Education Tax Rate Calculations | Frequently Asked Questions

The FY2023 (2022 – 2023 property tax year) nonhomestead education tax rate, income yield, and homestead property yield were set by the legislature during the 2022 legislative session.

• The statewide nonhomestead (formerly called “nonresidential”) tax rate is $1.466 per $100 of property value.
• The homestead property yield is $13,314 which goes with a base rate of $1.00 per $100 of property value.
• The income yield is $15,948 which goes with a base income rate of 2%.

The nonhomestead tax rate and homestead yields were set to generate enough property tax revenue to support the anticipated statewide 2022-2023 education spending after all other education fund revenue sources were accounted for.

For the purposes of the Tax Commissioner’s December 1 letter, the forecasted nonhomestead tax rate, homestead yield, and income yield were calibrated so that nonhomestead property tax payers, homestead property payers, and those households who pay based on income all experience the same average change to their tax bills from the previous year. However, the yields and nonhomestead rate are often recalibrated during the legislative session based on updated education fund data (such as approved school budgets) and legislative initiatives.

Act 46 of 2015 introduced the “property dollar equivalent yield,” often called the “homestead property yield” or just the “yield.” Despite its name, there is no connection between how much revenue is raised from a $1.00 homestead (dollar) tax rate and a per pupil spending amount. For example, in FY23 a $1.00 tax rate (on $100 of homestead property) would raise about $450M of revenue and the expected equalized pupil count is about 87,000, so the per pupil “yield” would technically be about $5,172 ($450M/87,000). But the actual FY23 yield that is used in FY23 tax rate calculations is $13,314. Similarly, there is no connection between revenue raised from the 2% base household income percentage and any amount of per pupil spending, so the term “income yield” is also misleading. The income yield used in tax rate calculations for FY23 is $15,948. The yields are set to ensure that the education fund has enough money to support all anticipated education fund uses in the coming year, after accounting for the other sources of revenue to the Education Fund.

In this example a town spends $17,000 per pupil.

Households that pay education tax based on property will have a rate (before the CLA is applied) of:

For those household that pay on income, the calculation is similar, but the yield amount is different:

A household in this town that is eligible to pay taxes based on income will receive a credit on their FY24 bill (2023-2024 property tax year) for the amount that their education property taxes in FY23 exceeded 2.1319% percent of their 2022 household income (with certain limitations). The credit will show up on the “education taxes” portion of the bill with the label “education state payment.”

CLA stands for “Common Level of Appraisal.” It is a method of ensuring that each town is paying its fair share of education property tax to the state’s Education Fund.

In 1997 the Vermont Legislature passed Act 60 in an effort to equalize education funding across the state. Before Act 60 was passed, the amount a town could raise to fund its schools was limited by the amount of property value in the town. Because of that, levels of school funding and therefore educational opportunity varied widely across the state. Act 60 shifted education funding to the state level, creating a statewide education property tax rate and a state “Education Fund” to collect the revenue. This new arrangement of shared education funding responsibility made it necessary to check the accuracy of the town grand lists since they are maintained by town listers, not the state. If the grand list in a town did not reflect fair market value, then the town would have ended up sending more or less tax revenue than its fair share to the statewide Education Fund. Since towns don’t reappraise every year, and real estate markets are constantly changing, a correction factor, or “Common Level of Appraisal,” was developed to equalize what is paid in education property taxes across towns.

The Common Level of Appraisal (CLA) for every Vermont town is the primary result of the Equalization Study performed by the Department of Taxes every year. The equalization study compares the ratio of the grand list listed value to the sale price for all the arm’s length sales in the town over the prior three-year period. The study considers sales price as the best measurement of fair market value. If grand list values are generally less than sale prices for the recent sales, the town will end up with a CLA less than one hundred percent. If grand list values are generally more than sale prices for the recent sales, the town will end up with a CLA of more than one hundred percent. Once the CLA is determined, it is used to adjust the homestead and nonhomestead education tax rates. The CLA doesn’t change taxpayer’s property values, only the education tax rate in a town - an example of indirect equalization.

The CLA is also used as one measure to determine whether a town must reappraise. During the 2019 legislative session, the legislature changed the requirements so that municipalities must reappraise if the CLA is below 85% or above 115%. Before 2019, there was only a lower threshold, and it was 80%.

Suppose the equalization study determined that a town’s a CLA will be 90%, indicating that property in the town is generally listed for 90% of its fair market value, on average. If the homestead education property tax rate in the town is $1.50 (per $100 of property value) before the CLA is applied, then the actual (final) tax rate would be $1.50/.90 = $1.6667 (per $100 of property value) after the CLA is applied.

