Sales tax 101
Sales tax is a tax paid to a governing body (state or local) on the sale of certain goods and services. Vermont first adopted a general state sales tax in 1969, and since that time, the rate has risen to 6%. On top of the state sales tax, there may be one or more local sales taxes, as well as one or more special district taxes, each of which can range between 0% and 1%. Currently, combined sales tax rates in Vermont range from 6% to 7%, depending on the location of the sale.
As a business owner selling taxable goods or services, you act as an agent of the state of Vermont by collecting tax from purchasers and passing it along to the appropriate tax authority. Sales and use tax in Vermont is administered by the Vermont Department of Taxes.
Any sales tax collected from customers belongs to the state of Vermont, not you. It’s your responsibility to manage the taxes you collect to remain in compliance with state and local laws. Failure to do so can lead to penalties and interest charges.
When you need to collect Vermont sales tax
In Vermont, sales tax is levied on the sale of tangible goods and some services. The tax is collected by the seller and remitted to state tax authorities. The seller acts as a de facto collector.
To help you determine whether you need to collect sales tax in Vermont, start by answering these three questions:
- Do you have nexus in Vermont?
- Are you selling taxable goods or services to Vermont residents?
- Are your buyers required to pay sales tax?
If the answer to all three questions is yes, you’re required to register with the state tax authority, collect the correct amount of sales tax per sale, file returns, and remit to the state.
Failure to collect Vermont sales tax
If you meet the criteria for collecting sales tax and choose not to, you’ll be held responsible for the tax due, plus applicable penalties and interest.
It’s extremely important to set up tax collection at the point of sale — it’s near impossible to collect sales tax from customers after a transaction is complete.
Learn about sales tax automation
Introducing our Sales Tax Automation 101 series. The first installment covers the basics of sales tax automation: what it is and how it can help your business.
Sales tax nexus
The need to collect sales tax in Vermont is predicated on having a significant connection with the state. This is a concept known as nexus. Nexus is a Latin word that means "to bind or tie," and it’s the deciding factor for whether the state has the legal authority to require your business to collect, file, and remit sales tax.
Sales tax nexus in all states used to be limited to physical presence: A state could require a business to register and collect and remit sales tax only if it had a physical presence in the state, such as employees or an office, retail store, or warehouse.
In June 2018, the Supreme Court of the United States overruled the physical presence rule with its decision in South Dakota v. Wayfair, Inc. States are now free to tax businesses based on their economic and virtual connections to the state, or economic nexus.
While physical presence still triggers a sales tax collection obligation in Vermont, it’s now possible for out-of-state sellers to have sales tax nexus with Vermont.
Out-of-state sellers with no physical presence in a state may establish sales tax nexus in the following ways:
Affiliate nexus: Having ties to businesses or affiliates in Vermont. This includes, but isn’t limited to, the design and development of tangible personal property (goods) sold by the remote retailer, or solicitation of sales of goods on behalf of the retailer.
Click-through nexus: Having an agreement to reward a person(s) in the state for directly or indirectly referring potential purchasers of goods through an internet link, website, or otherwise, provided such referrals led to $10,000 or more in cumulative gross receipts from sales in Vermont during the previous year.
Economic nexus: Having a certain amount of economic activity in the state. For sales made on and after July 1, 2018, a remote seller must register with the state then collect and remit Vermont sales tax if the remote seller meets either of the following criteria (the economic thresholds) for sales in the state during the preceding 12 months:
- Gross revenue from sales exceed $100,000
- 200 or more separate transactions
Inventory in the state: Storng property for sale in the state. This includes merchandise owned by Fulfillment by Amazon (FBA) merchants and stored in Vermont in a warehouse owned or operated by Amazon.
Marketplace sales: Making sales through a marketplace. Effective June 1, 2019, marketplace facilitators are responsible for collecting and remitting sales tax on behalf of marketplace sellers in Vermont if, during any 12-month period, they facilitated sales by marketplace sellers to destinations in the state of at least $100,000, or totaling at least 200 individual sales transactions.
Trade shows: Attending conventions or trade shows in Vermont. You may be liable for collecting and remitting Vermont use tax on orders taken or sales made during Vermont conventions or trade shows.
If you have sales tax nexus in Vermont, you’re required to register with the Department of Taxes and to charge, collect, and remit the appropriate tax to the state.
Non-collecting seller use tax obligations
All non-collecting vendors with no obligation to collect Vermont sales tax must provide a transactional notice with every taxable Vermont purchase. In addition, non-collecting sellers must send a list of total purchases made by the consumer during the previous calendar year to Vermont consumers who made at least $500 worth of purchases during that time. Also, non-collecting vendors that made $100,000 or more in Vermont sales in the previous year must provide the Department of Taxes an annual customer information report for every purchaser required to receive an annual purchase summary.
