Committee hears options to make land-use-change tax more predictable for buyers, farmers

BURLINGTON — Jill Remick, director of Property Valuation and Review at the tax department, and Keith Thompson, forestlands program manager with Vermont Forests, Parks and Recreation, told the Agriculture, Food Resiliency & Forestry Committee that lawmakers face a trade-off between making the land use change tax (LUCT) predictable for buyers and preserving the state’s working-lands objectives.

Remick said the current process leaves landowners and buyers uncertain about LUCT liabilities until a local lister revalues withdrawn acreage. “The land use change tax right now is 10% of the value of the enrolled acreage and farm buildings, of course, are 0 if they're enrolled in the program as well,” Remick said. She added that partial withdrawals require the lister to value the withdrawn acreage as a standalone parcel, which creates a “chicken and egg challenge” for people closing on property.

The uncertainty can affect closings, Remick said: depending on whether buyers and sellers have agreed who will pay the LUCT, “you've got the hot potato” after closing. To reduce that uncertainty, Remick and others discussed the NRC’s proposed formula that would give landowners an estimate of the LUCT before removal. “Anything that we can have that some sort of a formula that individuals can make informed decisions on is helpful,” she said, while cautioning the department needs time to run scenarios against the proposal.

Thompson said the state needs an LUCT that is “transparent, predictable, implementable” and high enough to discourage enrollment by owners not committed to managing land as working forest or farmland. “A sufficiently high land use change tax can be a deterrent for somebody from enrolling land that they're not committed to managing as working lands,” he said. Thompson said the prior pro-rata approach — which calculates LUCT based on the enrolled acreage’s value — is clear and easy to implement, but that a 10% pro-rata LUCT is low and may not deter opportunistic enrollments.

Lawmakers raised several options discussed in testimony: lowering the LUCT percentage (Representative Burton noted a 6% proposal), returning to a pro-rata calculation based on the enrolled acreage’s valuation, or adopting a formula like the NRC’s to give earlier estimates. Remick explained that the lister already apportions enrolled acreage value for property-tax billing, so a formula built on that apportioned value could supply an immediate estimate rather than requiring a separate valuation when acreage is withdrawn.

Committee members and agency witnesses also discussed the 25-acre threshold that currently triggers development treatment when a parcel under enrollment is split: if a new parcel under 25 acres is created, statute presently treats that as development. Remick said that statutory definition leaves little administrative discretion and that changing it would require a statutory amendment. “If the policy decision is to allow for parcels smaller than 25 acres to be created, as long as it remains in the program, that would be how you'd want to sort of address that,” she said.

Members pressed agency staff about impacts to working lands and to municipal administration. Thompson warned of administrative costs tied to fluctuating enrollments and increasing public demand for clarity: “The fluctuation of enrollments, the shifting in enrollments has additional administrative costs,” he said. Remick highlighted practical process limits, noting a large volume of calls and applications and the difficulty towns face closing out grand lists at year end.

Lawmakers also discussed bills under consideration. Committee members referred to proposals that would (a) reduce the LUCT percentage, (b) adopt a pro‑rata calculation, or (c) exempt or abate LUCT for certain affordable- or workforce-housing withdrawals. Remick recommended framing housing relief as an abatement triggered after a qualifying housing use is demonstrated rather than an upfront exemption, to avoid creating open-ended exemptions that could sit unused for years and complicate administration.

The committee did not take a formal vote during the session. Staff and members agreed more analysis is needed — including running scenarios against the NRC formula and clarifying statutory language on parcel creation and LUCT timing — before committing to a statutory change.

The committee will continue deliberations; staff said they would provide additional scenario analyses and drafting options for members to review before a final recommendation.