By Jennifer Dawson

Speaking to Seven Days, David Parsons, a specialist in condo sales, comments that currently in the state, “Demand exceeds supply in every segment of the market, from affordable housing to large estate-style, very expensive homes.” In addition to this persistent issue, Vermont is now grappling with the impact of second homes and short-term rentals on its housing market.

While second homeowners do contribute to the tourism industry, particularly in resort towns, short-term rentals are frequently blamed for driving up property prices in areas already suffering from limited housing stock. This raises important concerns about how these properties affect both home sales and rental markets across Vermont.

Vermont’s New Tax on Second Homes

For the first time in the state’s history, Vermont has enacted a separate tax for second homeowners. A provision included in the state’s final education funding bill outlined a higher tax rate for homes purchased as second residences. Under this new law, buyers who purchase a property that is not their primary residence but can be inhabited year-round will now pay more than double the one-time property transfer tax that primary homeowners pay. On the flip side, buyers of primary residences will receive a tax break.

In 2023, Vermont saw more than 1,700 second home sales. If the increased tax had been in place at that time, the state would have raised an estimated $15.7 million in 2025 and $18.6 million in fiscal year 2026.

The additional revenue generated from this tax is earmarked for several important initiatives, including one-time payments to repair manufactured homes, promoting first-generation homeownership, and providing support to renters and tenants needing legal representation.

Democratic Senator Kesha Ram Hinsdale, chair of the Senate Committee on Economic Development, Housing, and General Affairs, is a strong proponent of the new tax. According to Ram Hinsdale, the immediate goal is “to clear a budget gap in the upcoming fiscal year,” while also addressing the broader issue of housing affordability.

Concerns Raised by the Vermont Short-Term Rental Alliance

There have been vocal concerns over the effect of this tax, and one such is Julie Marks, who is the founder and executive director of the Vermont Short Term Rental Alliance. 

Speaking out, she commented that she did have legitimate concerns over how this would play out, adding she felt like there were two different sides to the story, one in which people are being encouraged to move to Vermont, by creating more housing and jobs, but that on the other hand the actions of the tax being put through were ‘counter objective’ and would disincentivize people to move to the area – leaving people with little to no opportunity to create a life for themselves in the state. However, some of the members of her organization began as second homeowners and now live in the state full-time. 

The Challenge of Identifying Second Homes

A major obstacle Vermont faces in enforcing this tax is accurately identifying second homes. The state currently lacks a single reliable method for tracking how many second homes exist. Data from the U.S. Census Bureau includes both year-round homes and seasonal properties like campsites and cabins, making it difficult to pinpoint which properties are second homes.

Vermont’s annual homestead declaration helps determine property tax rates but only captures data for primary residences. Non-homestead properties, including commercial buildings, are not included, and local Grand Lists, which track real estate in towns, do not differentiate between primary and secondary homes. To apply the tax efficiently, Vermont must combine multiple datasets to accurately identify second homes.

Short-Term Rental Tax Now in Effect

On August 1st, 2024, Vermont implemented the H.887 Yield Bill, which introduced a 12% Meals & Rooms Tax (MRT) on all short-term rental reservation transactions. This new tax applies to all bookings made after the law’s enactment date. Second homeowners who rent out their properties short-term must now adjust their pricing and ensure the tax is communicated to and collected from guests.

This short-term rental tax, part of Vermont’s broader education funding package, marks a significant shift in the state’s approach to managing its housing market. The tax revenue generated from this new law will be directed towards education funding, as well as other housing-related initiatives designed to balance Vermont’s housing needs.

Over the coming months, it’ll be interesting to see how this plays out. Short-term rentals are, after all, a viable option for anyone struggling to get an apartment to live in and remain one of the safest ways to keep a roof over your head if all other avenues have failed. 

The author is a freelance reporter.