Thank you to this week’s sponsor of our Advocacy Update:
April 9, 2021
Sometimes, in advocacy work as with any work, it can feel as if there is not much to report. Sure, there is progress, however, not the watershed moment and perhaps instead just a trickle of new news. And then, after what feels like a drought, it doesn’t just rain, it pours. That is the case this week as the Governor released the exit plan from pandemic restrictions, new business grants income as a state-level COVID relief bill that passed, the Governor proposed his uses of federal funds, and the Speaker abandoned a plan to overhaul the state’s pension liability.
In this week’s update;
- Do you have a PPP loan? The Vermont legislature might tax it!
- Governor releases plan to ease, then end restrictions in about 90-days
- Governor proposes a budget to spend federal ARPA funds
- Business Bridge Grant program passes legislature
- House Ways and Means Committee to tax almost all online activity
- Summer youth programs rolled out by the Governor and Senator Sanders
- The Laundry List
Action Needed: Do You Have A PPP Loan? The VT Legislature Will Try to Tax It!
The House Ways and Means and Senate Finance Committees made changes to the language in H.315 in its final stages to tax PPP loans forgiven in tax year 2021. In short, if your PPP loan was forgiven in 2021, or has yet to be forgiven, you will be taxed on the amount of your loan as if it was business income. If you have a PPP loan, and do not want to be taxed on that loan in tax year 2021, we strongly suggest you reach out to members of the Senate Finance Committee or House Ways and Means Committee. Not sure what to say? LCC’s advocacy team will be hosting an informational webinar on Wednesday morning on this issue and its impacts on you.
Below is a further analysis of the move to help you advocate to read more on why this happened, you can read last week’s update.
- Taxing PPP loans would negate the purpose of the program. When PPP was first created under the CARES Act, the legislative intention was that these loans would be non-taxable. Congress saw this as so important to the program’s desired impact that they took the extraordinary step of reaffirming this in the subsequent Consolidated Appropriations Act.
- Without PPP, the unemployment rates would have been much higher, more businesses would have closed their doors, and the economic fallout would have been more severe. As our state’s unemployment system was strained and crashing, PPP created a parallel unemployment system to spread the load, with many employers simply using PPP funds to pay their employees to “stay home, stay safe.” There is a trauma to losing one’s job, even with UI, PPP kept this trauma from occurring by keeping employees on the employer’s payroll. Furthermore, personal income tax revenue to the state was not decreased due to these loans.
- To tax these loans, which were always presented as a tax-free lifeline, would penalize employers who did the right thing and now do not have the funds. If these loans were to be taxable suddenly, most employers would be met with a surprise tax bill they have no way to pay after a year of being closed through no fault of their own. To have the loan forgiven, implies that the employer spent the loan in its entirety on payroll and eligible expenses, leaving them with nothing to show.
- Retroactively changing the circumstances around the assistance will be unfair, inequitable, and create turmoil. The money to pay tax on these loans is not there as most employers have done what the program told them to do – spend the money right away. Given the state is conforming to federal treatment in TY 2020, those least served by the program and who only gained access in 2021 will receive inequitable treatment. An unforeseen tax bill will prolong the economic impact of the pandemic. Many of the businesses that were late to access this program have been the hardest hit by the pandemic and the least served by the program in its earlier iterations. Finally, businesses had no control over when their loan is ultimately forgiven, as procedural hurdles prevented rapid forgiveness, dragging them into 2021.
- There is no double benefit. For example, if an employer has $100,000 of a PPP loan forgiven, they can and should deduct those expenses. Taxing what otherwise would have been deductible means that the employer is in a worse place than if they had laid off employees and sent them to the UI system. Furthermore, the state already collected revenue from PPP loans in the form of payroll taxes.
Governor Releases “Vermont Forward” Plan to End Restrictions in 90-Days
After a great deal of advocacy for a long term plan with observable and predictable benchmarks on what’s next, the Governor finally did just that this week with his Vermont Forward plan. The plan consists of three phases which would have the state back to normal life by July 4th. Within those steps, businesses will be migrated in groups from sector-specific guidance to universal guidance.
Universal guidance consists of;
- Stay home when sick
- Wear a mask
- Maintain 6-feet distance
- Practice good hygiene
- Follow travel guidance
Simplifying the guidance across sectors allows for more consistency, adaptation with current science and public health recommendations, and greater adherence to these measures and precautions. The full universal guidance and sector breakdowns with effective dates are posted on the ACCD website. Contact us with questions.
*unvaccinated caps do include children (those under 16) who currently cannot receive vaccines.
Governor Releases Plans to Spend American Rescue Plan Act Funds
This week the Governor released his proposed budget for use of the funds made available to the state under the American Rescue Plan Act (ARPA). The plan mostly involves investing in long term needs that have been present in Vermont for decades, however, funding was never available.
