Ways & Means reviews draft to split non‑homestead property tax into use‑based classes

Legislative counsel on the House Ways & Means Committee presented draft statutory language to require town grand lists to assign each parcel of real property a statutory classification and to allow the General Assembly to set separate non‑homestead education tax rates for those classes.

The draft, presented by Kirby Keaton, legislative counsel, would insert a new statutory section (referred to in the draft as 4152A) requiring towns’ grand lists to include a single assigned classification for each parcel and defining categories for non‑homestead property. Keaton said the classifications are intended to let the Legislature “fine tune the tax liability for different groups within that non‑homestead category.”

Why it matters: The proposal would change how non‑homestead property — currently taxed under a single non‑homestead rate — is grouped for education property tax purposes. That could let lawmakers tax high‑value second homes, short‑term lodging, apartments, farms or resorts at different rates than other non‑homestead parcels, potentially shifting who pays how much toward school funding.

Key features of the draft

- Required classification on the grand list: The draft would add a statutory requirement that municipal grand lists carry a statutory classification for each parcel and provide a process for state rules to supplement the statute.

- Defined classes (draft language): residential A; residential B; apartment; affordable housing; commercial; industrial; resort; undeveloped; public use. Keaton said the draft borrows ideas from classification systems used in places such as Hawaii and New York but is adapted to Vermont’s laws and practices.

- Thresholds and definitions included in the draft: residential A would be non‑homestead residential parcels with values under $1,000,000; residential B would be non‑homestead residential parcels over $1,000,000. ‘‘Apartment’’ is defined as a parcel or portion of a parcel improved with one or more dwelling units occupied by long‑term tenants for a period of 11 consecutive months or more. ‘‘Affordable housing’’ uses an existing statutory definition tied to units subject to rent restrictions and to verification by the Vermont Housing Finance Agency (VHFA); the draft relies on VHFA to produce a list annually of properties meeting that definition for classification purposes. The draft also includes provisions that short‑term lodging (periods under 11 months), timeshares, licensed hotels and bed‑and‑breakfasts would be classified as commercial unless they meet the resort definition.

- Mixed‑use parcels and proportionality: The draft instructs that parcels with multiple uses be classified proportionately by area of primary use. For residential units on a mixed parcel, each residential unit may carry up to a two‑acre house site allocation; land beyond the house site would be assigned to the parcel’s other uses for classification purposes.

- Public use and exemptions: The draft ties a ‘‘public use’’ classification to existing statewide education tax exemptions; such exempt properties would be classified as public use (and would remain exempt from education tax under current law).

- Tax rate mechanics: Under the draft changes to the education finance section cited in the presentation (near the draft’s section labeled 5402 in the transcript), the homestead yield/rate process would remain the same; for non‑homestead parcels the Legislature would annually set yields or rates for each statutory classification so that the allocation of education tax across classes could differ by statute and be adjusted annually by the General Assembly.

Committee discussion, concerns and next steps

Members raised operational and policy questions. A lister (town assessor) said the change would significantly increase day‑to‑day workload and urged attention to how municipalities and listers would implement the proportional classification rules. Representative Higley (member of the committee) said the proposal is ‘‘certainly more complicated’’ and warned about taxpayers attempting to change parcel use to alter classification and tax liability. Representative Holcomb and other members said the proposal could be a tool to protect homestead owners and to incentivize affordable housing, but they asked for more detail on how the draft would interact with Vermont’s current use program and with existing valuation practice (‘‘highest and best use’’).

Several members asked whether farms not enrolled in current use would be treated as commercial under the draft and whether the draft should instead create a separate farm classification; Keaton said the draft follows the listers handbook approach and that much of the farm question will depend on whether a parcel is enrolled in the state’s current use program. Keaton also noted that some parts of the draft are expected to be fleshed out in rules adopted by the Department of Taxes and Property Valuation and Review (PVR).

Members requested further briefings from technical agencies: the committee chair said the committee would hear from VHFA about the practical implications of defining and listing affordable housing properties and from the Department of Taxes about how the new classification requirement would align with current grand list procedures. Committee members were given a week to review the draft; no formal motion or vote took place.

Unresolved issues identified in the meeting

- How to treat large tracts of open land (highest and best use vs. current use valuation) and whether open, unenrolled farmland should have a distinct classification. - Whether short‑term rentals, timeshares and resort properties should be separated from other commercial uses or handled as a distinct class tied to local zoning or licensing. - Administrative burden on municipal listers and possible need for detailed statutory or rule guidance to implement proportional allocations and house‑site rules. - Potential behavioral responses if a high‑value residential parcel were restructured to change its classification and tax liability.

What the committee said it will do next

The committee will solicit technical input (VHFA, PVR, Department of Taxes) and return to the draft after members have had a week to review the language. Several members said the draft is a useful place to start but will require substantial drafting and implementation work before becoming a bill.

Ending

No formal action or vote was taken at this meeting. The committee paused the conversation to seek technical follow‑up and asked members to return with detailed comments after reviewing the draft.