Use tax changes and downtown tax credit increases considered

The House Ways & Means Committee heard Tuesday from solar developers, downtown business advocates and accountants, all of whom weighed in on proposed changes to state taxes in the Miscellaneous Tax Bill.

Some solar developers and municipal representatives disagree over how small-scale solar energy installations should be taxed — or exempted from taxes. The state’s Department of Economic, Housing & Community Development made its case for $500,000 of additional funding for its downtown development tax credit program. And tax professionals protested stricter requirements for the self-reported “use tax.”

No action was taken Tuesday, as lawmakers wanted more information on several issues before deciding how to handle the requests. The Miscellaneous Tax Bill also may impose a new tax on telecommunications services to equalize impact in an age of digital technology and increase the health care claims tax.

Downtown tax credits

Noelle MacKay, commissioner of the Department of Economic, Housing & Community Development, requested $500,000 in additional funding for her department’s Downtown & Village Tax Credit program.

The program offers tax credits to revitalize income-producing properties within designated downtowns and village centers. The funding can only be used to cover certain improvements, such as energy efficiency improvements, handicapped accessibility and fire safety requirements.

MacKay said the benefits range from preserving historic buildings to sparking a ripple effect of beautification to improving accessibility and fire safety and ultimately raising local property values.

The program has grown from about $500,000 a year in 2005 to $1.7 million in the current budget year, she said. Even with the increase, the program is still over-subscribed. More developers apply for funding each year than the program can support.

A funding boost would help reinforce the program’s viability and encourage still more applications, she said.

Paul Bruhn, director of the Preservation Trust of Vermont, pointed to the Hardwick Inn as a case in point. Eighteen retail and service businesses now occupy three floors of the building — no developer would have touched the property without the credits, he said.

MacKay said the program enjoys a roughly 90 percent approval ratings from participants.

The credits could be claimed by the developers themselves, but more often are sold to banks and insurance companies, MacKay said. Many developers participating in the program are nonprofits, she said, and need more up-front capital as opposed to retrospective tax credits.

Use tax

High on the list of taxes Vermonters struggle to pay is the self-reported use tax, according to the Department of Taxes.

The use tax differs from a sales tax in that it’s not collected by a seller at the time of purchase. Internet or catalog sales are common examples, as are out-of-state purchases that are not charged Vermont’s sales tax.

The state use tax is currently payable with an individuals’ annual income tax returns. It can be calculated item by item, or based on a percentage of the payer’s state adjusted gross income.

With the burden on taxpayers to track and report their own unpaid use tax obligations, well, it’s not getting paid.

The tax department has proposed tightening the reins on self-reporting, and requiring that the use tax be paid within a month for purchases that cost $5,000 or more.

Steven Julian, a tax partner with the firm Gallagher, Flynn & Company LLP, said the new rule would be “very hard to comply with,” partly because it would be hard to let people know when it’s due. Julian said he doubted it would generate a large amount of new revenue.