The nonhomestead rate is $1.466 (per $100 of property value) before the CLA is applied in all Vermont towns in FY23. In this example town, the actual (final) nonhomestead education property tax rate will be $1.466/.90 = $1.6289 (per $100 of property value) after the CLA is applied.

These final rates are what will appear on the property tax bills issued by the town.

Total education spending in a town is not the determinant of tax rates, only the amount spent per-pupil. This means that your town could spend less on education than the prior school year, but if the number of students in your town declines, the tax rate may actually increase from the prior year. The only thing that matters is your town’s per-pupil spending, and Act 46 changed 16 V.S.A. § 563 to make sure that the per-pupil amount was being clearly communicated on town ballots since it is the determinant of tax rates, not total spending.

In this example a town plans to spend $17,000 per pupil in FY23 (the 2022-2023 school year).

The homesteads who pay education tax based on property will pay (before the CLA is applied):

Keep in mind that some towns are members of multiple school districts. In those cases, the town gets a tax rate that is a prorated blend of the rates from any districts where the town sends students, based on the proportion of students going to each district. Any merger incentives are applied at the district level tax rate but limitations on year over year changes (because of mergers) are applied to the town level tax rate.

Act 46 of 2015 offered reductions to the homestead property and homestead income tax rates for districts who choose to merge. The reductions are calculated at the district level and vary by type of merger and year of merger. Additionally, per-pupil spending in a merged district is (usually) a shared figure for all participating towns. Here is an example for a town in the fifth year of a merger into a “preferred” structure (a single district that encompasses the entire supervisory union).

$17,000 (the per-pupil spending for the whole district) / $13,314 = $1.2769

$1.2769 - .02 (two cents in the fifth year of incentive) = $1.2569 (homestead tax rate for all towns before CLA)

For mergers into a preferred district (a “Unified Union” district), statute guarantees that any merging town’s tax rate cannot increase more than 5% from one year to the next. For other kinds of mergers, any merging town’s tax rate cannot increase or decrease by more than 5% from one year to the next.

FY23 will be the last year that any towns experience tax rate incentives related to Act 46 mergers.

No. The base rate for nonhomestead property is the same for all towns in Vermont. It is adjusted only by the common level of appraisal of the town. If the CLA in a town is 90%, the final nonhomestead rate for the town will be:

Yes, because the homestead rate is impacted by per-pupil spending while the nonhomestead rate is not. Therefore, beyond some per-pupil spending amount, the homestead rate will be higher. That amount happens to be about $19,518 for FY23. Here’s the FY23 homestead tax rate in a town that votes to spend $19,518 per pupil:

The nonhomestead rate in that town is also $1.466 (the statewide rate), so the example town above has a homestead rate that is exactly same as the statewide nonhomestead rate. That means any spending beyond $19,518 per pupil will result in the homestead rate being higher than the nonhomestead rate. The CLA would then be applied to both these rates, but since it is the same for both, the homestead rate will still be proportionally higher.

There are almost no towns in Vermont that can pay for their education spending through the revenue generated from their homestead grand list alone. All towns depend on the other sources of revenue to the Education Fund to pay for the school budgets they approve. The other major sources are (for FY23) all the sales and use tax (about 29% of the education fund) and the nonhomestead property tax (about 38% of the education fund). Both of these revenue sources are considered statewide resources and not town-specific ones, even though some towns may have more nonhomestead property or more businesses remitting sales tax than other towns.

For example, a major retailer may have a store located in Chittenden County that has a large nonhomestead listed value and remits a lot of sales taxes to the state. Because the stores’ patrons are not just people from that town, the nonhomestead property tax the store pays and the sales tax it remits are considered a statewide resource. These revenues flow into the education fund and are accessible to all districts on an equal basis. The municipal property taxes the retailer pays, however, are controlled by the town where the store is located because that town is responsible for delivering local services to that business.

No. The municipal tax rate depends on the size of the grand list, but the education tax rate does not.

The municipal tax rate is calculated as the amount of money needed to provide municipal services (after any other sources of funding are accounted for) divided by the total value of the grand list in that town. At a given level of services, if the grand list grows from one year to the next, the municipal tax rate could go down because the taxable base got bigger.