Sales tax nexus can linger even after a retailer ceases the activities that caused it to be “engaged in business” in the state. This is known as trailing nexus. As of January 2020, Vermont does not have an explicitly defined trailing nexus policy.
If you sell taxable goods to Vermont residents and have inventory stored in the state, you likely have nexus and an obligation to collect and remit tax. To begin to understand your unique nexus obligations, check out our free economic nexus tool or consult with a trusted tax advisor.
Sourcing sales tax in Vermont: which rate to collect
In some states, sales tax rates, rules, and regulations are based on the location of the seller and the origin of the sale (origin-based sourcing). In others, sales tax is based on the location of the buyer and the destination of the sale (destination-based sourcing).
Vermont is a destination-based state. This means you’re responsible for applying the sales tax rate determined by the ship-to address on all taxable sales.
After determining you have sales tax nexus in Vermont, you need to register with the proper state authority and collect, file, and remit sales tax to the state. We get a lot of questions about this and recognize it may be the most difficult hurdle for businesses to overcome. Avalara Licensing can help you obtain your Vermont business license and sales tax registration.
How to register for a Vermont seller's permit
You can register for a Vermont seller’s permit online through the Department of Taxes. To apply, you’ll need to provide the Department of Taxes with certain information about your business, including but not limited to:
- Business name, address, and contact information
- Federal EIN number
- Date business activities began or will begin
- Projected monthly sales
- Projected monthly taxable sales
- Products to be sold
Cost of registering for a Vermont seller's permit
There is currently no cost to register for a sales and use tax license in Vermont.
Acquiring a registered business
You must register with the Vermont Department of Taxes if you acquire an existing business in Vermont. The state requires all registered businesses to have the current business owner’s name and contact information on file.
Streamlined Sales Tax (SST)
The Streamlined Sales and Use Tax Agreement (SSUTA), or Streamlined Sales Tax (SST), is an effort by multiple states to simplify the administration and cost of sales and use tax for remote sellers. Remote sellers can register in multiple states at the same time through the Streamlined Sales Tax Registration System (SSTRS).
Vermont became a full member of the SST on January 1, 2007.
Collecting sales tax
Once you've successfully registered to collect Vermont sales tax, you'll need to apply the correct rate to all taxable sales, remit sales tax, file timely returns with the Vermont Department of Taxes, and keep excellent records. Here’s what you need to know to keep everything organized and in check.
How you collect Vermont sales tax is influenced by how you sell your goods:
Brick-and-mortar store: Have a physical store? Brick-and-mortar point-of-sale solutions allow users to set the sales tax rate associated with the store location. New tax groups can then be created to allow for specific product tax rules.
Hosted store: Hosted store solutions like Shopify and Squarespace offer integrated sales tax rate determination and collection. Hosted stores offer sellers a dashboard environment where Vermont sales tax collection can be manage
Marketplace: Marketplaces like Amazon and Etsy offer integrated sales tax rate determination and collection, usually for a fee. As with hosted stores, you can set things up from your seller dashboard and let your marketplace provider do most of the heavy lifting.
Mobile point of sale: Mobile point-of-sale systems like Square rely on GPS to determine sale location. The appropriate tax rate is then determined and applied to the order. Specific tax rules can be set within the system to allow for specific product tax rules.
Vermont sales tax collection can be automated to make your life much easier. Avalara AvaTax seamlessly integrates with the business systems you already use to deliver sales and use tax calculations in real time.
Some goods are exempt from sales tax under Vermont law. Examples include some agriculture supplies, prescription drugs, and medical supplies.
We recommend businesses review the laws and rules put forth by the Vermont Department of Taxes to stay up to date on which goods are taxable and which are exempt, and under what conditions.
Some customers are exempt from paying sales tax under Vermont law. Examples include government agencies, some nonprofit organizations, and merchants purchasing goods for resale.
Sellers are required to collect a valid exemption or resale certificate from buyers to validate each exempt transaction.
Misplacing a sales tax exemption/resale certificate
Vermont sales tax exemption and resale certificates are worth far more than the paper they’re written on. If you’re audited and cannot validate an exempt transaction, the Vermont Department of Taxes may hold you responsible for the uncollected sales tax. In some cases, late fees and interest will be applied and can result in large, unexpected bills.
Sales tax holidays
Sales tax holidays exempt specific products from sales and use tax for a limited period, usually a weekend or a week. Approximately 17 states offer sales tax holidays every year.
As of January 2020, however, there are no sales tax holidays in Vermont.
Filing and remittance
You're registered with the Vermont Department of Taxes and you've begun collecting sales tax. Remember, those tax dollars don't belong to you. As an agent of the state of Vermont, your role is that of intermediary to transfer tax dollars from consumers to the tax authorities.
How to file
Once you’ve collected sales tax, you’re required to remit it to the Vermont Department of Taxes by a certain date. The Vermont Department of Taxes will then distribute it appropriately.
