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Federal HR1 corporate provisions to reshape Vermont revenue estimates, fiscal office says
Summary
State fiscal staff told a joint Ways & Means and Senate Finance hearing that corporate provisions in HR1 (R&D timing, interest limitation changes, bonus depreciation, and international tax rules) will shift revenue in the near term—some reducing and some increasing Vermont receipts—while overall estimates remain uncertain and will be revisited after the next revenue forecast.
Patrick Thirkin of the state fiscal office told a joint Ways & Means and Senate Finance hearing that multiple corporate tax changes in the federal HR1 package will alter Vermont’s revenue picture, with some provisions lowering state receipts and others increasing them.
Thirkin said HR1’s return to year‑of‑incurrence treatment for research and development expenses will “front‑load” deductions for corporations and is expected to reduce Vermont revenues by about $2,300,000 in fiscal years 2026 and 2027. “This change in how the timing of when you can deduct these expenses is expected to reduce state revenues,” he said, while noting some of the effect is a timing shift rather than a permanent loss.
At the same time, Thirkin described changes to international taxation—broader bases for foreign‑derived intangible income (FDII) and adjustments to global intangible low‑taxed income (GILTI) and controlled foreign corporation (CFC) rules—that the fiscal office estimates will increase Vermont revenue. He gave a preliminary estimate of roughly $2,500,000 in additional revenue for fiscal year 2026, rising toward about $3.2 million in later years.
Thirkin also highlighted that HR1 raises the allowable business interest deduction from a 30% benchmark toward 50% of adjusted taxable income, which the state estimates will alter revenue flows and is projected to affect Vermont by roughly $1,000,000 annually beginning in fiscal year 2026 because Vermont is coupled to federal treatment.
The package includes a 100% bonus depreciation window for qualified production and nonresidential property purchased between Jan. 19, 2025, and Jan. 1, 2029. Thirkin explained the provision can be large over time but is phased: “it is temporary” and revenue impacts are small in the first year and grow in later years as assets are acquired and placed in service.
Thirkin warned that corporate income tax estimates are especially volatile. He said the fiscal office relied on a mix of in‑house data and federal Joint Committee on Taxation (JCT) scoring but could not fully replicate JCT growth assumptions, leaving material uncertainty. He recommended revisiting numbers after Vermont’s next consensus revenue forecast.
The presentation also covered narrower items—changes to charitable deduction floors for corporations, exceptions to business meal deduction rules, expansion of qualified small business stock exclusions for issues after July 5, 2025, and percentage‑of‑completion accounting changes for certain residential construction contracts—each with modest or phased revenue impacts, according to the fiscal office.
Thirkin closed by pointing to a prepared summary table the department posted with further methodological notes and urged the committees to treat the present numbers as preliminary pending the state forecast update.
The hearing continued to additional panels the next day with further review of specific provisions.
