Bill H.177 proposes a major overhaul of Vermont's education funding system by replacing the education property tax with an education income tax starting in fiscal year 2027. This new tax will be based on the adjusted gross income of all residents, including homeowners and renters, with rates determined by local budgets. The bill aims to eliminate the homestead education property tax while retaining the nonhomestead education property tax for all properties except residential dwellings and their surrounding two-acre parcels. It also seeks to maintain the existing renter credit and enhance property tax credit income sensitivity measures to provide relief to a wider range of taxpayers by fiscal year 2026.

The legislation introduces new legal language establishing a subchapter for the education income tax, detailing tax rates based on income brackets and filing statuses, and aligning its administration with that of the personal income tax. It amends existing laws to incorporate the education income tax into withholding requirements and tax return obligations, while also adjusting withholding based on prior year income and statewide averages. The bill further clarifies definitions and procedures related to personal, corporate, and education income taxes, modifies the definition of "homestead," and repeals outdated provisions related to education property tax. Additionally, it establishes a statewide education tax for nonhomestead properties, outlines the responsibilities of municipalities regarding tax assessments, and introduces new definitions and requirements for the municipal property tax credit, ensuring equitable access for low-income households.

Statutes affected:
As Introduced: 32-5841, 32-5851(1), 32-5851, 32-5852(a), 32-5852, 32-5861, 32-5820, 32-5401, 32-5402, 32-5402b, 32-5404, 32-5405, 32-5406(c), 32-5406, 32-5409, 32-4111(e), 32-4111, 32-4261, 32-5400(c), 32-5400, 32-6061, 32-6062, 32-6063, 32-6064, 32-6065, 32-6066, 32-6066a, 32-6067, 32-6068, 32-6070, 16-4001, 16-4025, 32-435(b), 32-435