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Vermont enacts law to increase use tax compliance

  • Jun 29, 2017 | Gail Cole

 The road to increased use tax compliance in Vermont is long.

Update 6.13.2018: Use tax reporting for non-collecting sellers took effect in Vermont on July 1, 2017. Additional information is available in Sec. 23 of Act 73 and at the Vermont Department of Taxes (under Information Reporting). See also Reporting Requirements for Noncollecting Vendors.

Vermont is bent on increasing use tax revenue and is taking a multipronged approach to achieve this goal. Legislation signed by Governor Phil Scott earlier this month includes requirements to increase taxpayer awareness, report use tax on state income tax returns, and make non-collecting out-of-state retailers adhere to more stringent use tax notification requirements.

Out-of-state sellers that don’t collect Vermont sales or use tax are already required to inform consumers that they may owe tax directly to the state. A measure (H.873) imposing penalties on failure to provide this information was enacted in 2016 but is not yet being enforced. It was scheduled to take effect on the earlier of July 1, 2017, or the first day of the first quarter after Colorado’s sales and use tax reporting requirements are implemented.

This spring, it was determined that Colorado would enforce its use tax reporting provision starting July 1. Yet to date, Vermont has not announced plans to enforce H.873. Instead, the legislature has come out with H.516, a different use tax notice requirement.

Report use tax on individual income tax returns

Effective January 1, 2017, individuals are required to report use tax on their state income tax returns. Taxpayers have two options:

  • They may “attest to the amount of their use tax liability” or,
  • They may report 10 percent of their adjusted gross income, but not pay more than $500 in use tax on total purchases of items with a purchase price of $1,000 or less. For each item with a purchase price of $1,000 or more, use tax “shall be added to the taxable amount.”

Obtain information from non-collecting remote sellers

Effective July 1, 2017, non-collecting vendors who made at least $100,000 in sales in Vermont the previous calendar year must provide to the Department of Taxes a copy of their use tax notice sent to taxpayers. Failure to provide a copy of that notice will result in a penalty of $10 for each failure, “unless the non-collecting vendor shows reasonable cause.”

Increase taxpayer awareness

The legislature has also tasked the Vermont Department of Taxes with conducting an education and outreach campaign “designed to highlight the use tax liability for taxpayers on their income tax forms, and to increase ease of compliance.” Additionally, the department is expected to continue any efforts already underway to increase use tax compliance.

Why this? Why now?

The legislature is unequivocal about the motivation behind the bill: “The General Assembly finds that there is a gap between the amount of taxes paid in the State and the amount of taxes due.” It aims to increase current collections by more than $3 million in fiscal year 2018.

Vermont and Colorado aren’t the only states seeking to increase use tax collections. Use tax notification measures were introduced in Arkansas, Pennsylvania, Wisconsin, and several other states this session alone, and they are set to take effect in Puerto Rico on July 1. Now that Colorado’s use tax reporting requirement has won its lengthy legal battle, other states are likely to follow suit.

Retailers selling in multiple states can try to puzzle out each state’s remote sales and use tax policies, or they can simply collect and remit taxes. The most effective way to do so is with tax automation software. Learn how it works.

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.