Bill would let tax commissioner reassess higher transfer‑tax rate when landlord certificates are sham

Committee staff presented a provision in the miscellaneous tax bill intended to curb avoidance of Vermont’s higher transfer tax aimed at second‑home sales. Kirby Keating, legislative counsel, said the bill would permit the tax commissioner to assess the higher rate under subdivision 4 when a transferee files a landlord certificate or claims a rental deduction but the arrangement is not a bona fide landlord‑tenant relationship.

Keating described how the higher 3.4% transfer‑tax rate applies to residential property that will not be the buyer’s principal residence and is intended in part to target sales of second homes. He told the committee that law firms and advisers have used short family rentals or LLC ownership structures to create landlord certificates or other paperwork that avoid the higher rate. "This loophole has gotten popular with law firms in Vermont...If you rent it to a family member for a month...you don't have to pay this rate," Keating said.

Under the proposed language, the commissioner may consider whether the transferee and tenant are related parties, whether the transferee charged fair‑market rent, whether the transferee is an entity with a business purpose other than avoidance of property transfer tax, and any other relevant factor. Keating said those criteria give the department auditing discretion to determine when the higher rate should apply.

Committee members asked for Department of Taxes testimony to clarify enforcement practice, evidentiary standards, and administrative cost vs. benefit. No vote was taken on the provision during the Jan. 15 meeting; staff said Rebecca Samaroff or another department official will be asked to return to explain the proposal in depth.