Vermont Sales and Use Tax: Rules, Rates, and Compliance

Sales and Use Tax Basics in Vermont

Sales Tax

Vermont applies sales tax on the retail sale of tangible personal property, though certain items may be exempt under state law. Notably, the term "tangible personal property" is broadly defined as personal property that can be perceived by the senses and is movable, such as furniture, clothing, jewelry, art, written materials, and household goods, and excludes real property and land. 

Additionally, the definition expressly extends beyond physical items to include utilities like electricity, water, gas, and steam, as well as prewritten computer software, regardless of how the software is paid for, delivered, or accessed.

Use Tax

The use tax, on the other hand, is paid when sales tax was not collected at the time of purchase, but the property is used, stored, or consumed in Vermont. A typical case in which this happens is when a purchase is made from a vendor that is not registered to collect Vermont tax. Additionally, the use tax applies when a business uses property it manufactures, typically for sale, or when property originally purchased for resale under an exemption certificate is later used in business operations or for personal purposes.

Vermont Sales and Use Tax Rates

In Vermont, a statewide 6% sales and use tax applies, with a maximum rate of 7% when a local option tax is in effect. The 1% local option tax is a way for municipalities in Vermont to raise additional revenue. However, the imposition of local taxes is subject to municipal voting. Taxable persons must be aware that the 1% local tax is a destination-based tax applicable only to transactions subject to the Vermont sales, meals, rooms, or alcoholic beverage tax. Consequently, there are no local use tax rates, and not all municipalities apply the local sales tax.

Tax-Exempt Transactions

Taxable persons who purchase goods from distributors or wholesalers for resale at retail may qualify for a resale exemption, meaning they do not pay sales tax at the time of purchase. Instead, taxable persons are responsible for charging and collecting sales tax from customers when the taxable items are sold at retail. 

Vermont also provides several targeted sales and use tax exemptions to support agricultural, forestry, and energy-efficient activities. Furthermore, sales and use tax exemptions may be grouped into entity-based, use-based, and product-based categories, each applying under different conditions. 

For example, under the entity-based exemption, bodies such as the federal government, the State of Vermont, specific nonprofit organizations qualifying under federal law, agricultural organizations in limited cases, and emergency service organizations, such as volunteer fire departments, may be exempt from sales and use tax. 

Use-based exemptions depend on how an item is actually used by the purchaser rather than who buys it. For instance, fertilizer is taxable when used for personal landscaping but exempt when used directly and exclusively for farming. Product-based exemptions, by contrast, are determined solely by the type of item and apply regardless of the purchaser or intended use, such as drugs intended for human consumption or grocery food sold for off-premises consumption, both of which remain exempt irrespective of how they are ultimately used.

Nexus Rules in Vermont

Businesses and individuals that establish a nexus in Vermont are liable to register, collect, and remit sales tax. Notably, there are several types of nexus that taxable persons may establish in Vermont.

Physical Nexus

In Vermont, physical nexus is established when a person maintains a place of business in the state and makes sales of taxable tangible personal property or services, whether at that location or elsewhere, to Vermont customers. Also, a physical nexus can be created by actively soliciting sales through employees, independent contractors, agents, or other representatives. Furthermore, owning or controlling another Vermont business engaged in similar activities is sufficient to establish a nexus in the state.

Economic Nexus

Following the US Supreme Court decision in South Dakota v. Wayfair, Vermont implemented an economic nexus threshold, under which remote sellers without a physical presence in the state must collect and remit sales tax. The threshold is set at USD 100,000 in gross sales or 200 separate sales transactions to Vermont customers during any preceding 12-month period.

Marketplace Nexus

Since June 2019, marketplace facilitators that facilitated sales for marketplace sellers and exceeded USD 100,000 in sales or had 200 or more individual sales transactions during the preceding 12-month period must register, collect, and remit sales tax on behalf of their sellers.

Click-Through Nexus

In addition to physical, economic, and marketplace nexus rules, Vermont’s Click-Through Advertising Law requires certain remote sellers to collect and remit Vermont sales tax when they establish a referral relationship with a Vermont resident and exceed a specified sales threshold. Therefore, a seller that has an agreement with a Vermont-based individual or business to refer customers through online links, and whose taxable sales to Vermont customers exceeded USD 10,000 in the previous year, is liable for collecting and remitting sales tax.

Taxable Goods and Services in Vermont

The Vermont rules and regulations include a wide range of transactions subject to sales tax. Primarily, retail sales of tangible personal property, as well as alcoholic beverages sold in sealed containers for off-premises consumption, and soft drinks are taxable. Sales and use tax also applies to charges for entertainment, recreation, and amusement admissions, non-residential retail sales of public utility services such as electricity, gas, water, steam, and fuel.

