Vermont Legislature Overrides Governor’s Veto of Bill Including Cloud Tax; Sustains Veto of Data Privacy Bill

In a special session held June 17, the Vermont Legislature overrode six vetoes, including a property tax bill that includes a Cloud tax, but sustained the veto on new data privacy legislation.

The veto of the property tax bill  (H.887), referred to as the “yield bill” was overridden by a comfortable margin in both the House and Senate. The Governor had objected to the bill setting property tax increases by an average of 13.8%

To help reduce the increase in property taxes, the bill includes adding the sales tax on Software-as-a-Service.  The VTTA has been fighting this tax for more than 10 years because of the cost impact to Vermont businesses, particularly tech businesses that tend to use these services the most.  We were able to convince lawmakers to remove adding the tax to Platform-as-a-Service and Infrastructure-a-Service, which was proposed when the bill was originally introduced.  These services are used extensively by many Vermont tech businesses.

The Legislature’s  Joint Fiscal Office estimates the tax will generate $14.7 million in additional revenue in fiscal year 2025 and $16.0 million annualized, beginning in fiscal year 2026, primarily coming from businesses. The JFO says that revenue may increase year-over- year due to the strong projected growth in the cloud-based services market. 

The law is effective July 1, 2024.  However, the Vermont Tax Department will likely need to take some time to define what exactly will be taxed and to provide outreach or other information to businesses.

The override of the veto of the data privacy bill, H.121, was narrowly defeated in the Vermont Senate. While a well-intentioned bill, the Senate responded to concerns raised by businesses about provisions that lacked clarity and would have unintended consequences for businesses. In particular, the inclusion of a private right of action, which could generate lawsuits designed to force a settlement for even inadvertent mistakes were a concern.

Data privacy legislation will be back next year, with businesses hoping to see legislation that aligns with that in other New England states.