Exempt Property Not Subject to Property Tax 
By Vermont State Representative Rick Hube

I have read with interest the turmoil that is taking place in Essex regarding a town-wide reappraisal. Essex, of course, is home to IBM, Vermont’s largest private employer.

The reappraisal, mandated by the state, resulted in a reduction of IBM’s value from $150 million to roughly $110 million. The consequences were two-fold. One, the cost of municipal government was spread over a smaller base, resulting in a significant increase in municipal taxes. Second, because of the way our education funding law is written, the balance of the education taxes that would have been generated via the former higher value of IBM are being shifted to the balance of the Essex property tax payers this year, creating a double whammy for local property owners. These kinds of issues have an effect on the education tax rate for all Vermont property owners.

As a result of this difficult situation, the Select Board in Essex and Village Trustees in Essex Junction are looking for ways to reduce the impact on property owners. That is laudable. One of the strategies under consideration is using the Champlain Valley Exposition (CVE) as a source of property taxes.

CVE is exempt by law from property taxes because it is for agricultural use. The Municipal Boards make a case that the CVE should pay property taxes, since they offer a variety of activities that are not agriculturally related, such as concerts.

At the same time, the University of Vermont and the city of Burlington just reached agreement under which UVM will pay the city roughly $600,000 a year as a payment in lieu of taxes (commonly referred to as PILOT) for fire protection.

These two recent news items bring up an extremely significant issue that impacts all Vermont real estate owners: property that is exempt from paying property taxes.

There are almost 20 categories of exempt property; everything from state, federal and municipal property to agricultural property to property that is for public, private or charitable purposes. Some of these properties are exempt by law, while others can be granted an exemption by a vote on the local level.

What makes this issue more complicated is that prior to 1997 — before passage of our statewide property tax (Act 60) — if a property was exempt from property tax by vote of the host community, the taxes forgiven were spread over the balance of the grand list. The other property owners in the community footed the bill, both education and municipal.

After Act 60 took effect, if a property was exempt from property taxes, the lost revenues that would have gone to the education tax were being exported to a statewide grand list. In other words, if the CVE paid education taxes of $100,000, that money would go to reduce education property taxes across the entire state, including Canaan, Vernon and Arlington.

The issue of exempt property is so thorny that the Legislature decided the best way to deal with the issue in the late 1990s was to drop back 10 yards and punt. In other words, the Legislature simply put off a decision by grandfathering until 2007 all properties that were granted exemptions at the local level.

Well this "punt" must now be fielded; these properties are coming off their "grandfathered" exemptions.

It is worth noting that under the leadership of then-House Speaker Walt Freed, the House in 2000 passed bipartisan legislation to deal with this issue. But for some reason — be it absence of time or the complexity of the issue — this bill died in the Senate.

As these properties come off their exemptions, there are two options available. First,  voters in the town can decide to continue to exempt the property, which would add to the local tax burden because that cost would no longer be passed on to all Vermont property owners, but be picked up by the local grand list. Two, the entity that is presently exempt would have to pay property taxes.

Please keep in mind that property that has been grandfathered since the passage of Act 60 does not represent all exempt property. As mentioned earlier, there are properties that are exempt by law, while these grandfathered properties were exempted pre-1997 by a local vote.

This is but one piece of the wider issue. The second article in this series will attempt to explain from a statewide perspective how many parcels are exempt, and the value of those properties.

Rep. Richard W. Hube, P.O. Box 93, South Londonderry, VT 05155