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Committee considers three-year sales-tax exemption for building materials to spur housing; asks JFO and Department of Taxes for cost estimates
Summary
The House committee considered a draft three-year sales-and-use tax exemption for building materials and supplies intended to lower construction costs and encourage housing development.
The House Committee on General and Housing on Thursday considered a proposal to exempt building materials and supplies from sales and use tax for three years as a way to reduce construction costs and spur housing development.
Kirby Keelan, Legislative Council tax counsel, presented draft language that would temporarily broaden an existing sales-tax exemption (currently targeted at large manufacturing projects) so that retailers would not charge sales tax on building materials and supplies for a three-year period. "This modifies the statutory purpose for that exemption to say that the purpose of this is to reduce the cost of construction in Vermont," Keelan said.
Committee members raised fiscal questions about the proposal's effect on the Education Fund, since sales tax revenue currently flows to that fund. Several members asked the Joint Fiscal Office and the Department of Taxes to produce estimates of the exemption's revenue impact and to estimate the value of sales taxes currently collected on construction materials.
Members discussed options to narrow the exemption to target affordable housing or projects certified by existing agencies. Keelan suggested use of existing entity-based exemptions (for nonprofits, government, local development corporations) or relying on agency certifications (for example, VHCB or VHFA certifications tied to income limits) to limit the benefit. "If you're looking at more of like middle income housing, we'd have to look at into other definitions that exist, but we could figure something out," he told the committee.
Lawmakers also discussed administrative questions: whether Department of Taxes could track the total cost of the exemption in a given year, whether JFO could estimate the fiscal impact, and whether the measure should be capped or have an overall expenditure limit. Some members proposed a limited-dollar cap on the total exemption to reduce Education Fund exposure.
No legislative language was adopted in committee during the meeting. Kirby Keelan said he will work with staff and submit language to JFO and the Department of Taxes so the agencies can provide revenue estimates and administrative assessments in time for committee decisions ahead of the March deadlines.
