Today, the Vermont House is going for a triple play: passage of the miscellaneous tax bill, the budget bill and the transportation bill.
The Vermont House Ways and Means Committee will present a miscellaneous tax bill, H.783, that lowers the education property tax rates slightly.
An amendment to the bill, proposed by Rep. Janet Ancel, D-Calais, places a 6 percent sales tax on dietary supplements and blocks an increase in a federal deduction for manufacturers. In addition, she has proposed a machinery and equipment tax credit of up to $1 million for EHV-Weidmann, a manufacturer in St. Johnsbury.
In all, these changes in Vermont’s tax structure would be expected to raise $5.6 million in revenues for fiscal year 2011 and $5 million in fiscal year 2012.
The bill also requires the Tax Department to solicit bids for developing a system for collecting education property taxes and asks the Blue Ribbon Tax Structure Commission to study education governance and finance.
Some of the details were discussed in the Democratic Caucus on Wednesday.
Read H.783 Misc Tax Bill fiscal estimates (House Ways and Means)
Read Preliminary Ed Fund Outlook, based on H.783
Property tax reduction
The statewide property tax would drop two cents, from $0.88 per $100 of assessed value for residences to $0.86; and from $1.37 to $1.35 for non-residential property.
The Committee assumed a growth rate of 2 percent, but school boards kept spending flat this year, freeing up about $22 million in property tax revenues, which would be used to reduce the property tax by two pennies. In addition, $4 million would be placed in the Education Fund reserve.
The tax break for corporations is now at 6 percent, Ancel said, and actually costs the state $13 million — far more than they anticipated.
Sales tax on supplements
The sales tax on dietary supplements would apply to everything from vitamins and minerals to lozenges and herbal remedies. The Committee estimates it could raise about $1.3 million in fiscal year 2011 and $1.5 million in fiscal year 2012 from the tax.
Rep. Janet Ancel, D-Calais, said 25 states have applied sales taxes to supplements.
“Why can we add a 6 percent tax to dietary supplements when we’re not willing to add taxes to sodas?” asked Rep. Suzi Wizowaty, D-Burlington.
Ancel said the Committee decided a sales tax on soda wouldn’t be enough to change Vermonters’ consumption habits and proposed that lawmakers study the issue this summer.
Rep. Dave Sharpe, D-Bristol, said the Committee recognizes “obesity is a growing problem,” but he said a tax on sugared drinks would be difficult to sell. He suggested that Legislature come up with a comprehensive package that would address concerns about the issue.
Rep. Gini Milkey, D-Brattleboro, who objected to the supplement tax said she would be proposing an amendment to the bill today. Milkey, who takes supplements herself, said: “It’s stuff I need to stay healthy,” she said. “It’s ludicrous to tax them.”
Federal tax break for businesses blocked
The federal “production deduction,” as it’s called, is a tax deduction states are obliged to pass on to corporations under federal law, Ancel said. When the legislation was passed by Congress in 2005, the Committee was told that the deduction, which was then set at 3 percent would cost the state $1 million a year; and when it went up to 6 percent it would cost $3 million. The tax break for corporations is now at 6 percent, Ancel said, and actually costs the state $13 million — far more than they anticipated.
The production deduction is slated to increase to 9 percent next year. Ways and Means proposes to freeze the rate at 6 percent for two years. The resulting savings would be $4.3 million in fiscal year 2011 and $4.5 million in 2012.
“This is a reasonable way to make sure everyone contributes something,” Ancel said.
The tax credit
Ancel said the tax credit is targeted to one company, EHV-Weidmann in St. Johnsbury. “(The credit language) is designed for them to buy equipment and keep jobs in Vermont,” she said. “When we know an investment will benefit a part of the state, we support it.”
Rep. Kitty Toll, D-Danville, said representatives from EHV-Weidmann, which manufactures electrical insulating boards for transformers in St. Johnsbury, have said that the company will leave the state if they don’t get a tax credit of up to $1 million for a $50 million investment in machinery. EHV employs about 250 workers at its plant in St. Johnsbury; it also owns plants in China, Ukraine and Mexico.
“They could easily go to China,” Toll said.
She said EHV is one of four manufacturers left in St. Johnsbury, and the company is considered to be a major employer in the Northeast Kingdom.
Sharpe said the language is written narrowly and EHV would likely be the only factory that would qualify for the credit.
