Legislative counsel reviews Vermont local option tax rules, charter route and recent changes
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Summary
Legislative counsel Tucker Anderson briefed the Senate Transportation committee on 24 VSA §138’s history, how municipal charters were used to adopt local option taxes, and recent statutory changes that let municipalities adopt a 1% local option tax without chartering. He outlined revenue splits and special aviation rules.
Tucker Anderson, legislative counsel, told the Senate Transportation committee on Feb. 12 that the authority of Vermont municipalities to impose local taxes derives from the state and that municipalities have only the powers granted by the General Assembly.
Anderson reviewed the history of 24 VSA §138, adopted through 1997’s Act 68, which originally allowed a limited set of municipalities to impose a 1% local option tax on sales, meals and alcoholic beverages, and rooms. He said municipalities that qualified under the original statutory formula could implement all or a subset of those bases and that voters had to approve the tax at an annual or special meeting before the town certified the result to the Department of Taxes for collection and administration.
Why it matters: Anderson said the statute historically included a statutory revenue split — the municipal share and a state share — and that the mechanics determine how much local governments can rely on the revenue and how it may be used.
Anderson described how many towns that did not qualify under the original formula obtained local option taxes by proposing charters (special laws) that the General Assembly would approve. Because a charter is later and more specific law for a single municipality, it controls over general law and allowed municipalities to dedicate the municipal share to particular funds or expand tax bases.
He noted recent changes that allow any municipality to hold a vote to adopt a 1% local option tax under the general procedure rather than by charter. The Department of Taxes was given discretion in the statute to limit the annual number of new local option taxes implemented (the statutory language contemplates a cap at five implementations per year). Anderson also noted a statutory carve‑out and separate procedures for aviation jet fuel taxes and explained federal restrictions limit how airport‑related revenues can be used.
On revenue splits, Anderson said the statute historically provided a 70/30 split (municipal/state) of revenue from the local option tax but that emergency legislation had changed that split to 75/25 and that charters had been updated to track §138 so future statutory changes flow automatically to charter language. He said Burlington and Rutland retain charter provisions that are more specific and that a municipality may need to amend a charter to deviate from a charter’s more detailed rules.
Committee members pressed on practical limits and examples. Anderson cited South Burlington’s 2018–19 charter proposal to increase a local option tax beyond 1% (which passed locally but did not advance in the House) and Montgomery’s more recent use of a limited‑duration charter to fund sewer projects. He said a municipality could propose a different split or a second 1% via charter, but the charter must come to the legislature for review and approval.
Next steps: Committee members asked the Department of Taxes to provide a history of how the department has used any discretionary cap on new implementations and to provide examples of charter provisions in Burlington and other towns.