Tax department outlines problems and options for Vermont ’current use’ land‑use change tax; committee weighs affordable‑housing and farm transition fixes

The Department of Taxes told the House Committee on Agriculture, Food Resiliency, & Forestry that Vermont’s current method for valuing and taxing a withdrawal of part of an enrolled “current use” parcel produces unpredictable penalties, long delays and inconsistent outcomes — and that the committee has several legislative options to consider.

Jill Remick, director of the Property Evaluation Division at the Department of Taxes, described the land use change tax as currently calculated when a portion of an enrolled parcel is removed and said the existing approach can produce ‘‘effective tax rates’’ that vary wildly across parcels and municipalities. “The land use change tax is 10% of that value,” Remick said, describing the current statutory penalty and the complex valuation process that follows a withdrawal.

Why it matters: the land use change tax affects landowners, buyers and municipalities. Committee members repeatedly framed the issue as relevant to affordable and workforce housing, intra‑family farm transfers and municipal planning. Lawmakers and staff discussed proposals that would change the way the penalty is calculated, create an exemption or abatement for affordable housing built on withdrawn parcels, and alter eligibility rules for small farms.

Remick summarized several practical problems. When a portion of an enrolled parcel is withdrawn, state law requires the assessor (or lister) to value the removed portion “as if it’s a standalone parcel.” That requirement frequently lengthens the process because assessors have days or weeks to return valuations, valuations can be appealed, and the department may need additional time to calculate a final figure for closing or sale. Remick said the sequence often produces a multi‑step process that “creates pretty significant delay” for sales or development.

Remick and committee members discussed the following options and bill provisions: - Replace or supplement the current proration/standalone valuation with a predictable formula (examples discussed included a flat fee, a flat fee plus percentage, or a clear calculator available on the department’s website). - Allow the land use change tax to be calculated at withdrawal but abated if a qualifying affordable‑housing project is completed on the withdrawn land (the committee discussed H.1134’s proposal to exempt certain withdrawals for affordable housing and the practical question of how to verify compliance). - Reduce the statutory percentage (H.273 proposes lowering the penalty from 10% to 6%). - Change income eligibility thresholds for small‑parcel agricultural enrollment (H.273 proposes lowering the farmer income test from 50% of gross income to 25% for parcels under 25 acres) and expand eligibility to include equine operations.

Remick emphasized administrative constraints and compliance questions: how would the department confirm that an affordable‑housing project built after withdrawal actually met the statutory definition; could the department hold the tax “pending” and abate after verification; and how to handle the frequent scenario where a withdrawal occurs during a real‑estate transaction and the new buyer inherits the unpaid tax (Remick described that as a “hot potato”).

Committee members raised equity and policy tradeoffs. Representative Nelson and others urged solutions to make modest housing development near town centers less costly for owners withdrawing small front‑lot parcels. Representative Bracken asked whether a flat fee plus a percentage might yield fairer and more predictable outcomes for small withdrawals. Several members also noted the special administrative considerations for farm family transfers and for farm employee housing (farm employee housing becomes eligible for farm‑building treatment only after 12 months of use, which can require an initial withdrawal and later re‑enrollment).

Fiscal context: Remick provided historical estimates and program context. The department cited a historical study indicating that adding equine farms to the program would not be a large fiscal shock (a 2013 estimate indexed for inflation put the possible general fund impact in the low millions). Remick also said the program’s current statutory treatment has an education fund impact (the department cited roughly $55 million) and a municipal “hold harmless” / general fund impact (roughly $19 million) in present‑day terms.

Remick recommended additional witnesses for the committee: staff from the Agency of Natural Resources/Forest Parks and Recreation, the Vermont Center for Geographic Information (VCGI), and housing agencies. VCGI staff had already produced a map showing the radius and downtown‑adjacency effects of H.1134’s proposed affordable‑housing carve‑out, committee members said.

Ending: The committee asked the department to return with further modeling and to invite FPR and housing officials for follow‑up testimony. Members said they wanted more data and cost modeling before choosing among proposed solutions.