At a high level, the plan mostly includes;
- $250.5 million for broadband and wireless connectivity
- $249 million for housing
- $200 million for climate change mitigation measures
- $170 million for water and sewer infrastructure
- $143 million for further economic development and recovery
While LCC appreciates the Governor’s plan to use this funding for long term infrastructure investment, we are disappointed by the small amount of $50 million that the Governor directed to business relief in the form of economic recovery grants. The Governor’s own documents state;
This funding is necessary for the acute needs of businesses and not-for-profits to survive until we can safely reopen and operate at full capacity. At the end of 2020 there was approximately $500 million of remaining unmet needs for the businesses that applied to our second round of grants. We also know that there were many newly established businesses that were unable to access funds. We will prioritize those businesses who did not receive prior assistance and then help those who still need help to stay solvent throughout the end of the crisis.
Given the large unmet need from prior assistance and a lack of data on need between October and now, we feel there is a strong argument for more business assistance. In the time since then, the Vermont ski areas alone have shown two times that amount of need. The likely answer is two-fold. First, some sectors are doing relatively fine, such as construction and many essential services, however, the tourism, hospitality, lodging, and events sectors have been hit very hard with no way to pivot over the last year. Just this week, we learned that Vermont rooms and meal tax revenue is down $48 million (data shows that really only short-term rentals, such as Airbnb generated any substantive amount of tax) and visitor spending is down by $700 million compared with 2019 by a conservative estimate.
Second, folks have moved on, they see a reopening plan and figure, “things aren’t so bad, you’ve survived this long” without understanding how much revenue loss is out there. Prioritization of these funds is heavily directed at things that Vermont has lagged on for decades and has always wished to cure if money just fell from the sky. We appreciated investments of this one-time money in infrastructure and systemic change, however, let’s remember these are coronavirus relief funds and it is not unreasonable to expect a large tranche of them might go to … coronavirus business relief.
The other interesting point in the plan is the directing of funds for broadband buildout predominantly to Communication Union Districts (CUDs). There are 60,000 Vermont homes with limited or no internet service and it is estimated that these funds could connect about 53,000 of those homes. However, on what timeline? LCC has, while not overly active in this debate, chimed in from time to time with the suggestion that these funds not be focussed so heavily on the delivery method that they exclude another and those incumbent service providers in many locations have the planning and engineering done to quickly lay fiber if they have the capital. Senator Leahy held a webinar this week with Congressman Peter Welch and State leaders on broadband which can be watched here.
It’s unclear what if any effect the Governor’s recommendations will have on the work of the legislature, as the Democratically controlled legislature had already spoken for roughly over $650 million of the ARPA funds and in the budget already passed by the House and which the Senate is expected to have finished most of its work by late next week, or early in the following week. There is a great deal of overlap between those priorities, with some notable exceptions. Expect to see the budget done in the Senate by around the 20th and morning committees in the Senate stop meeting by the end of the month. All indicators point to legislators pushing a schedule for adjournment of mid-May that they still think they can meet.
Bridge Grant Program Passes Legislature
LCC successfully advocated for the program criteria of this new business gap grant to be broadened beyond just those businesses who have received no support; giving those businesses who’ve received nothing initial priority for the first 30-days of awards, and then priority on a rolling basis. Though there is not much funding, and many businesses will not be prioritized, it is important to apply for the program when it becomes available for two reasons; first, there is a chance that your needs may be met and it could serve to hold your place in line if more funding becomes available. Second, if the program is oversubscribed by a substantial amount, it will make the case for the legislature to appropriate new funds.
The program does have some stringent guidelines, however, applicants that can demonstrate a net operating loss will be eligible for a grant worth up to three months of fixed cost. ACCD will be providing more information shortly and there will be webinars and tools to help prepare applications. In the meantime, it is advised that you start collecting information such as bills and statements to show fixed costs and operating losses to be prepared.
House Ways and Means Committee Looks to Tax Most Internet Activity
The House Ways and Means Committee looked to add an amendment to S.53, a bill removing the sales tax from feminine hygiene products, that advances the work they’ve been looking to do for some time. Predominantly, the Ways and Means Committee has been looking to adjust measures in the corporate tax which are favorable to businesses. These changes do however create a roughly $8 million deficit which the committee is seeking to close with a tax on prewritten software accessed remotely, commonly referred to as a cloud tax.
The Lake Champlain Chamber vehemently opposed the bill’s cloud tax amendment in testimony, which you can watch here. The cloud tax is problematic for many reasons which we’ve highlighted in our testimony, however, a troubling development has been that the original premise of taxing prewritten software accessed remotely, which covers software as a service, was to get at what was originally “in the box,” which you would always tax anyway; think of TurboTax CDs. However, the Committee has gone to an extreme and is pulling in “platform as a service” and “infrastructure as a service.” In short, there is very little that you will do on the internet which will not have the sales and use tax applied to it if the Ways and Means proposal passes!
