Frequently Asked Questions

Education Tax Rates

How are the education tax rates set?

The FY19 (2018 – 2019 property tax year) non-residential education tax rate, income yield, and homestead property yield were set by the Legislature during the 2017 – 2018 legislative session.

  • The statewide non-residential tax rate is $1.58 (per $100 of property value).
  • The homestead property yield is $10,220 which goes with a base rate of $1.00 (per $100 of property value).
  • The income yield is $12,380 which goes with a base income rate of 2%.

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

Beginning in FY17, the base homestead tax rate was locked at $1.00. The number that now changes from year to year and is important for figuring out your town’s homestead property tax rate is known as the “yield.” Before FY17 there were two numbers that changed every year, the base tax rate, and a base spending amount which had been established in 2006 and grown according to an inflation index. Moving to the single yield number tied to a $1.00 tax rate was intended to simplify that tax rate calculation process for towns and taxpayers.

For the purposes of the Tax Commissioner’s December 1st letter, the forecasted non-residential tax rate, homestead yield, and income yield are calibrated so that non-residential 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 rates and yields are often recalibrated during the legislative session based on updated education fund data (such as approved school budgets) and legislative initiatives.

What is a “yield" and how much is it this year?

Act 46 of 2015 introduced the “property dollar equivalent yield,” often called the “homestead property yield” or just “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 FY19 a $1.00 tax rate (on $100 of homestead property) would raise about $400M of revenue and the expected equalized pupil count is about 88,400, so the per pupil “yield” would technically be about $4,525 ($400M/88,400). But the actual FY19 yield that is used in FY19 tax rate calculations is $10,220. 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 FY19 is $12,380.

How are the yields used to figure the tax rates in my town?

Suppose your town spends $16,000 per pupil.

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

Per Pupil Spending Property Yield Statewide Homestead Rate Tax Rate (per $100 of property value)
$16,000 ÷ $10,220 x $1.00 = $1.5656

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

Per Pupil Spending Income Yield Statewide Income Rate Town Tax Rate
$16,000 ÷ $12,380 x 2.00% = 2.5848%

A household in this town that is eligible to pay taxes based on income will receive a credit on their FY20 bill (2019-2020 property tax year) for the amount that their education property taxes in FY19 exceeded 2.5848% percent of their 2018 household income (with certain limitations).

What is the CLA?

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 didn’t 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 Tax Department every year. The equalization study compares the ratio of the grand list listed value to the sale price for all the arms-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 non-residential 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.

How is the CLA used?

Suppose the equalization study determined that a town’s a CLA should be .9589, indicating that property in the town is generally listed for 95.89% of what it is selling for. If the homestead tax education tax rate for FY19 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/.9589 = $1.5643 (per $100 of property value) after the CLA is applied.

The non-residential rate is $1.58 (per $100 of property value) before the CLA is applied in all Vermont towns. In this example town, then the actual (final) non-residential education property tax rate will be $1.58/.9589 = $1.6477 (per $100 of property value) after the CLA is applied.

These final rates are what would appear on the property tax bills that the town issues.

How does education spending in my town affect the homestead education tax rate?

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 actually 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.

Suppose your town plans to spend $16,000 per pupil in FY19 (the 2018-2019 school year).

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

Per Pupil Spending Property Yield Statewide Homestead Rate Tax Rate (per $100 of property value)
$16,000 ÷ $10,220 x $1.00 = $1.5656

Keep in mind that many towns are members of union school districts in addition to having their own district for lower grades. In those cases, the town gets a tax rate that is a blend of the town district’s tax rate and the union district’s tax rate. For example, if 40% of the students are attending the town school district with $14,000 in per-pupil spending, and 60% are attending a union district with $16,000 in per-pupil spending, the tax rates for the town will be:

40% x ($14,000/$10,220) + 60% x ($16,000/$10,220) = $1.4873

Any merger incentives are applied at the district level tax rate but limitations on year over year changes (as a result of mergers) are applied to the town level tax rate.

The exact calculation steps for your town’s tax rate can be found by checking the “FY19 Homestead Education Tax Rate Calculations” link on the education tax rate page.

How do the merger incentives factor into the tax rate calculations?

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 third year of a merger into a “preferred” structure (a single district that encompasses the entire supervisory union).

$16,000 (the per-pupil spending for the whole district) / $10,220= $1.5656

$1.5656 - .06 (six cents for the third year of incentive) = $1.5056 (homestead tax rate for all towns before CLA)

For mergers into a preferred 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 can not increase or decrease by more than 5% from one year to the next.

Is a town’s non-residential tax rate adjusted to reflect education spending?

