By David Engel
On May 21, 2025, Governor Phil Scott signed into law omnibus tax legislation that updates Vermont’s conformity to the IRC; modifies the conformity rules for spouses and surviving spouses on individual tax returns; provides that Vermont laws for exempt organizations for the 2025 tax year will follow the federal provisions and interpretations as of April 1, 2025, regardless of the source of those changes; and provides property tax assistance to municipalities acquiring property in flood zones. (L. 2025, H493, effective as stated.)
IRC conformity.
Vermont’s income tax code is updated to reflect the federal income tax laws in effect as of December 31, 2024 (previously December 31, 2023). This provision takes effect retroactively on January 1, 2025 and applies to tax years beginning on and after January 1, 2024. Vermont’s law also conforms to the estate and gift tax laws in effect as of December 31, 2024.
Conformity with federal filing status rules.
Effective retroactively on January 1, 2025 and applicable to tax years that begin on or after January 1, 2025, the Commissioner may permit a different filing status for spouses or a surviving spouse who file a joint federal income tax return for a tax year. The legislation did not specify when a different filing status will be permitted.
Exempt organizations.
Effective retroactively on January 1, 2025 and applicable to tax years beginning on and after January 1, 2025 and ending on or before December 31, 2025, Vermont tax laws will follow IRC § 501 through IRC § 506 and all other federal statutory provisions, federal regulations, and federal case law relating to the determination of an organization’s tax-exempt status for purposes of federal income taxation, as in effect on April 1, 2025, regardless of any amendments or other changes affecting implementation or interpretation of those sections between April 1, 2025 and December 31, 2025.
Property tax stabilization fund.
The law establishes the Municipal Grand List Stabilization Program with the Department of Taxes to reimburse municipal property taxes for municipal property taxes assessed for flood-prone properties acquired by a municipality through a voluntary buyout program operated by the Division of Emergency Management. To be eligible for the program, a municipality must have acquired an eligible property on or after July 1, 2023 and preserved the property as an open space with a deed restriction or covenant prohibiting development of the property. The Commissioner will make an annual payment for each eligible property to compensate for the loss of municipal property tax.
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