Vermont Code of Rules, Agency 10 — Agency of Administration

Subagency 000 GENERAL

Chapter 001 RULES FOR STATE MATCHING FUNDS UNDER THE FEDERAL PUBLIC ASSISTANCE PROGRAM

10-001 Code Vt. R. 10-000-001-X RULES FOR STATE MATCHING FUNDS UNDER THE FEDERAL PUBLIC ASSISTANCE PROGRAM

Section 1.1 Purpose

The purpose of this rule is to establish the criteria and procedures by which to distribute the State share of funds to match federal disaster relief under the Federal Emergency Management Agency's Public Assistance Program. The Emergency Relief and Assistance Fund is established at 20 V.S.A. § 45, along with the requirement for the Secretary of Administration to establish by rule the criteria and procedures for distribution of money from this fund.

The intent of the fund and this Rule is to render state assistance more predictable, consistent and available, as well as to encourage hazard mitigation strategies by municipalities and individuals to reduce potential future damages from natural disasters.

Section 1.2 Definitions

1.2.1 Administration Plan: Vermont State Administration Plan for Public Assistance produced by the Department of Public Safety, Emergency Management Division, as amended from time to time.

1.2.2 ERAF: Emergency Relief and Assistance Fund established at 20 V.S.A. § 45.

1.2.3 FEMA: Federal Emergency Management Agency.

1.2.4 FEMA Regulations: Title 44 of the U.S. Code of Federal Regulations (44 R).

1.2.5 FEMA State Agreement: Agreement governing the administration of a federally declared disaster, signed by the FEMA Regional Director and by the Governor.

1.2.6 Grantee: the State of Vermont, as recipient of funds through Federal Public Assistance Program administered by FEMA.

1.2.7 Hazard Mitigation: Sustained action that reduces or eliminates long-term risk to people and property from natural hazards and their effects.

1.2.8 Subgrantee: A town, city , village, school district, municipal utility, or volunteer fire department meeting the requirements set out at 44 R § 206. 201(a), (k), and (1).

1.2.9 Stafford Act: The Robert T. Stafford Disaster Relief and Emergency Assistance Act (42 U.S.C. Chapter 68).

1.2.10 VANR: The Vermont Agency of Natural Resources.

1.2.11 VEM: Vermont Emergency Management.

1.2.12 VTRANS: Vermont Agency of Transportation.

Section 1.3 Eligibility

Funds under these rules shall be provided to subgrantees for repair or replacement of damaged public infrastructure to match federal disaster relief provided following a Presidential declaration of a major disaster under Section 406 of the Stafford Act. The funds may be provided to assist subgrantees in matching public assistance provided by FEMA following the rules established pursuant to the Stafford Act at 44 R § 206.

Section 1.4 Allocation of Funds for Federally Declared Disasters

1.4.1 Municipalities: Twenty four months after the adoption of this rule, the State/municipal match requirements will change as follows. During this twenty four month period, the State/municipal match requirements will remain as described in the Vermont Emergency Relief and Assistance Fund Final Rule, adopted 8/16/2001.

The standard State funding match will be 30% of the non-Federal share of an approved project. The municipality will be responsible for the remaining 70% of the non-Federal share.

In order to qualify for an increased State funding match of either 50% or 70% of the non-Federal share of an approved project, a municipality must meet the requirements described in Appendix A (ERAF State-Share Match Incentives).

The subgrantee will apply to FEMA, following the process set out in the Administrative Plan. Once FEMA has approved the projects for funding, VTRANS will calculate the assistance for which the projects may be eligible and process payment for such eligible projects.

1.4.2 Other Public Subgrantees: Other municipal subgrantees (that are not the legislative bodies of cities, towns or villages), such as school districts, fire districts or municipal utilities, will be responsible for meeting all of the non-federal (25%) share up to $ 10,000. State funds from the ERAF will be made available to cover the remainder of the non-federal share. The subgrantee will apply to FEMA, following the process set out in the Administrative Plan. Once the projects are approved for funding by FEMA, VTRANS will calculate the assistance for which the projects may be eligible and process payment for such eligible projects.

1.4.3 Payment: In any year, the funding from ERAF shall be paid to subgrantees in order of receipt of certification of project completion, until the ERAF is depleted for that year. Any subgrant that is not funded due to depletion in the ERAF shall be paid in order of receipt of certification of project completion when funding is available.

Section 1.5 Use of Funds for Public Projects

1.5.1 Funds may be used for the repair and/or replacement of public property damaged in the event of a declared disaster.

