Ways & Means reviews H.135 miscellaneous tax bill; committee flags municipal buyout payments and synthetic-nicotine treatment

The House Ways & Means Committee on Monday heard a presentation on H.135, a miscellaneous tax bill that would make a set of tax-code updates and add a new municipal buyout reimbursement program for flood‑impacted properties.

Kirby Keemley, head of council, walked the committee through H.135 and the additional language the committee requested. "This is very far from the last time we are going to look at this bill," Keemley said, describing the measure as a traditional catchall that is often finalized near crossover. He summarized about a dozen substantive changes and several technical cleanups in the measure.

Why it matters: H.135 touches individual filing rules, tax credits, retirement-income exemptions, tobacco‑product taxation, and a program that would reimburse municipalities that acquire or preserve flood‑prone properties. Several provisions could affect municipal budgets, state revenue calculations and tax administration if enacted.

Major provisions

Income-tax link and filing status: The bill would update Vermont’s annual statutory link to the federal tax code and add a requirement that taxpayers who file jointly at the federal level also file jointly at the Vermont level, while allowing the Department of Taxes to grant exceptions.

Child Tax Credit and earned-income credit: H.135 would raise the eligibility age for the Vermont Child Tax Credit from 5 to 6. The bill also relocates existing text about claiming credits without a tax identification number and proposes an expanded Vermont earned income tax credit (EITC) structure: the credit’s rate for filers with children would remain at 38 percent, while the proposal includes an unspecified new maximum rate for filers without children (text in the committee presentation did not state the exact percentage).

Retirement exemptions: The bill contains multiple changes to retirement‑income exemptions. It would exempt U.S. military retirement and U.S. military survivor benefits in full (removing earlier partial‑exemption language) and increase the income thresholds used to calculate partial exemptions for Social Security and civil‑service retirement by $5,000. Under the proposal, Social Security benefits would be fully excluded up to $55,000 with a phaseout between $55,000 and $65,000 for the thresholds described in the committee presentation.

Tobacco and synthetic nicotine: H.135 amends the tobacco-products definition to add the phrase "nicotine whether natural or synthetic." Keemley said the text change was suggested by Jen Harvey, who works on tobacco regulation, and was chosen because "synthetic would mean human made, but not fake." Committee discussion focused on whether that wording would bring nicotine‑free nicotine‑alternative pouches such as ZYN into a lower per‑weight tax category. Keemley told members the proposed language would likely subject ZYN to the per‑weight tax that applies to some smokeless products, producing a significantly lower tax than combusted tobacco and noted the committee would take more testimony on that point.

PBR hearing-officer pay and other administrative changes: The bill would change pay for PBR (administrative) hearing officers from a statutory daily per diem ($150 per day under current law) to $38 per hour plus a cost‑of‑living adjustment. Keemley described that as an administrative proposal and noted he considers putting pay inside statute an odd construct.

Flood abatement and municipal buyout reimbursement: H.135 extends an existing session‑law program that reimburses municipalities for education‑fund payments lost when municipalities abate property taxes for flood‑destroyed properties. The bill moves multiple deadline dates forward (for example, extending application and incident windows into 2024) and clarifies reimbursement for some interest costs on short‑term loans municipalities took to cover education‑fund obligations.

Separately, the bill would create a new municipal buyout reimbursement program to reimburse municipalities that acquire and preserve flood‑resilient properties. Under the proposal described to the committee, the program would: - Require annual certification of eligible properties by the commissioner of public safety to the tax commissioner on or before Sept. 1 of each year; eligibility would include properties acquired on or before July 1, 2023, and preserved as "public space or future space" with a restriction on development rights (the phrase "future space" was noted in committee as unclear and flagged for possible clarification). - Calculate payments using the grand‑list value of the acquired property for the year it was damaged, flooded or identified as flood‑prone, multiplied by municipal tax rates (including submunicipal rates). - Provide up to five years of full reimbursement followed by up to five years at half the payment amount, for a maximum of 10 years of payments per property. Keemley said the draft language was edited to count "previous" years toward the five‑year totals rather than requiring consecutive years, to avoid penalizing short gaps in eligibility. - Require payments to be made from the pilot special fund; Keemley noted testimony that the fund currently has surplus receipts but the program would require further fiscal‑office review to estimate total costs. Committee members recalled one estimate of $1,000,000 in the program’s first year but asked for a JFO (Joint Fiscal Office) estimate and additional clarity about whether FEMA buyouts or proactive municipal purchases would drive demand.

Technical fixes and effective dates: The bill includes a cleanup to remove a late‑fee reference for property‑tax credit claims that had been missed in prior amendments (Section 5402), an increase in available downtown/village tax credits, and a change to the tax‑sale statute to require a $1,500 debt in addition to a one‑year waiting period to initiate a tax sale. Keemley said the municipal buyout reimbursement program would have its own effective date of July 1, 2025, and that the commissioner of public safety would first certify properties on Sept. 1, 2025.

Committee questions and next steps

Committee members asked several clarifying questions. One member asked whether reimbursements for flood abatement come from the state general fund; a committee speaker replied that the earlier fiscal action had come from the Education Fund but that reimbursement mechanics varied and the committee should obtain further testimony. Members asked staff to clarify whether previous abatements were reimbursed or treated as forgiven in practice; Keemley said the implementation had sometimes varied by municipality and he would obtain more precise testimony.

Keemley and Chair concluded that the committee would continue to refine H.135 and that staff would seek additional testimony (including from JFO and agencies) on fiscal impacts and program mechanics before the committee makes final recommendations. "We tend to straw poll the sections as we readd them, so that the final vote can just sort of be at the last possible minute," the Chair said.

Ending note

The committee did not take a formal vote on H.135 in this meeting. Members directed staff to gather additional fiscal estimates and clarifying testimony on the municipal buyout language, the treatment of synthetic nicotine products for tax purposes, and the precise EITC rate proposed for filers without children.