of Commerce took a strong stand against making employers pay for rising Medicaid costs based upon policy decisions, at both the federal and state level, that are not “employer related” and had nothing to do with lower wages. The full opposition statement of the Chamber of Commerce gives an historical overview of the many shifts in Vermont’s health care policy and can be seen here:
The Chamber of Commerce has also published a breakdown of tax and fee increases over the past several years known as the “Total Impact List.” It can be found here:
If you want to weigh in on the miscellaneous tax bill contact your legislators immediately.
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