1.5.2 Funds shall be used to match the FEMA share in conjunction with local funds for Large Projects, Small Projects and Improved Projects; as defined at 44 R § 206.203.

1.5.3 Funds under these rules shall not be available for Alternative Projects as defined at 44 R § 206.203(d)(2).

Appendix A State of Vermont Emergency Relief and Assistance Fund (ERAF)

State Share- Match Incentives

The current State funding default rate for FEMA Public Assistance-eligible projects is 50% of the local match requirement for approved projects. Twenty four months after adoption of this Rule, the State funding default rate shall drop to 30% of the local match requirement. These percentages will apply to both the 75% and 90% federal cost share levels.

Twenty four months after adoption of this Rule, in order to qualify for State match funding to the 50% level of the non-Federal cost share, a municipality must provide verification to the Department of Public Safety that it has adopted or will adopt within 30 days of a federal disaster declaration, or is actively implementing the following programs or measures:

1. Town road and bridge standards consistent with or exceeding those listed under the most current version of Town Road & Bridge Standards, Handbook for Local Officials, published by the Vermont Agency of Transportation;

2. A flood hazard bylaw, or an adopted interim flood hazard bylaw as an intermediary step ( 24 VSA §

4415. , to secure enrollment and participation in the National Flood Insurance Program (NFIP), if applicable;

3. A local Hazard Mitigation Plan that meets the provisions of 44 R § 201.6 that has been approved by the local community, and is approved or in the process of securing final approval by FEMA. The local mitigation plan may be part of a larger multijurisdictional or regional mitigation plan; and,

4. Adoption of a local Emergency Operations Plan (EOP) in accordance with State standards.

Twenty four months after adoption of this Rule, in order to qualify for increased State match funding to the 70% level of the non-Federal cost share, a municipality must provide verification to the Department of Public Safety that it has adopted and is actively administering either item (a) or (b) from the following list:

a. Maintenance of an active rate classification (class #1 through 9) under FEMA's Community Rating System (CRS) that includes activities that prohibit new structures in mapped flood hazard zones.

or

b. Adoption of a Fluvial Erosion Hazard (FEH) or other river corridor or floodplain protection by-law that meets or exceeds the Vermont Agency of Natural Resources (ANR) FEH model regulations and scoping guidelines.

For the twenty four month period following adoption of this Rule, the provisions within the current Rule will determine the rate of state financial participation with the municipality.

The secretary of administration, through rulemaking, may establish criteria, procedures, and reporting requirements governing payments from ERAF, as authorized by 20 V.S.A. § 45(a), in order to provide municipalities with up to the full state and local share of match required by FEMA public assistance grants for federal disaster relief related to flood events of a similar magnitude to Tropical Storm Irene or spring 2011 flooding. Criteria established by the secretary of administration shall reflect levels of damage, as approved by FEMA, and the ability of municipalities to provide matching funds that would otherwise be required.

History

• STATUTORY AUTHORITY: 20 V.S.A. § 45
• EFFECTIVE DATE: August 16, 2001 Secretary of State Rule Log #01-45
• AMENDED: October 23, 2012 Secretary of State Rule Log #12-036

Chapter 002 GENERAL RULE FOR EXECUTIVE BRANCH ADMINISTRATIVE HEARING OFFICERS

10-002 Code Vt. R. 10-000-002-X GENERAL RULE FOR EXECUTIVE BRANCH ADMINISTRATIVE HEARING OFFICERS

This General Rule is intended to establish standards for ethical conduct of hearing officers, and guidelines and oversight for administrative hearing officers in the Executive Branch. It consists of a Code of Conduct containing broad statements called Canons, specific rules set forth in Sections under each Canon; and Agency Procedure Guidelines, Application, and Terminology Sections. The text of the Canons and the Sections, including the Application and Terminology Sections, is authoritative.

CODE FOR ADMINISTRATIVE HEARING OFFICERS

Preamble.

The Executive Branch administrative law system is based on the principle that independent, fair, and competent hearing officers will interpret and apply applicable laws consistent with American concepts of justice. Intrinsic to all sections of this Code are the precepts that hearing officers, individually and collectively, must respect and honor their office as a public trust and strive to enhance and maintain confidence in the Executive Branch administrative law system.

This Code is not intended as an exhaustive guide for the conduct of hearing officers, but describes the standards of professionalism that every hearing officer should strive to achieve. It does not supersede state law, collective bargaining agreement, or performance expectations of management, and should be applied consistent with constitutional requirements, statutes, administrative rules and decisional law and in the context of all relevant circumstances.

