New sales tax exemption for Vermont manufacturers

Vermont has expanded its sales tax exemption for manufacturers as of July 1, 2022. 

Recent advocacy efforts made by the Vermont Chamber of Commerce and members of its new Manufacturing Council helped pass the expansion of Vermont’s manufacturing tax exemption law, which better defines the beginning and the end of the manufacturing process. This now includes all machinery and equipment used as an integral or essential part of an integrated production operation — a huge win for Vermont manufacturers.

As a result, Vermont no longer operates under direct use standard limits, which opens up ancillary processes between raw materials and finished goods, as well as manufacturing for packaging, testing, and quality assurance. Many more items, from label makers to rolling racks, are now exempt from sales tax.

Tax relief

Many manufacturers in Vermont don’t have in-house sales and use tax experts. This legislative change streamlines a significant aspect of tax compliance, effectively taking out much of the guesswork for manufacturers. Simplifying tax law complexities can help enable greater compliance and avoid penalties.

Nonetheless, managing tax exemptions remains one of the toughest aspects of running a manufacturing business. Companies are responsible for tracking SKU numbers, accessing use tax information, monitoring tax rules and rates, and more.

Reallocation of funds

Vermont, with its $3-billion manufacturing economy, has been under great strain. Vermont businesses not only have supply chain issues but employee recruitment challenges as well. 

Funds manufacturers would have spent on sales tax can now be reinvested into workforce recruitment and retention programs, new equipment and machinery, and technology for cybersecurity compliance.

Competitive edge

Economical and job landscapes have changed drastically since the pandemic. The expanded exemption for machinery and equipment allows Vermont’s manufacturers to stay competitive with the 33 other states that have similar tax exemptions in place — an integral piece of Vermont’s growth plan. 

It remains critical for businesses to understand the specific exemption requirements for each state where they sell. Laws governing sales and use tax exemptions for manufacturers vary considerably from state to state.

The Sales Tax Institute further explains: “Some states define manufacturing exemption qualification as when the item is used ‘directly’ or ‘predominantly’ or ‘exclusively’ on the item being transformed. It is essential to review each states’ definitions, what is included in the taxable measure, and what is exempt to determine if a taxpayer qualifies for a manufacturing exemption.”

While this will help simplify compliance for manufacturers in Vermont, sales and use tax exemptions remain a significant pain point for the manufacturing industry. It’s important for Vermont manufacturers to follow the letter of the law to ensure proper tax compliance.

Avalara is here to help. We offer several webinars covering tax concerns specific to manufacturers.