The Lake Champlain Chamber conveyed that we understand that it is a matter of process that this amendment is added to S.53, however, it truly is unfortunate. From our perspective, the underlying legislation, removing a tax on feminine hygiene products is something that should move forward and it is now loaded down with controversial matters that could threaten the fate of this bill. It would have been our preference to see these proposals on another legislative vehicle.
In addition to levying a tax on most internet services, the Committee is discussing proposals to raise the minimum corporate tax, which can be read here, as well as raise Department of Regulation Security Registration fees and raise fees for register business with the Secretary of State, which can be seen here.
Childcare Initiative Announced
In yet another instance of work Vermont has long sought to accomplish finally being feasible due to federal coronavirus relief, Senator Sanders joined Governor Phil Scott for his typically Friday press conference to discuss the federal funding in the American Rescue Plan that will enable a partnership with Vermont Afterschool and the Agency of Education that will make $1.5 million of federal funds available in grants from the state to camps and programs so they can expand access to all young people, breaking down barriers of geography, socioeconomics, and demographics.
Expansions should include additional slots in programs, extended hours or weeks, and programs will be supported to address and accommodate the unique needs of students of all ages. Through this initiative, school districts can also expand both academic and social opportunities for students by partnering with local programs.
Vermont Afterschool will host an interactive website that families and providers can use to identify available programs in each area of the state to find the right match for their children. The Vermont Afterschool website launched today and can be accessed by clicking here. The site will continue to be populated and updated, in real-time, as more programs are developed or come online.
For youth interested in apprenticeships and summer jobs, the Vermont Afterschool website also identifies those programs and camps still looking for summertime staff. A parallel effort with the Vermont Department of Labor and the Division of Vocational Rehabilitation offers opportunities to explore careers and find summer jobs.
- Read last week’s update here
- Have an issue to discuss with our advocacy team? Schedule a time here.
- H.315, a state-level COVID-19 relief bill we’ve covered extensively over the past months passes the legislature and is headed to the Governor. The Lake Chamber is now hard at work to correct some of the problems created in the program and make the most of the preferable language we were able to add to the bill which we covered in this update.
- Members of the legislature got an update on state tax revenue in the general fund and education fund this week. On the whole, revenues are trending better than their forecasted targets, which have been adjusted twice over the last year, however, are much lower than normal times. One interesting target that stood out was growth in out-of-state residential buyers, as seen in PTT data, we’ve seen a 79% increase in transactions with out-of-state buyers. PTT is $900,000 over the forecast currently. Also of note is the shortfall in the rooms and meals tax, which told us what we already knew; hospitality has been hit hard by restrictions.
- The Agency of Transportation announced this week that Amtrak service in Vermont will resume on July 19th, if the vaccination rate continues as expected.
- The Senate Rules Committee met this week to consider bills waylaid by procedure hurdles. The Committee decided to allow H.437, a bill including manufacturing sales tax modifications as well as an increase in the marginal property transfer tax, to move ahead despite missing the crossover deadline. The Committee allowed H.227, involving the city of Winooski’s charter change and S.135 which we covered in our last update, which is drafted to help the state act quickly to enact changes in the small group health insurance market bill to make the most of changes in ARPA reducing premiums. The Committee also discussed a resolution to allow the Senate to continue remote operation until January 7th, 2022.
- The House Human Services Committee and House Natural Resources Committee heard testimony on the Senate-passed S.20, a bill relating to restrictions on perfluoroalkyl and polyfluoroalkyl substances and other chemicals of concern in consumer products. The bill will receive additional testimony on Wednesday; LCC’s team will be among those testifying. Please reach out to our advocacy team if you have concerns.
- Governor Phil Scott today announced the appointments of Sabina Haskell and Wendy Knight as deputy commissioners at the Department of Liquor and Lottery. Sabina Haskell has been a member of the Liquor and Lottery Commission since 2018 and was the chair of the Vermont Lottery Commission prior to that. From 2017 to 2019, Wendy Knight served as Vermont’s commissioner of the Department of Tourism and Marketing and vice-chair of the Vermont Outdoor Recreation Economic Collaborative. She was also part of the senior leadership team at the Agency of Commerce and Community Development and a strategic lead for ThinkVermont, a State economic development initiative.
- In addition to the action on internet services taxation we discussed above, the House Ways and Means Committee also had a discussion in their downtime about how they would like to act on next year to overhaul the sales tax in the state. They’ve discussed broadening the sales tax with additional goods, and likely not take suggestions from the Tax Structure Commission to broaden the sales tax base to services. The committee would look to extend the local option sales tax across the state and then let towns that currently do not have local options to have the 1% go to their payment in lieu of taxes (PILOT). The Committee would not look to affect local option rooms and meals tax, as this is an adjustment to online marketplace sales tax changes. This is a developing idea that would not be acted on until next session.