Except where modified, this Code follows the language of the Model Code of Judicial Conduct for State Administrative Law Judges developed by the National Association of Administrative

Law Judiciary.

Canon 1 A Hearing Officer Shall Uphold the Integrity and Independence of the Administrative Hearing Process.

1-101. A hearing officer shall participate in establishing, maintaining and enforcing high standards of conduct and shall personally observe those standards of conduct so that the integrity and independence of the administrative hearing process will be preserved. The provisions of this Code should be construed and applied to further that objective.

Canon 2 A Hearing Officer Shall Avoid Impropriety and the Appearance of Impropriety in all Activities.

2-101. A hearing officer shall respect and comply with the law and shall act at all times in a manner that promotes public confidence in the integrity and impartiality of the administrative process.

2-102. A hearing officer shall not allow financial interests, or family, social, political or other relationships to influence the officer's official conduct or judgment. A hearing officer shall not lend the prestige of the office to advance the private interests of the hearing officer or others, nor convey or permit others to convey the impression that they are in a special position of influence.

Canon 3 A Hearing Officer Shall Uphold the Integrity and Impartiality of the Administrative Hearings Process.

3-101. ADJUDICATIVE RESPONSIBILITIES

A. A hearing officer shall accord to all persons who are legally interested in a proceeding, and/ or their representatives, the right to be heard according to law. A hearing officer shall not initiate, permit or consider ex parte communications or consider other communications made to the hearing officer outside the presence of the parties concerning a pending or impending proceeding except that:

1. Where circumstances require, ex parte communications for scheduling, administrative purposes or emergencies that do not involve substantive matters or issues on the merits are authorized, provided:

i. the hearing officer reasonably believes that no party will gain a procedural or tactical advantage as a result of the ex parte communication, and

ii. the hearing officer makes provisions promptly to notify all other parties of the substance of the ex parte communication and allows an opportunity to respond.

2. A hearing officer may obtain the advice of a disinterested expert on the law applicable to the proceeding before the hearing officer if the hearing officer gives notice to the parties of the person consulted and the substance of the advice, and affords the parties reasonable opportunity to respond.

3. A hearing officer may consult other hearing officers and support personnel whose function is to aid the hearing officer in carrying out adjudicative responsibilities.

4. A hearing officer may, with the consent of the parties, confer separately with the parties and their lawyers in an effort to mediate or settle matters pending before the hearing officer.

5. A hearing officer may initiate or consider any ex parte communications when expressly authorized by law to do so.

B. A hearing officer shall perform official administrative duties without bias or prejudice. A hearing officer shall not, in the performance of administrative duties, by words or conduct, manifest bias or prejudice, including but not limited to bias or prejudice based upon race, sex, religion, national origin, disability, age, gender, gender identity, sexual orientation or socioeconomic status.

C. A hearing officer shall not be swayed by partisan interests, public clamor or fear of criticism.

D. A hearing officer shall not disclose or use, for any purpose unrelated to administrative duties, nonpublic information acquired in an official capacity.

3-102. DISQUALIFICATION

A. A hearing officer shall disqualify himself or herself in any proceeding in which the hearing officer's impartiality might reasonably be questioned, including but not limited to instances where:

1. the hearing officer may have a personal bias or prejudice concerning a party or a party's lawyer or other representative involved in the proceeding.

2. the hearing officer served as a representative in the matter in controversy; or has been a material witness concerning the matter; or has participated as counsel, adviser or material witness concerning the proceeding, or expressed an opinion concerning the merits of the particular case in controversy.

3. the hearing officer, individually or as a fiduciary, or the hearing officer's spouse, domestic or civil union partner, minor child, or other member of a hearing officer's household has a more than de minimis financial interest in the subject matter in controversy or in a party to the proceeding, or any other interest that could be significantly affected by the outcome of the proceeding.

4. the hearing officer or the hearing officer's spouse, domestic or civil union partner, minor child, or other member of a hearing officer's household is a party to the proceeding or acting as a representative in the proceeding, or is known by the hearing officer to have an interest that could be substantially affected by the outcome of the proceeding.

B. Hearing officers should be aware of their personal and fiduciary financial interests, and make a reasonable effort to keep informed about the personal financial interests of their spouse and minor children residing in the hearing officers' households. The burden is on the hearing officer to be aware of actual, potential or the appearance situations that could compromise their impartiality.

