The Vermont Legislature adjourned for the year on Friday, May 29 after nearly five full months of debate on how to improve affordability in the Green Mountain State.

At the heart of the debate were questions about Vermont’s income and business tax burden, skyrocketing property taxes, and transportation taxes. Each area provided a stark contrast in approach that did not always fall cleanly along party lines.

The bottom line is:

– no new income or investment taxes

– no universal mileage tax on all passenger vehicles or other transportation taxes

– significant relief from this year’s statewide property tax increase (from 12% to 3.5%)

The demise of harmful tax hike proposals is thanks in no small part to the voices of small business owners who responded to NFIB VT’s action alerts – your messages have a huge impact on lawmakers and the final outcome in Montpelier.

Below we’ll look at major debates within each of those areas and the outcomes that matter for small business owners in Vermont.

Income and Business Taxes. Vermont’s overall tax system ranks among the bottom ten (42^nd) in the United States according to the nonpartisan experts at the Tax Foundation. This comes as no surprise to small business owners who face the ninth highest top individual rate, eighth highest top corporate rate, and highest property tax burden in the country.

Despite the heavy and uncompetitive existing tax burden, a contingent of Progressive lawmakers pushed hard for higher rates and antigrowth taxes. Proposals included:

• top personal income tax rate of 13.3% on income above $500,000
• 2% surtax on personal income above $250,000 and 6% surtax on income above $500,000, for a cumulative top rate of 16.75% above $500,000
• 4% Investment Income Tax on top of current personal and capital gains taxes on income as low as $125,000 for some earners

These proposals would have made Vermont even more of a national outlier, with the highest top income tax rate in the country and one of only two states with an investment income tax of this type.

Ninety-two percent of all businesses in Vermont are small businesses with zero to twenty employees who are pass-through entities and pay taxes on their personal income tax returns. U.S. Census, Statistics of U.S. Businesses.

While framed as taxes on high earners, they are really taxes on growth and investment that would hurt Vermont’s economy and hit hundreds or thousands of small businesses in the state every year.

Read more about these proposals and the harm they would cause: Part I, Part II.

Fortunately, the income surtax and investment tax proposals were soundly defeated in the Vermont Senate by an overwhelming bipartisan vote of 27 to 2.

Property Taxes. Coming into this legislative session, Vermonters were facing an average 12% increase in their statewide property tax bill. That would’ve been on top of an average increase of 29% over the previous four years.

Governor Scott called for lawmakers to use surplus funds to buy down the increase and continued his push for major reform to how local and state governments fund public education.

Governor Scott and the Vermont Senate were largely in alignment on using $100 million surplus state funds to buy the increase down to under 4%. Democratic leaders in the Vermont House wanted to hold back half of that money to address future increases, which would have resulted in a 7% average property tax hike.

Ultimately, Governor Scott and the Senate prevailed, with the final agreement using $105 million to buy down the average property tax increase to 3.5%.

Earlier in session, there was bipartisan agreement between Governor Scott, Vermont Senate President Phil Baruth (D/P), and lawmakers from both parties for an interim measure to limit school spending growth while larger reforms from Act 73 (2025) were implemented.

A modified version of this proposal was included in the final agreement that ratchets down the “excess spending threshold” from the current level of 118% to 115.5% in 2028 to 112.5% in 2031. The threshold is a percentage of the inflation-adjusted statewide average per pupil spending level.

Property owners in districts with average per pupil spending above the threshold are, with some exclusions, double taxed on the amount of excess spending. This penalty is intended to induce local school districts to rein in spending, but doesn’t always reflect the reality of a particular district’s demographics, geography, or building conditions.

Transportation Taxes. Lawmakers proposed a slew of transportation taxes to increase revenue for roads, bridges, public transportation, electric vehicle subsidies, and more.

Among the most concerning proposals were the mileage tax and the retail delivery fee.

Mileage Tax. For several years, state lawmakers have debated imposing a tax per mile driven as a substitute gas tax for electric vehicles. This year, some politicians were pushing to take a step further by applying the mileage tax to all passenger vehicles as a way to offset declining gas tax revenue from more fuel-efficient cars.

The mileage tax would have come on top of the existing state gas tax, meaning an extra $180 for the average driver and hundreds more for people with longer commutes and drives in rural areas of Vermont.

Read more here: Mileage Tax Plus A Gas Tax? No Thanks. – NFIB.

In the end, lawmakers backed off adding a universal mileage tax for all passenger vehicles. Instead, they settled for a mileage tax on fully electric vehicles and will attempt to extend the mileage tax to plug-in hybrid electric vehicles in a future session.

Starting in 2028, electric vehicle drivers will have the option of paying a flat rate of $178 per year or a mileage tax based on actual miles driven at a rate of 1.4 cents per mile (not to exceed $178). Mileage can be reported at annual registration or inspection.

Lawmakers still must work out how to exclude miles driven outside of Vermont from the tax.

Retail Delivery Fee & Local Option Gas Taxes. A proposal (H.863) would have imposed a 30-cent fee on all retail deliveries and allowed municipalities to adopt a 1% tax on gas and diesel sales.

Both taxes add administrative complexity for small businesses, raise costs for small businesses and consumers, and lead to patchwork pricing.

The retail delivery fee would have to be separately stated on an invoice if collected from a consumer, applied only once per order (regardless of deliveries per order or number of items in an order) and remitted to the state on the same schedule as sales tax collections.

The local option gas tax would have led to wider variations in pricing between towns with and without the extra 1%. This would likely have ripple effects on Main Street businesses and consumers opt for the lower price.