Although services are generally tax-exempt, certain services are subject to tax, such as telecommunications services, delivery charges on taxable items, fabrication charges, and rentals or leases of tangible personal property.

Bundled Transactions and the True Object Test

As a general rule, bundled transactions, where multiple taxable products are sold together for a single price, are subject to Vermont sales tax. The sales tax is collected on the total selling price of a bundle if any of the included products would be taxable if sold separately.

For example, if a jacket priced at USD 150 and an umbrella priced at USD 30 are sold together for USD 130, since the umbrella is a taxable item and its value exceeds 10% of the total purchase price, the entire USD 130 is taxable, even though clothing is usually exempt.

E-Commerce Framework

Remote sellers who sell products into the state via the Internet, mail order, or telephone without maintaining a physical presence in Vermont and who establish an economic nexus in the state must collect and remit sales tax. 

Registration and collection must occur within 30 days after determining that the threshold has been met, and sales should be monitored at the end of each quarter to determine ongoing compliance. If a seller’s Vermont sales fall below the threshold in subsequent quarters, they may stop collecting sales tax, though they may continue to do so voluntarily. Notably, all sales, meaning both taxable and non-taxable, are calculated toward the threshold unless the seller only sells fully exempt items.

Marketplace Rules

Remote sellers who sell through a marketplace are generally required to register and collect Vermont sales tax if they meet the economic nexus threshold, unless the marketplace itself is responsible for collecting and remitting the tax on their behalf.

For remote sellers that sell through multiple channels, including marketplaces and their own website, sales tax responsibilities are based on the combined total of all sales into Vermont. Therefore, if total sales exceed the threshold, the seller must collect and remit sales tax on taxable sales from their own website and any other direct sales channels. The liability for marketplace sales depends on the marketplace facilitator's status. Ultimately, if the marketplace is not collecting Vermont sales tax, the responsibility remains with the seller.

Digital Goods and Services

Since July 2024, all sales of prewritten computer software, regardless of how it is delivered or accessed, including software purchased on physical media, downloaded to a system, or accessed remotely via the internet or offered as software-as-a-service (SaaS), are subject to sales and use tax. 

The term prewritten computer software includes standard office programs like word processors and spreadsheet editors, accounting software, video games, and web browsers. As a result, digital audio, digital audio-video, digital books, and ringtones are all considered taxable items. 

In contrast, custom software designed for a specific customer is exempt. However, if the prewritten software is sold alongside customized software, the prewritten portion remains taxable unless the custom portion is separately stated and invoiced.

Digital Marketplace

Individuals or businesses that contract with marketplace sellers to facilitate the sale of products through a physical or digital marketplace that the facilitator operates and that receive consideration for these services are considered marketplace facilitators. In addition, a person must engage in one or more of the so-called affiliated activities and provide one or more services to the sellers.

The list of affiliate activities includes communicating offers and acceptances between buyers and sellers, owning or operating the technology or infrastructure that connects buyers and sellers, providing virtual currency for purchases, or developing software or conducting research related to the marketplace.

Regarding the services provided to the marketplace sellers, the facilitator may handle payment processing, fulfillment or storage, listing products for sale, setting prices, branding sales as their own, taking orders, advertising or promoting products, and providing customer service, returns, and exchanges.

Digital Platform Operator

Once marketplace facilitators exceed the marketplace threshold, they become liable for collecting and remitting sales not only on their own sales, but also on all facilitated sales. Additionally, marketplace facilitators must notify sellers using the platform that they are responsible for collecting and remitting tax on taxable items sold through the marketplace. Once this notification is provided, the individual marketplace sellers are relieved of the obligation to collect and remit Vermont sales tax for those transactions, as the responsibility shifts entirely to the marketplace facilitator. 

Filing and Payment Requirements in Vermont

The sales and use tax return filing and due tax payment frequency depends on a taxable person’s total tax liability in the previous calendar year. Thus, if the liability exceeds USD 500, a monthly filing is required. In contrast, taxable persons with USD 500 or less file quarterly.

All returns and payments should be submitted electronically through myVTax. Paper filings are allowed only for businesses with a single location that cannot file electronically, using Form SUT-451 and its instructions. Taxable persons paying sales and use tax for multiple locations or remitting more than USD 100,000 annually are required to file electronically.

Penalties for Non-Compliance with Sales and Use Tax Requirements

Vermont has rather strict penalties defined for failure to comply with sales and use tax laws. Any taxable person who knowingly fails to file a return, collect tax, or remit tax may face imprisonment for up to one year, a fine of up to USD 1,000, or both. However, if the failure is done with the intent to evade tax and involves more than USD 500, the penalties increase to imprisonment for up to three years, a fine of up to USD 10,000, or both.