C. A hearing officer is not required to withdraw from a proceeding if the hearing officer's impartiality is challenged solely on the basis that the hearing officer is employed by an agency or department that is appearing in the proceeding.

3-103. DISCLOSURE AND REMITTAL OF DISQUALIFICATION

A hearing officer has an obligation to recuse himself or herself from a proceeding if a conflict as described in 3-102 exists. Alternatively, instead of withdrawing from the proceeding, a hearing officer may disclose to the parties on the record the basis of the conflict. If, following disclosure of any basis for disqualification, the parties and representatives, independently of the hearing officer's participation, all agree that the hearing officer should not be disqualified, and the hearing officer is willing, the hearing officer may participate in the proceeding. The agreement shall be incorporated in the record of the proceeding.

Canon 4 A Hearing Officer Shall Regulate the Officer's Extra-Administrative Activities to Minimize the Risk of Conflict with Administrative Duties

4-101. EXTRA-ADMINISTRATIVE ACTIVITIES IN GENERAL

A. A hearing officer is prohibited from engaging in outside employment or activities which cause a conflict of interest, a lack of impartiality, or the perception thereof.

B. A hearing officer may participate in civic and charitable activities that do not reflect -adversely upon impartiality or interfere with the performance of administrative duties. A hearing officer may serve as an officer, director, trustee or advisor of an educational, religious, charitable, fraternal or civic organization not conducted for the economic or political advantage of its members, subject to the following limitations:

1. A hearing officer should not serve if it is likely that the organization will be engaged in proceedings that would ordinarily come before the hearing officer or will be regularly engaged in adversary proceedings before any agency in which the hearing officer serves.

2. A hearing officer should not use or permit the use of the prestige of the hearing officer's office for the purpose of soliciting funds for any educational, religious, charitable, fraternal or civic organization, but the hearing officer may be listed as an officer, director or trustee of such an organization.

4-102. FINANCIAL ACTIVITIES

A. A hearing officer shall refrain from financial and business dealings that tend to reflect adversely on impartiality, interfere with the proper performance of administrative duties, or may reasonably be perceived to exploit the hearing officer's official position.

B. A hearing officer shall not accept, and shall urge members of the hearing officer's family residing in the hearing officer's household not to accept, a gift, bequest, favor, or loan from any person or entity that has interests that may be substantially affected by the performance of the hearing officer's official duties. This prohibition does not include:

ordinary social hospitality;

2. a gift, bequest, favor, or loan from a relative or close personal friend, if the gift, bequest, favor, or loan is fairly commensurate with the occasion and the relationship;

3. a loan from a lending institution in its regular course of business on the same terms generally available to persons who are not hearing officers, or a scholarship or fellowship awarded on the same terms applied to other applicants; or

4. any other gift, bequest, favor or loan only if the donor is not a party or other person whose interests have come or are likely to come before the hearing officer, or the gift is otherwise consistent with relevant agency rules and is reported to the extent required by such rules and other applicable laws.

4-103. FIDUCIARY ACTIVITIES.

A hearing officer shall not serve as an executor, administrator, trustee, guardian or other fiduciary if such service will interfere with the proper performance of administrative duties, or if it is likely that as a fiduciary the hearing officer will be engaged in proceedings that would ordinarily come before the hearing officer, or if the estate, trust, or ward becomes involved in adversary proceedings in an agency in which the hearing officer serves or one under its appellate jurisdiction. While acting as a fiduciary, a hearing officer is subject to the same restrictions on financial activities that apply to the hearing officer in the hearing officer's personal capacity.

Agency Procedure Guidelines.

5-101. All State departments/agencies that employ a hearing officer to whom the above Code of Conduct applies shall make this Code readily accessible to the public and to parties in proceedings presided over by a hearing officer.

5-102. All State departments/agencies that employ a hearing officer to whom the above Code of Conduct applies shall designate procedures for the receipt, consideration, and determination of complaints about the conduct of hearing officers, and these procedures shall be provided to all parties in a proceeding presided over by a hearing officer. Such procedures shall allow for the filing of hearing officer conduct complaints with the head of the relevant agency, board, or tribunal, and shall provide a review process with agency counsel not appearing before the hearing officer in question.

5-103. All State departments/agencies that employ a hearing officer to whom the above Code of Conduct applies shall ensure that all parties in a proceeding presided over by a hearing officer are provided with a copy of the rules of procedure that apply to the proceedings. The rules of procedure shall prominently and specifically describe any appeal rights a party has and the procedure for filing an appeal.

Application.

