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 Vermont residents, including homeowners and renters, with rates determined by locally voted budgets. The bill aims to eliminate the homestead education property tax while retaining the nonhomestead education property tax on all properties except residential dwellings and their surrounding two-acre parcels. It also continues to provide the existing renter credit and updates property tax credit income sensitivity measures to offer relief to a broader range of taxpayers by fiscal year 2026.

The legislation introduces a new subchapter titled "Education Income Tax" under 32 V.S.A. chapter 151, detailing the tax structure and rates based on income levels, and mandates annual adjustments for inflation. It amends existing provisions related to withholding, estimated payments, and tax returns to incorporate the new education income tax alongside the personal income tax. Additionally, the bill clarifies definitions and processes related to personal, corporate, and education income taxes, including residency requirements and the definition of "homestead." It establishes a nonhomestead education property tax liability, mandates revenue from this tax to be deposited into the Education Fund, and introduces a municipal property tax credit with specific income thresholds for eligibility. Overall, the bill aims to simplify tax filing and collection while ensuring a fair tax system that reflects taxpayers' ability to pay.

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