Senate Finance walks through H.933: decoupling from parts of federal HR1, R&D credit boost, and $10 million shift to transportation fund

Senate Finance members on May 13 heard a section‑by‑section walk‑through of H.933, a 64‑section miscellaneous tax bill that covers conformity with the federal Internal Revenue Code, property‑tax technical changes, tax‑credit adjustments, and a set of revenue re‑allocations the Joint Fiscal Office (JFO) said would shift roughly $10 million annually to the Transportation Fund.

Representative Charlie Campbell, introducing the bill, said the legislation’s three main axes are money, technical fixes and conformity to federal changes. "It's about linking the Vermont tax code to the federal Internal Revenue Code," he said. Staff and committee members then worked through dozens of sections covering property transfer tax, current‑use and land‑use change taxes, grand‑list timing, communication property valuations and a large set of federal tax conformity choices triggered by recent federal changes (HR1).

On the federal linkage, Ways and Means staff and JFO described a selective approach: Vermont will couple to many HR1 changes but decouple on high‑impact items that would materially shift state revenue. The committee discussed three large decoupling areas used in the draft language:

- Bonus depreciation and depreciation timing for certain non‑residential property (timing of deductions).
- Changes to federal research & experimentation (R&E) amortization rules, with an outcome that preserves immediate expensing for small businesses but requires larger firms to amortize some costs.
- Federal section 250 deductions tied to certain foreign income; Ways and Means proposed removing those federal deductions in Vermont and relying instead on Vermont’s sales‑factor apportionment.

JFO staff showed a fiscal summary: the bill would appropriate $100,000 to JFO for a 10‑year tax study and increase the state’s R&D tax credit from 27% to 75% of the federal amount for qualifying Vermont expenditures (the R&D change is scheduled to take effect Jan. 1, 2027). JFO estimated the R&D expansion would have a measurable but phased revenue cost beginning in FY28. Representative Campbell and staff also described an increase in the annual cap for downtown and village center tax credits.

A major fiscal design in the House version — discussed at length — shifts a larger share of purchase & use tax revenue to the Transportation Fund, producing about $10 million additional revenue for transportation by raising the share of purchase & use tax directed to the T fund and offsetting that by modestly increasing the share of meals & rooms tax that flows to the Education Fund. Pat from JFO summarized the construct: "That in turn drops the amount that goes to the ed fund," and the office modeled this change as a largely permanent reallocation unless a future legislature acts differently.

Committee members raised operational and equity questions: how appeals would work when PBR/PVR steps in to value property slices, whether municipal clerks and listers have capacity for new timelines, and administrative burdens tied to decoupling. JFO and tax department staff said some decoupling choices were made for administrative reasons and because certain changes would be hard for the state to implement without extra costs.

John‑fiscal slides and charts walked senators through net impacts: the down‑payment assistance adjustment (expanding annual allocation by $100,000 to reach $350,000 per year) phases in cost over multiple years; the combined coupling/decoupling changes produce small net revenue shifts in the near term but the reallocation to transportation is a visible ongoing change. JFO asked for additional technical briefings and offered to return with deeper section‑by‑section fiscal detail.

No formal votes were taken. Committee members indicated they expect technical markups and further briefings before any floor action; staff will supply requested materials, including lists of companies claiming R&D credits and the department’s policies on appeals and valuations.

Next steps: JFO and tax department staff will return for more detailed briefings and the committee will schedule a markup; members signaled concern about long‑term education‑fund impacts and the effect on property taxes if other funding changes are adopted.