Will Vermont Phase Out State Sales Tax?

Lawmakers in Vermont are considering legislation that seeks to phase out the state sales and use tax, increase local option taxes, increase the payroll tax, and phase out and repeal corporate tax rates.

Sales and use tax

Under House Bill 439, the state sales and use tax rate would drop as follows:

• 4% between January 1, 2016 and December 31, 2016.
• 2% between January 1, 2017 and December 31, 2017.
• 0% effective January 1, 2018.

Local option taxes

The measure would also allow municipalities, with voter approval, to increase the following taxes by 1%, to 2%:

• Local sales tax
• Meals and alcohol beverages tax
• Rooms tax

The local option tax rate increases could take effect beginning January 1, 2016.

Payroll tax

Payroll tax rates would increase as follows under HB 439:

• 1.33% effective January 1, 2016 (July 1, 2016 for school, municipal or state employees)
• 2.27% effective January 1, 2017
• 3.4% effective January 1, 2018

Corporate tax

HB 439 seeks to phase out and ultimately repeal the corporate tax as follows:

• Effective January 1, 2016, rates would be
  • 4% lowest bracket
  • 7% middle bracket
  • 7% highest bracket
• Effective January 1, 2017, rates would be
  • 2% lowest bracket
  • 3% middle bracket
  • 8% highest bracket
• Effective January 1, 2018, the corporate tax would be repealed.

Why?

Vermont lawmakers are striving to close a $94 million gap between state spending and tax revenues and create fiscal sustainability in 2016 and beyond. HB 439 has been referred to the Committee on Ways and Means.

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