No. The base rate for non-residential 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 95.89%, the final non-residential rate for the town will be:

FY19 State Non-residentail Rate Town CLA Town Non-residential Rate (per $100 of property value)
$1.58 ÷ .9589 =$1.6477

Will there be towns where the non-residential tax rate is lower than the homestead tax rate?

Yes, because the homestead rate is impacted by per-pupil spending while the non-residential rate is not. Therefore, beyond some per-pupil spending amount, the homestead rate will be higher. That amount happens to be about $16,150 for FY19. Here’s the FY19 homestead tax rate in a town that votes to spend $16,150 per pupil:

Per Pupil Spending Property Yield Statewide Homestead Rate Tax Rate (per $100 of property value)
$16,150 ÷ $10,220 x $1.00 = $1.5802

The non-residential rate in that town is $1.5800 (the statewide rate), so the example above has a homestead rate that is a little higher than the statewide non-residential rate. The CLA would then be applied to both these rates, but since it’s the same for both, the homestead rate will still be proportionally higher.

Is my town a “sending” town or a “receiving” town?

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 budgets they approve. The major other sources are (for FY19) all the Sales and Use tax (about 25% of the education fund) and the non-residential property tax (about 41% 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 non-residential 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 non-residential listed value and remits a lot of sales taxes to the state. Because Vermonters from many towns shop at this store, the non-residential 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. 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.

Is the non-residential property tax paid by people who are not residents of Vermont?

No. The non-residential property tax is levied on any property that has not been declared as someone’s homestead (resident domicile). This includes stores, businesses, second homes, and camps. More than half of these properties are owned by Vermont residents. A more appropriate name for this classification of property is “non-homestead.”

Does the tax rate in my town depend on the size of our grand list?

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 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 that point, it doesn’t matter 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.

Is there an additional adjustment for school districts whose per pupil spending is a lot more (excess spending) than the average statewide?

Yes. If a district spends more per-pupil than the “excess spending threshold,” then the overage is counted twice in its per-pupil spending for the purpose of determining its tax rate. 32 V.S.A. §5401(12) and 5401(13). This provision, in effect, double taxes every dollar in excess of the threshold. For FY19 (2018 – 2019 property tax year) the excess spending threshold is $17,816.

As an example, if a district spends $18,000 per pupil, the $184 overage will be double counted, bringing the district’s per-pupil spending (for tax rate purposes) to $18,184. The tax rate will be calculated from that higher number and any towns that send students to the district will be impacted by the higher rate. There are certain types of spending which are not subject to being double-counted, however. These types of spending are detailed in 16 V.S.A. § 4001(6).

My town is completing a reappraisal for the April 1, 2018 grand list. Using the common level of appraisal to adjust the tax rates doesn’t seem fair. Our common level of appraisal was 85% based on last year’s grand list. The tax bills for this year will use a grand list that is at 100% of market value. Will the tax rates be adjusted to account for reappraisals?

Yes. If the Director of Property Valuation and Review certifies 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).

Most towns also levy taxes for road maintenance and other municipal services. Are there different rates for homestead and non-residential properties in these towns?

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 from either source.

I read that some people are able to pay their education tax based on income rather than on the value of their property. How does that work?

Form HS-122, Homestead Declaration, must be filed each year by Vermont residents who own their property and occupy it as their domicile. Once the residence is declared as a homestead, it is taxed at the homestead education tax rate (rather than the non-residential tax rate). Resident households with 2017 income under roughly $140,000 may be eligible for a property tax adjustment and should complete section B of the HS-122 and the HI-144, Household Income Schedule, to claim a property tax adjustment. The property tax adjustment claim compares education property taxes for FY18 against the town’s household income percentage which is calculated from its per pupil spending. If education property taxes were more than that percentage, the difference will be applied as a credit to the FY19 property tax bill, reducing the total amount due. Households with income less than $47,000 are eligible for additional credits that compare their total property taxes (education and municipal) remaining after the first credit is applied against other percentages of income, and the difference is added to their credit. 32 V.S.A. §6066(a).

What is the “lag” or “lookback” in the property tax adjustment system?

When you apply for a property tax adjustment 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 2018 you probably paid your 2017 Vermont income taxes. Included in your tax return, you might have applied for an adjustment where you reported your total household income for 2017 and the total 2017-2018 property taxes from your property tax bill. The tax department calculates your adjustment as the difference between your property taxes based on property 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 year’s (2018-2019 in this example) 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 adjustment that accounts for those changes. For that reason, many people say there is a “lag” or “lookback” in the property tax adjustment system.

Back to top ↑