Joint Fiscal Office: linking Vermont to federal HR 1 could cost about $21 million; committee weighs selective decoupling

Summary

Joint Fiscal Office staff told the Ways & Means committee updated federal and state data raise the estimated near‑term revenue loss from fully conforming to HR 1 to roughly $21 million, driven largely by changes to R&D deduction treatment; committee members pressed for options to decouple select provisions and asked for more tax department detail before any vote.

Patrick Tidditchy of the Joint Fiscal Office told the Ways & Means Committee on Monday that newly available federal receipts and revised modeling have raised the estimated near‑term revenue impact if Vermont moves its conformity date to include federal HR 1.

"If you just move up the conformity date so that you're pulling in all those provisions for HR 1, this is what the revenue impact would be," Tidditchy said as he walked the committee through updated tables showing an estimated $21,000,000 budget shortfall tied to full linkage.

The committee heard that the single largest driver of the change is a modification to how domestic research and experimental (R&D) expenses are treated at the federal level. HR 1 restores immediate deductibility and—because it is retroactive to 2022—front‑loads a large portion of those deductions into the near term. JFO staff presented that this produces an $18.9 million swing for the domestic R&D line in the state's estimates.

"What we've seen in a lot of states is that those who are conformed are seeing larger decreases than they maybe were expecting otherwise," Tidditchy said, describing updated data from other states and…

Joint Fiscal Office: linking Vermont to federal HR 1 could cost about $21 million; committee weighs selective decoupling

Summary

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