Vermont

Understanding Sales Tax for SaaS in Vermont

Is SaaS Taxable in Vermont?

Yes, as of July 1, 2024, Vermont imposes sales and use tax on all prewritten computer software, regardless of delivery method, at a rate of 6% state sales tax and 1% local option tax. This includes software purchased on storage media, downloaded, or accessed remotely via the internet.

Distinction for B2B vs. B2C Transactions

Vermont’s tax code does not differentiate between business-to-business (B2B) and business-to-consumer (B2C) transactions concerning the taxability of SaaS; both are subject to the same tax regulations.

Determining SaaS Taxability

To determine if your SaaS product is taxable in Vermont, consider the following:

Nature of the Software: Prewritten (canned) software is taxable, while custom software developed specifically for a client is exempt. If prewritten software is sold together with customized software, it remains taxable unless there is a reasonable, separately stated charge for the modification or enhancement, which would then be exempt.
Delivery Method: The method of delivery does not impact taxability; both electronically delivered and physically delivered prewritten software are taxable.

Nexus Thresholds for Vermont

Establishing a tax nexus in Vermont obligates a business to collect and remit sales tax. Nexus can be established through:

Physical Presence: Having an office, warehouse, employees, or other physical presence in the state.
Economic Presence: Engaging in 200 or more individual sales transactions or having gross sales of at least $100,000 in any 12-month period.

Sales Tax Compliance Checklist

To comply with Vermont’s sales tax requirements:

Register for a Sales Tax Permit: Businesses meeting nexus criteria must register with the Vermont Department of Taxes to obtain a sales tax license.
Collect Sales Tax: Once registered, collect the appropriate sales tax on all taxable SaaS transactions.
File and Remit Sales Tax: Regularly file sales tax returns and remit the collected taxes to the Vermont Department of Taxes as per the assigned filing frequency.

Examples of Taxable vs. Non-Taxable SaaS in Vermont

Taxable: Subscription fees for prewritten software accessed online.
Non-Taxable: Charges for custom software development services delivered electronically.

Local Tax Considerations

In addition to the state sales tax, some Vermont communities levy a 1% Local Option Tax on sales that are subject to Vermont Sales Tax.

Penalties for Non-Compliance in Vermont

Non-compliance with Vermont’s sales tax laws can result in penalties, interest on unpaid taxes, and potential legal action. Ensuring accurate collection, reporting, and remittance of sales tax is crucial to avoid such consequences.