6-101. Any full-time employee of the Executive Branch of the State of Vermont whose exclusive job duty is to resolve contested cases when a decision of an Executive Branch agency is challenged shall abide by this Rule.

6-102. This Rule shall take effect July 1, 2017. All persons to whom this Rule becomes applicable should arrange his or her affairs as soon as reasonably possible to comply with it.

Terminology.

7-101. For the purposes of this Code, the following words or phrases shall have the following meanings:

A. "De minimis" denotes an insignificant interest that could not raise reasonable question as to a hearing officer's impartiality.

C. "Fiduciary" includes such relationships as executor, administrator, trustee and guardian.

D. "Financial interest" means ownership of more than a de minimis legal or equitable interest, however small, or a relationship as director, advisor or other active participant in the affairs of a party, except that:

ownership of government securities or in a mutual or common investment fund that holds securities is not a "financial interest" in such securities unless the hearing officer participates in the management of the fund, or a proceeding pending or impending before the hearing officer could substantially affect the value of the interest; and

2. a deposit in a financial institution, the proprietary interest of a policy holder in a mutual insurance company, or a similar proprietary interest, is not a financial interest in the organization unless a proceeding pending or impending before the hearing officer could substantially affect the value of the interest.

E. "Hearing officer" refers to a person with the authority to make a ruling when the final decision of an Executive Branch agency is challenged. A hearing officer is charged with articulating agency policy and determining whether it was followed when the agency made the decision being challenged. Similar to a judge, a hearing officer listens to testimony, evaluates evidence, and makes a decision in the matter. A hearing officer is also sometimes referred to as a referee, presiding officer, or administrative law judge.

F. "Law" denotes statutes, administrative rules and regulations, constitutional provisions, and decisional law.

G. "Nonpublic information" denotes information that, by law, is not available to the public. Nonpublic information may include but is not limited to: information that is sealed by statute or court order, impounded or communicated in camera; and information offered in grand jury proceedings, presentencing reports, juvenile cases or psychiatric reports.

H. "Proceeding" includes pre-hearing or other stages of the administrative hearing process.

History

• EFFECTIVE DATE:
• July 1, 2017 Secretary of State Rule Log #17-003

Subagency 040 PERSONNEL DEPARTMENT

Chapter 003 REGISTERS

10-003 Code Vt. R. 10-040-003-X REGISTERS

Section 8.01 Establishment of a Register

The Commissioner will prepare a list of persons qualified and eligible for appointment to positions in one or more classes. This list will include candidates for re-employment, competitive appointment, transfer, demotion, and restoration. Candidates for competitive appointment must have passed the appropriate examination and shall be listed in order of qualifying score, highest score first. Candidates for competitive appointment may include agency promotional, State promotional and/or open-competitive candidates.

8.011 Scores on a register will normally remain active for two years from the date of examination, except that this period may be reduced or extended by the Commissioner.

8.012 The name of a candidate may remain on a register so long as he has an active score or, if he has no score, so long as he remains eligible for re-employment, transfer, demotion or restoration, unless removed at the candidate's request or by the Commissioner for reasons authorized by sub sections 7.06 and 8.02.

8.013 Veterans' preference will be granted as authorized by law in the manner described in sub sections 8.0131 through 8.0136 below.

8.0131 Those veterans, ex-servicemen or ex-servicewomen who at the time of application are totally-disabled as a result of a service-connected disability shall have ten points added to their qualifying score, subject to sub sections 8.0135 and 8.0136.

8.0132 Spouses of totally-disabled veterans, ex-servicemen or ex-servicewomen whose disability is service-connected and who themselves have been unable to qualify on a State civil service examination by reason of their disability, and unmarried widows or widowers of deceased veterans, ex-servicemen or ex-servicewomen whose military service occurred during a period of war, in a campaign or expedition for which a campaign badge has been authorized, or subsequent to June 30, 1955, shall have ten points added to their qualifying score, subject to subsection 8.0135.

8.0133 Those veterans, ex-servicemen or ex-servicewomen who at the time of application are partially-disabled as a result of a service-connected disability shall have five points added to their qualifying score, subject to sub sections 8.0135 and 8.0136.

8.0134 Those veterans, ex-servicemen or ex-servicewomen whose military service occurred during a period of war, in a campaign or expedition for which a campaign badge has been authorized, or subsequent to June 30, 1955; and who do not qualify for veterans' preference under subsection 8.0131 or 8.0133 shall have five points added to their qualifying score, subject to sub sections 8.0135 and 8.0136.

