Tax department warns adding nine property classifications would complicate administration

The Vermont Tax Department told the House Ways & Means committee on Thursday that a proposal to create multiple new property tax classifications — including a separate category for second homes — raises major administrative, mixed‑use and compliance questions that the department believes could undermine equitable administration across the state.

The department’s deputy tax commissioner, Rebecca Sam Roth, told the committee, “we absolutely understand the the committee's interest in having these property classifications,” and said the department was “not being supportive of adding 9 property classifications.”

The department framed its concerns around three core implementation components: clear definitions, a reliable identification mechanism (owner attestation versus taxing‑jurisdiction determination), and rules for handling mixed use. The witnesses repeatedly flagged that a property’s use can change over time and that existing municipal valuation categories are different from classifications that change tax treatment.

Officials described several practical problems. Landlord certificates, which the department uses today to verify renter credits, are filed retroactively for the prior tax year and therefore do not establish prospective use; the department said a new prospective attestation system would be required to tax on present‑day or coming‑year use. The department noted that about 10 percent of homestead filings show some non‑residential use and that Vermont’s roughly 360,000 parcels include many mixed‑use properties (for example ground‑floor retail with apartments above). Under the draft the department reviewed, a single non‑homestead classification could apply to an entire parcel even if only a small portion is used differently, a prospect the witnesses warned could produce anomalous results (one hypothetical offered: a business with a small overnight room being taxed as an apartment for the whole property unless mixed‑use rules were added).

Officials also raised timing and data problems. The department said current practice uses an April 1 measurement date for use, but other statutory dates (and retrospective filings such as landlord certificates) create mismatch risks; the department said it lacks staff capacity and the state lacks practical mechanisms to monitor use changes across hundreds of thousands of parcels. The witnesses recommended avoiding an approach that would lock in many categories before reappraisal and improved statewide data are available.

Committee members asked about alternate evidence streams — insurance classifications were suggested as a possible marketplace data source — and the department encouraged conversations with the Department of Financial Regulation to test feasibility. The department also cautioned against tying state classifications directly to municipal zoning because many properties operate as legal nonconforming uses under local ordinances.

The department urged a phased approach: consider a small, carefully defined pilot (for example a single second‑home classification) and align any new classifications with planned appraisal reforms so rates and classifications are not locked in without adequate data.

Meeting participants flagged related policy risks the department raised: potential erosion of current‑use conservation incentives; effects on municipal revenue choices; and the need to define appeals processes if local listers or appraisers are assigned the initial classification role.

The committee and department agreed to continue conversations; tax staff said they would provide written “questions and considerations” and follow up on several items, and the department remained in the room to take additional committee questions later in the hearing.

Ending — The discussion closed with several committee members urging simplicity and caution. No formal vote or change to statute occurred; staff signaled they would return with more detail and that the committee would receive the department’s written materials and supplemental analysis.