Is there a tax loophole in Vermont's Current Use program? - WCAX.COM Local Vermont News, Weather and Sports-

Is there a tax loophole in Vermont's Current Use program?

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MONTPELIER, Vt. -

The distinctive Vermont landscape with its working farms and forests is treasured by residents and visitors alike. That rural character is due, in part, to Vermont's Current Use program. Under the program, large property owners get a tax break for land that is in current agricultural or forestry use. But some lawmakers say the program has been abused by a handful of landowners and has become more of a means of tax avoidance than land preservation.

"It reinstates a meaningful penalty for owners who withdraw land from current use for development. It puts the teeth back into the penalty," said Rep. Alison Clarkson, D-Woodstock.

Clarkson's bill has already passed the House. On Tuesday, she pitched it to the Senate Agriculture Committee with mixed results.

"You can't have the fox guarding the chicken coop and then bring the fox in to testify," said Sen. Bobby Starr, D-Essex/Orleans counties.

Current Use has been in place since the late 1970s and accounts for about 41 percent of land in the state. The program saved enrolled landowners nearly $55 million in property taxes last year. But Clarkson says changes in the 1990s altered the penalty structure from a system based on the fair market value to a pro-rated value, reducing withdrawal penalties.

"It was viewed as hard to administrate because it needed feet on the ground to assess properties at fair market value. It was much easier to do a desk job, pro-rated valuation of Current Use land, so with Act 60 and 68 we diluted the penalty, diluted the consequences of abusing Current Use," Clarkson said.

The House bill proposes a tiered system of penalties for removing land based on the Fair Market Value that would reward longtime landowners. Landowners that stayed in the program less than 12 years would pay 10 percent of fair market value, 12 to 20 years would go down to 8 percent and longtime owners-- over 20 years-- would go down to 5 percent.

But Ag chair Starr says he has heard no reports of abuse from his constituents in the Northeast Kingdom and said he's concerned about some provisions that would make it harder for a longtime farm family to sell or develop land.

"If you look at the first eight or 10 years of Current Use-- basically all forest land. And farmers would not sign up until we changed that penalty provision. And the last thing that I think we're going to allow is to change it back so that no more will ever want to sign up," Starr said.

Supporters say the bill is aimed primarily at short-term landowners in high end markets like Stowe or Woodstock that may be trying to subdivide.

"So it looks to the listers that there are examples of people who are using the Current Use program just to save taxes for a couple of years while they are in the process of subdividing. I think this is really going to help to address those specific issues that are out there," said Steve Jeffrey of the Vt. League of Cities and Towns.

While most agree on the overall value of the program, finding a penalty fix has been more elusive. Governor Jim Douglas vetoed a similar bill in 2010 and subsequent bills have bogged down in the Senate.

Three years ago, then-Senate President Peter Shumlin supported Current Use changes. No word from the governor yet about the current bill.

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