Tax Changes - March 13, 2024

When the House Ways & Means Committee met on Wednesday Morning, Chairwoman Kornheiser revealed that they moved some items that were “hanging around” into their miscellaneous tax bill. Notably, this included a meals and rooms tax surcharge on short-term rentals.

The Joint Fiscal Office had provided some analysis of this bill, and it would create a total tax implication of up to 20% on short-term renters. The normal rooms and meals tax is 9%, the new surcharge is 10%, and there is also a local option tax to add another 1%. Burlington also has a gross receipts tax of 9% so the total tax implication for the state’s largest short-term rental market would actually be closer to 30%.

JFO provided a helpful summary of data surrounding this issue. Some considerations they highlighted were that an increase in price may drive down demand, “especially because Vermont vacation stays have close substitutes in interior New England. The scale of the demand decrease depends on the strength of the Vermont tourism brand, and whether the market for short-term rentals is like other types of accommodations.”

They also added that “tourists who book short-term rentals with the surcharge may have less money to spend during their trip in Vermont, decreasing meals, alcohol, sales, and other tax revenues.”

NOTE: This may be accurate as these accommodations are often seen as budget alternatives to hotels.

Kornheiser noted that they are not voting on this bill until Friday…

The bill also extends the Health IT Fund for Public Health Data, such as cancer data, birth & death, vaccination records, etc. There were also a number of changes to the property valuation and review process. A full list of changes can be found here.

The latest draft also incorporated sections of S.180 which would allow for the purchase of investments in Federal Credit Unions using state funds. Ashlynn Doyon (Director of Policy, Office of the State Treasurer) joined the Committee to discuss this provision. They see this as a substantive change, the treasurer’s office has seen these investments as too small and requirements for collateralization are not sufficient. While the change may pass, the Treasurer is not likely to alter standard practices when it comes to where they put state dollars.

The two main banks that State does business with are TD Bank and M&T Bank due largely to complexity of services the state requires and the scale these banks achieve.  She noted that do not anticipate changing the “state’s bank of record to one of these credit unions” based on these aspects. Fiduciary responsibility demands that they hold all smaller banks and credit unions to the same standards as larger banks. Also, earnings on deposits at these larger institutions are a factor. She believed that the interest from these institutions may be the state’s 4th or 5th largest source of revenue.

She added that the Senate asked similar questions and they did research that found smaller institutions cannot guarantee the rates of return on deposits. Their conclusion was that they were not opposed but it will likely not change their current practice at the Treasurer’s office.

Representative Branagan asked if it was a credit union that had requested the change. This was confirmed by Doyon. Branagan added that in the past two legislators on the Committee had strongly opposed this and wondered what, if anything, had changed.  Kornheiser acknowledged the comments and asked if the language will become a “slippery slope” to forcing the Treasurer to act in ways that affront their fiduciary responsibility. She wanted them to know they are not forcing the Treasurers hand and they “always attempt to avoid that.”

Doyon noted they would not need the language if they were attempting to do some limited work with credit unions, although the “slippery slope” is a small possibility here and any future changes in statute that could be seen that way.

Representative Sims commented that they should “do a thing if it doesn’t lead to much either way.” Representative Andrews agreed, calling it a “solution in search of a problem.” Other members were somewhat agnostic, but Kornheiser noted that the members wanted to know more.

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