J. Addison Barnhardt

March 19, 2010

On January 27th, the Vermont House of Representatives passed Bill 485 to amend the state's current use tax program. Current use taxation is a land conservation program where enrolled landowners agree to not develop their land beyond its current use, and in return their undeveloped land is exempt from property taxation. This can result in a significant tax-savings to the enrolled landowners, easing the pressure on them to assuage high property taxes by selling or subdividing their land. While many states have current use taxation, Vermont's program is unique because it reimburses a municipality's "lost" property tax revenues, relieving the municipal pressure to raise taxes. In 2009, the State of Vermont paid over $11.5 million to reimburse municipalities for their more than 2 million acres of undeveloped land enrolled in current use.

Now due to budget difficulties, the Vermont legislature has asked policymakers to cut $1.6 million from the current use program. House Bill 485 answers that call with three main prongs. First, the bill will place a one-year moratorium on new enrollees. Second, the Land Use Change Tax ("the tax penalty" which enrollees must pay when they remove any part of their property from the program for development) will become the fair market value of the developed property rather than its assessed, current use value. The state will then keep 50% of the Land Use Change Tax rather than its current practice of giving 100% of that money to the municipality. The third prong is to increase the Property Transfer Tax for enrolled lands from 0.5% to 1.25% of the land's value when it is sold. Most land transactions in the State of Vermont are already subject to the 1.25% transfer tax. House Bill 485 proposes to use new revenues from the increased Property Transfer Tax to fund the program's transition from paper files to an electronic format.

The general effect of House Bill 485 is to retain the core of the current use program's land conservation policy. Landowners enrolled in the program will continue to realize the same property tax benefits they currently receive. While the "tax penalty" for leaving the program is greater, this will not affect landowners who have no intention to leave the current use program to develop their property. Landowners that do plan to leave the program and develop their current use property will have a 90-day window to withdraw from the program before this new "tax penalty" takes effect.

The main change embodied in House Bill 485 is the sharing of the Land Use Change Tax revenues between the state and municipalities. Theoretically, this reform should do no harm to municipalities because the state already reimburses them for the property tax revenues they "lose" when landowners within their borders enroll in current use. As the current use program is today, these revenues can be viewed as a windfall to the municipality. Rather than continue the windfall, the house bill proposes to keep some of that revenue to help the state's budget difficulties. In the end, the Vermont House has managed tightened the program's belt while keeping it a viable program for land conservation. Stay tuned in the coming months as the Senate votes on the amendments.

Sources:

Vt. Stat. Ann. tit. 32, § 3751–57

H.B. 485, 2009-2010 Leg. (Vt. 2010), available at http://www.leg.state.vt.us/database/status/summary.cfm?Bill=H.0485&Session=2010 (last visited Mar. 19, 2010).

Vermont Land Trust, House Approves Current Use Amendments by a Substantial Margin (Jan. 27, 2010), http://www.vlt.org/current-use.html (last visited Mar. 19, 2010).

Tom Daniels, Vermont's Current Use Program: An Evaluation of Policy Options and Land Use Implications (Jan. 10, 2002), http://www.leg.state.vt.us/jfo/Reports/Current Use Program 01-2001.pdf(last visited Mar. 19, 2010).

Vt. Dept. of Taxes Ann. Rep., Current Use Appraisal Program - Participant Tax Savings (2009), available at http://www.state.vt.us/tax/pvrannualreports.shtml.