An act relating to an elective pass-through entity income tax and credit

This bill creates an optional state income tax for pass-through entities like partnerships, S corporations, and LLCs to help them qualify for a federal tax deduction on state and local taxes. Under the proposed system, eligible businesses with only individual members can elect to pay a tax calculated using the second-highest individual income tax rate, which allows them to claim a federal deduction for state taxes paid. In exchange for the entity paying this tax, individual members receive a refundable credit equal to 90% of their share of the tax paid, reducing their personal Vermont tax liability. The bill also exempts nonresident members from filing Vermont individual income tax returns if the entity has paid the new tax on their income.