Filing a Vermont sales tax return is a two-step process comprised of submitting the required sales data (filing a return) and remitting the collected tax dollars (if any) to the Department of Taxes. The filing process forces you to detail your total sales in the state, the amount of sales tax collected, and the location of each sale.
Online filing is generally recommended and it’s required for businesses remitting sales and use tax for multiple locations or businesses that remit more than $100,000 in annual sales and use tax in the state. Paper returns are acceptable for businesses with a single location that cannot file and pay electronically. Form SUT-451 can be accessed and downloaded online.
The Vermont Department of Taxes will assign you a filing frequency. Typically, this is determined by the size or sales volume of your business, with larger businesses filing more frequently. Smaller businesses may request monthly filing, rather than annual or quarterly filing. See the filing due dates section for more information.
Vermont sales tax returns and payments must be remitted at the same time; both have the same due date.
You may file directly with the Department of Taxes by visiting their site and entering your transaction data manually. This is a free service, but preparing Vermont sales tax returns can be time-consuming — especially for larger sellers.
Using a third party to file returns
To save time and avoid costly errors, many businesses outsource their sales and use tax filing to an accountant, bookkeeper, or sales tax automation company like Avalara. This is a normal business practice that can save business owners time and help them steer clear of costly mistakes due to inexperience and a lack of deep knowledge about Vermont sales tax code.
Filing when there are no sales
Once you have a Vermont seller's permit, you’re required to file returns at the completion of each assigned collection period regardless of whether any sales tax was collected. When no sales tax was collected, you must file a "zero return.”
Failure to submit a zero return can result in penalties and interest charges.
Closing a business
The Department of Taxes requires all businesses to "close their books" by filing a final sales tax return. This also holds true for business owners selling or otherwise transferring ownership of their business.
Timely filing discount
Many states encourage the timely or early filing of sales and use tax returns with a timely filing discount.
As of January 2020, the Department of Taxes does not offer sales tax filers a discount.
Filing due dates
It's important to know the due dates associated with the filing frequency assigned to your business by the Vermont Department of Taxes. This way you'll be prepared and can plan accordingly. Failure to file by the assigned date can lead to late fines and interest charges.
The Department of Taxes requires all sales tax filing to be completed by the 25th day of the month following the tax period (exception: February filing is due on the 23rd day). Due dates falling on a weekend or holiday are adjusted to the following business day. Below, we've grouped Vermont sales tax filing due dates by filing frequency for your convenience.
|Reporting period||Filing deadline|
|January||February 24, 2020
|February||March 25, 2020
|March||April 27, 2020
|April||May 26, 2020
|May||June 25, 2020
|June||July 27, 2020
|July||August 25, 2020
|August||September 25, 2020
|September||October 26, 2020
|October||November 25, 2020
|November||December 28, 2020
|December||January 25, 2021
|Reporting period||Filing deadline|
|Q1 (January 1–March 31)||April 27, 2020
|Q2 (April 1–June 30)||July 27, 2020
|Q3 (July 1–September 30)||October 26, 2020
|Q4 (October 1–December 31)||January 25, 2021
|Reporting period||Filing deadline|
|January 1–December 31||January 25, 2021
Filing a Vermont sales tax return late may result in a late filing penalty as well as interest on any outstanding tax due. For more information, refer to our section on penalties and interest.
In the event a Vermont sales tax filing deadline was missed due to circumstances beyond your control (e.g., weather, accident), the Department of Taxes may grant you an extension. However, you may be asked to provide evidence supporting your claim.
Penalties and interest
Hopefully you don't need to worry about this section because you're filing and remitting Vermont sales tax on time and without incident. However, in the real world, mistakes happen.
If you miss a sales tax filing deadline, follow the saying, “better late than never,” and file your return as soon as possible. Failure to file returns and remit collected tax on time may result in penalties and interest charges, and the longer you wait to file, the greater the penalty and the greater the interest.
If you’re in the process of acquiring a business, it’s strongly recommended that you contact the Department of Taxes and inquire about the current status of the potential acquisition. Once you've purchased the business, you’ll be held responsible for all outstanding Vermont sales and use tax liability.
Shipping and handling
If you’re collecting sales tax from Vermont residents, you’ll need to consider how to handle taxes on shipping and handling charges.
Taxable and exempt shipping charges
Charges for shipping, handling, delivery, freight, and postage are generally taxable in Vermont. If the sale is tax exempt, the shipping charges are generally exempt as well. If both taxable and nontaxable products are in the same shipment, sales tax is due on the portion of the delivery charge for the taxable products, based on either price or weight.
There are exceptions to almost every rule with sales tax, and the same is true for shipping and handling charges. Specific questions on shipping in Vermont and sales tax should be taken directly to a tax professional familiar with Vermont tax laws.
For additional information, see Sales and Use Tax FAQs.