Senate Finance reviews S.282 to adapt federal investment surtax into Vermont 'wealth proceeds' levy

The Senate Finance Committee on Feb. 5 conducted a detailed walkthrough of S.282, a bill that would impose a state surtax on certain investment income modeled on the federal Net Investment Income Tax (NIIT).

The bill’s initial presentation described a "wealth proceeds" tax as a 4% surtax applied to the lesser of a NIIT-style investment-income base or the amount by which modified adjusted gross income exceeds statutory thresholds. "This is a tax on certain types of income that is in addition to income tax," said Kirby Keehan of the presenting office, explaining the proposal adapts the federal NIIT rather than taxing asset values or unrealized gains.

Why it matters: committee staff and members highlighted several practical and policy issues—how Vermont would apportion out‑of‑state income, whether state thresholds should mirror federal MAGI, how the measure would interact with Vermont’s existing 40% capital‑gains exclusion, and the degree to which taxpayers could shift timing or residency in response.

What presenters said: Keehan walked the panel through the federal NIIT's history, the NIIT 3.8% rate and the federal MAGI thresholds (originally set in federal law at $200,000 for single filers in 2013). He listed income types that the federal base includes (capital gains, dividends, taxable interest, rent/royalties and certain trader/business income) and those the federal law excludes (wages, Social Security, qualified retirement‑plan withdrawals and municipal bond income).

Jake Feldman of the Tax Department told the committee that, in 2024, roughly 1,300 returns listed over $1 million of income but that only about 10% of those taxpayers remain in that top bracket year‑to‑year. "If you look longitudinally, there are very few people who have that level of income year over year," Feldman said, noting the small pool concentrates much of the potential revenue and complicates projections.

Revenue and uncertainty: a staff presenter estimated the proposal’s revenue would be in the tens of millions of dollars but said the low and high estimates currently span about $40 million, with roughly 58% of the projected receipts attributable to capital gains. The presenter warned that apportionment (tracing income to Vermont versus other states) and likely behavioral responses (timing of sales, residency shifts) are major sources of uncertainty.

Policy tensions: members pressed that S.282 as drafted sometimes refers to Vermont taxable‑income thresholds rather than federal MAGI, which could make a taxpayer subject in one jurisdiction but not another. Committee members also flagged an internal inconsistency: Vermont’s 40% capital‑gains exclusion could mean gains excluded under one provision would be taxed under this surtax unless lawmakers reconcile the two.

Next steps: staff recommended more drafting work on trust and estate language, testimony from CPAs and tax attorneys on apportionment and avoidance strategies, and additional modeling with the tax department and JFO to narrow revenue ranges. Chair closed the S.282 walkthrough and scheduled additional briefings and testimony before further action.

The committee paused the discussion of S.282 and moved on to the next agenda item.