Don Keelan: The ‘welcome to Vermont’ tax

This commentary is by Don Keelan of Arlington, a retired certified public accountant.

Deep inside the 171-page tome of the recently adopted Act 181(H.687) legislation was a section to extract more money from nonresidents who purchase Vermont homes after August 1, 2024. Sections 73 and 74 detail the extraction of funds from those who conceivably have them.

The act’s primary purpose “relat(es) to community resilience and biodiversity protection through land use.” What had received most, if not all, of the media and political attention was the act’s changes to the State’s environmental law, Act 250.

The tax, referred to as the Vermont Property Transfer Tax , is assessed on all property transfers and is customarily paid by the buyer at closing.

Prior to August 1, 2024, the tax on a $500,000 sale to a nonresident would have been $7,350.

Under the new law, after August 1, 2024, a resident would pay a tax of $5,410, while a nonresident would pay $18,100 for the same house, priced at $500,000. This amount is an increase of $10,750 from what the nonresident would have owed under the previous law. According to several local real estate brokers, nonresidents are scrambling to close on their Vermont second home before August 1.

I realize how desperate Vermont is for money. I am not surprised that the Legislature would go after another “deep-pocketed” source of funds. Just to confirm this point, the legislation was adopted in mid-June at the Legislature’s veto override session, with Sections 73 and 74 to take effect seven weeks later. Do you sense the urgency?

The tax part of the legislation is just another indication that our legislators are sticking it to the nonresident homeowners in Vermont. The fact of the matter is that the second homeowners contribute so much to the state.

In southwestern Vermont, many of our nonprofit organizations have been the beneficiaries of the generosity of nonresident homeowners. Calculating the second homeowner’s years of financial contributions, patronage and service to the nonprofit sector would be near impossible.

The sustainability of many cultural institutions would be nonexistent without the second homeowner. The employment of service firms, construction contractors, landscape service firms, food vendors and others owe much of their operational success to this sector of Vermont homeowners.

It is not only in Vermont that the wealthy are targets. In a commentary in the July 6, 2004 Wall Street Journal , Carol Platt Liebau and Frank Ricci of the conservative think tank the Yankee Institute for Public Policy noted, “Connecticut’s affluent residents should be seen not as assets to be exploited but as partners who can change the state for the better. Our wealthiest residents are generous in pursuing the common good.”

Why the area’s nonprofit organizations, which depend so much on the second homeowner, have not spoken out on the recently passed Vermont Property Transfer Tax can be rationalized as that they wish not to disturb another significant source of their funding: Vermont state grants.

I realize that for many legislators who represent geographic areas of Vermont, the existence of second homeowners in their districts is of little significance. Therefore, assessing the second homeowner with a substantial increase is of no concern: if they can afford a second home, they can afford the tax increase.

What is unacceptable is for the Legislature to place a target on their backs and go after them for more and more taxation. One only needs to know what was also buried in H.687: an increase in the short-term rentals tax from 9% to 12%, beginning on August 1.

I doubt the target will be removed anytime soon with so many Progressives in the Legislature.

Some fifty years ago, the state helped those in need while, at the same time, it was able to fund certain school districts needing financial help (the “foundation formula” ) and take care of the state’s infrastructure. Today, the state funds or helps to fund many social programs: i.e., housing, health care, homelessness, substance abuse disorder recovery, daycare etc. Meanwhile, it faces a huge unfunded pension liability, billions in school deferred maintenance and, more recently, flood damage recovery.

The Legislature and the administration need to realize that increasing tax rates will not be sufficient to cover the state’s current plans. Vermont needs to be more welcoming and increase its tax base, not its tax rates.

Read the story on VTDigger here: Don Keelan: The ‘welcome to Vermont’ tax .