Two bills introduced in the Vermont Senate, S.274 and S.280, would significantly change how second homes and rental properties are taxed in the state. Together, they create a new property tax classification system, increase the education property tax rate on nonhomestead residential properties, and narrow an existing sales tax exemption for residential heating fuel and electricity.

The combined effect is a higher cost structure for second homes, short-term rentals, and long-term rental properties that are not declared as homesteads.

S.280: New Classifications and Higher Education Property Tax

Introduced by Sen. Martine Gulick ( D – Chittenden-Central District ), Sen. Tanya Vyhovsky ( P/D – Chittenden-Central District ), Sen. Ruth Hardy ( D – Addison District ), Sen. Anne Watson ( D/P – Washington District ), and Sen. Rebecca White ( D – Windsor District ), S.280 establishes four property classifications: homestead, nonhomestead nonresidential, nonhomestead residential, and nonhomestead seasonal. A homestead is a parcel declared as a primary residence. Nonhomestead residential applies to property for which no homestead declaration is filed and that contains residential property. In practice, that category includes second homes, many rental properties, and short-term rentals.

🍁 Make a One-Time Contribution — Stand Up for Accountability in Vermont 🍁

Under the bill, education property tax rates would differ by classification. Homestead property would be taxed at $1.00 multiplied by the municipality’s education spending adjustment per $100 of equalized value. Nonhomestead residential property would be taxed at $2.00 multiplied by the same spending adjustment.

That means the base multiplier for nonhomestead residential property is double that of homesteads before the local spending adjustment is applied. In towns with higher education spending adjustments, the gap in effective tax liability could be substantial.

Half of the revenue generated by the education property tax imposed on nonhomestead residential properties would be directed into a new School Construction Aid Special Fund. The new classifications and rates would take effect January 1, 2028.

For rental property owners whose units are not owner-occupied homesteads, this represents a structural increase in annual property tax liability relative to primary residences.

S.274: Narrowing the Fuel Sales Tax Exemption

Introduced by Sen. Anne Watson ( D/P – Washington District ) and Sen. Andrew Perchlik ( D/P – Washington District ), S.274 addresses a separate provision of Vermont’s tax code. Currently, electricity, oil, gas, and other fuels used in a residence for domestic use are exempt from sales and use tax. The bill narrows that exemption by redefining “residence” so that it excludes properties classified as nonhomestead residential.

As drafted, second homes, short-term rental properties, and other nonhomestead residential properties would no longer qualify for the exemption. Sellers would rely on a state-published list of properties classified as nonhomestead residential to determine when to collect sales tax.

The change would take effect July 1, 2029.

The result is that nonhomestead residential property owners would begin paying sales tax on heating fuel and electricity that is currently exempt when used in a primary residence.

Cost Implications for Rental Property Owners

For rental property owners, both bills increase operating costs in different ways.

First, S.280 raises the education property tax multiplier applied to nonhomestead residential properties. Property tax is typically one of the largest fixed operating expenses for rental property, often second only to debt service. An increase in the effective rate directly reduces net operating income unless offset by higher rents.

Second, S.274 increases variable operating costs by imposing sales tax on fuel and electricity used in nonhomestead residential properties. In multifamily buildings where utilities are landlord-paid, those costs would rise once the law takes effect. In properties where tenants pay utilities directly, the impact would fall on renters rather than landlords.

In economic terms, higher recurring expenses reduce the net income generated by a property. Because rental property is often valued based on its expected income stream, higher taxes and utility costs can lower property values if rents do not increase proportionally.

Will Rents Rise?

Whether rents increase depends on market conditions rather than statute alone.

In markets with low vacancy rates and strong demand, landlords are more likely to pass through higher costs at lease renewal. If supply is constrained and tenants have limited alternatives, cost increases from property taxes or utilities tend to be reflected in higher rents over time.

In markets with higher vacancy rates or weaker demand, landlords may absorb part of the increase in order to avoid turnover and vacancy losses. In that scenario, the burden falls on property owners in the form of reduced profit margins rather than directly on tenants.

Short-term rental operators may have greater flexibility. Nightly rates can be adjusted more quickly than annual leases, allowing operators to respond to cost increases in a shorter time frame.

For tenants in landlord-paid utility arrangements, the fuel sales tax change could translate into higher rent as landlords seek to maintain margins. For tenants who pay utilities directly, the effect would show up as higher monthly utility bills rather than rent increases.

Broader Market Effects

The bills clearly differentiate between homestead and nonhomestead residential property. Primary residences retain the lower education property tax multiplier and the fuel exemption. Nonhomestead residential properties face both a higher education property tax rate and the loss of the fuel exemption.

From a policy standpoint, the structure shifts a larger share of the tax burden onto second homes and rental properties. The stated revenue purpose includes support for school construction funding. The economic effect is to increase the carrying cost of non-primary residential property.

Over time, higher carrying costs can influence investment decisions. Some property owners may accept lower returns. Others may attempt to pass costs to tenants. In some cases, higher tax burdens may be reflected in lower sale prices if buyers discount future tax liability.

If reduced profitability discourages new rental investment or leads some owners to exit the market, rental supply could tighten, placing upward pressure on rents. Alternatively, if property values adjust downward to reflect the new tax environment, entry costs for new investors could fall, partially offsetting the impact.

Implementation Timeline

The education property tax classification changes under S.280 would take effect January 1, 2028. The fuel sales tax exemption narrowing under S.274 would take effect July 1, 2029. The staggered implementation means the property tax changes would precede the utility tax changes by approximately 18 months.

Conclusion

S.274 and S.280 together increase the tax burden on nonhomestead residential property through higher education property tax multipliers and the removal of a fuel sales tax exemption. For rental property owners, that translates into higher operating costs. Whether those costs are absorbed by landlords, passed on to tenants, or reflected in lower property values will depend on local market conditions, vacancy rates, and the balance between housing supply and demand in Vermont.

If you found this information valuable and want to support independent journalism in Vermont, become a supporter for just $5/month today!

Dave Soulia | FYIVT

You can find FYIVT on YouTube | X(Twitter) | Facebook | Instagram

#fyivt #VermontPolitics #PropertyTaxes #HousingCosts

Support Us for as Little as $5 – Get In The Fight!!

Make a Big Impact with $25/month—Become a Premium Supporter!

Join the Top Tier of Supporters with $50/month—Become a SUPER Supporter!