The education tax rate used to be calculated in the same way as the municipal tax rate until Act 60 passed in 1997. Since then, it no longer matters how big the grand list in a town is, the yields and rates are based on the size of the statewide grand list and total statewide education spending. The current system is designed to ensure that approved budgets are fully funded and that towns that spend the same amount per pupil will have the same tax rate (before the CLA is applied), irrespective of how much property value the towns have. Similarly, the cost of state property tax credits distributed to a particular town is not borne by the taxpayers in that town but is distributed across all property owners statewide. For FY23, that cost is forecast to be $170M, adding almost 18 cents to both the homestead and nonhomestead rates paid by property owners.

No. A moratorium was placed on the excess spending threshold for fiscal years 2022 and 2023 while a legislative task force considers how to adjust the current law pupil weighting formula. See Act 59 of 2021.

If the Director of the Division Property Valuation and Review has certified that a town has completed a town-wide reappraisal, the common level of appraisal (CLA) for that town is equal to its new grand list value from the reappraisal divided by its most recent equalized grand list value for purposes of determining education property tax rates. 32 V.S.A. §5406(c). This is a different calculation than towns that are not reappraising experience.

The effects of a reappraisal on an individual property owner will differ based on how their property value changes compared to the town average, not because of the reappraisal CLA. Owners of properties that increase more than the town average (on a percentage basis) will pay more, properties increasing less than the average will pay less, and if the change is in line with the town average than taxes will be the same as they otherwise would have been. 

No. Municipal taxes that pay for roads and other municipal services are levied on the municipal grand list. The town’s governing body determines the amount needed to be raised for town services and divides that figure by the total municipal grand list established by the town listers to arrive at a municipal property tax rate. With the exception of the few communities that have different rates in accordance with their charter, municipal taxes are not subject to tax classification.

Please note that your property tax bill has an education property tax component and (almost always) a municipal property tax component. The rates for each will vary from year to year and increases to total property tax liability could be coming from either source. The education taxes and municipal taxes must be shown separately on the bill.

A Homestead Declaration, Form HS-122, must be filed each year by any Vermont resident who owns their property and will occupy it as their domicile in the coming year. Once the residence is declared as a homestead, it is taxed at the homestead education tax rate (rather than the nonhomestead tax rate). Resident households with 2022 income under roughly $140,000 may be eligible for a property tax credit and should complete section B of the HS-122 and the HI-144, Household Income Schedule, to claim a property tax credit. The property tax credit claim compares education property taxes for FY23 against the town’s household income percentage which is calculated from its per pupil spending. If education property taxes exceeded that percentage of income, the difference will be applied as a credit to the FY24 property tax bill, reducing the total amount due. About two-thirds of all resident homeowners receive an income-based property tax credit each year.

Households with income less than $47,000 are eligible for additional credits that compare their remaining education property taxes after the first credit is applied against fixed statutory percentages of income, and the difference is added to their education tax credit. See 32 V.S.A. §6066(a). Those households are also eligible for a municipal property tax credit which compares their municipal property taxes paid to fixed statutory percentages of income.

The maximum education property tax credit is $5,600 and the maximum municipal property tax credit is $2,400. Starting with 2019-2020 property tax bills, those credits appear separately on the bill.

When you apply for a property tax credit you report your property taxes from the current fiscal year (at the time of tax filing) and your household income from the prior calendar year (that you are filing taxes on). For example, in early 2022 you probably paid your 2021 Vermont income taxes. Included in your tax return, you might have applied for a property tax credit where you reported your total household income for 2021 and the total 2021-2022 housesite property taxes from the “housesite tax information” box on your property tax bill (only the property taxes on the housesite which is the house and up to two surrounding acres property taxes are eligible for a credit).

The department calculated your credit as the difference between your housesite property taxes based on property (with some limits) and the amount based on income (town household income percentage x household income). This difference (credit) is then communicated to your town and will appear on the following property tax year’s property tax bill on the “State Payments” line. If the tax rates in your town change a lot, your property substantially changes in value, or your income situation changes, you will have to wait a year to get the property tax credit that reflects for those changes. For that reason, many people say there is a “lag” or “lookback” in the property tax credit system.

Unused property tax credit amounts are reimbursed from buyer to seller at closing. These are credit amounts that haven’t yet been applied to an installment to date. The parties are also free to alter the terms of the contract if they wish. 32 V.S.A. § 6063.

For sales between April 1 and June 30, the buyer pays the seller for the entire credit that will be applied to the upcoming property tax year’s bill, and any unused remaining credit from the current year. The Vermont Department of Taxes can provide the amount for the upcoming year once the prior owner’s claim has been processed. For sales between July 1 and March 31, the buyer pays the seller for any unused credit for the current tax year.