8.0135 Veterans' preference points shall not be added to the score of an individual otherwise eligible for veterans' preference unless all of the following conditions are met:

(1) The individual meets the minimum qualifications for application for the class;

(2) The individual achieves a qualifying score on the examination;

(3) An appointing authority requests an open-competitive certificate which is drawn from the register upon which the individual's name appears;

(4) Military service was active duty of at least ninety days duration (not counting service under an initial period of active duty for training as part of the "six-month" Reserve or National Guard program) rendered in any branch of the armed forces of the United States and terminated under honorable conditions.

8.0136 No veterans' preference will be given when the monthly service retirement allowance of any individual at the time of application is more than the median of all different armed forces monthly net allowances existing at the time of application.

History

• EFFECTIVE: 1/24/79

Subagency 050 DEPARTMENT OF BUILDINGS AND GENERAL SERVICES

Chapter 004 RULES FOR INDEXING OF LAND PLATS AND PLANS (A7.100)

10-004 Code Vt. R. 10-050-004-X RULES FOR INDEXING OF LAND PLATS AND PLANS (A7.100)

When a town clerk has accepted a plat or a plan in accordance with T. 27 V.S.A. § 1403, he shall immediately endorse on the face of the plat or plan the date and time of filing, as with any other instrument. The town clerk shall assign to the plat or plan a number, consecutive in the order of filing, which will henceforth serve as an identification and a locator number.

The town clerk shall maintain in his office a separate index book, card index or suitable visible or rotating adaption thereto, called "The Index of Land Plats and Plans." Said index shall include: the location of the land (map title); the date of compilation; the date of filing; assigned location (Book, page); assigned plat or plan number; the name(s) of the record owner(s) shown on the plat or plan as of the date of compilation. An alphabetical entry shall be made under the name of each owner and a cross index reference to all adjacent property owners, if shown, and of the map title, if other than the owner.

History

• Adopted: August 4, 1970

Chapter 005 GENERAL SPECIFICATIONS OF PURCHASING DIVISION (A8.100)

10-005 Code Vt. R. 10-050-005-X GENERAL SPECIFICATIONS OF PURCHASING DIVISION (A8.100)

Contract Period - As indicated on the Request for Quotation Form.

Transportation Charges - The price or prices quoted shall include all transportation charges fully prepaid to any destination in Vermont.

Quantities - For the information of bidders, the quantities under this contract are estimated only and based on past usage. These quantities may be increased or decreased to meet actual requirements.

Bids - Bids must be submitted on and in accordance with forms provided by the State of Vermont, Purchasing Division.

All information required on proposal form, in connection with each item against which a bid is submitted, must be given to constitute a regular bid. Prices and information required by proposal, except signature of bidder, should be typewritten for legibility. All signatures must be written in ink. Stamped or typewritten signatures are not acceptable.

All bids must be sealed. They must be submitted either in plain envelopes or those furnished by the state of Vermont, Purchasing Division. All bids must be addressed to the State of Vermont, Purchasing Division, Montpelier, Vermont. Bid envelopes must be clearly marked with the requisition number, proposal title, opening date, and name of bidder.

Telegraphic bids may be considered at the discretion of the State Purchasing Director.

Telephone quotations or amendments will not be accepted at any time.

All bids will be publicly opened and read. Any interested party may attend bid openings.

Delivery - Deliveries are to be made from time to time during the contract period as requested by the using agencies.

Shipments shall be securely and properly packed, according to accepted commercial practice, without extra charge for packing cases, bales, sacks, or other containers, such containers to remain the property of the State unless otherwise stated in the bid.

Deliveries which do not conform to the specifications or are not in good condition upon receipt, shall be replaced promptly by the contractor.

Tax - The State is exempt from all sales and all Federal Excise taxes. An exemption certificate will be furnished upon request covering taxable items. Please quote less these taxes.

Assignment - The contract shall not be assigned in whole or in part without the written permission of the Purchasing Director of the State of Vermont.

Cancellation - The State specifically reserves the right to cancel any unfilled portion of the contract, providing, in the opinion of its Purchasing Director, the services or materials supplied by the contractor are not satisfactory or consistent with the terms of the contract.

Instructions:

GRADES - Where grades are not specified in inquiry, give grade on which you quote using terms which have a definite meaning to the trade.

2. SUBSTITUTION - Where bids are called for and the material or supply is identified by a manufacturer's brand, bidders may offer substitutes giving complete description, analysis or by submitting sample, whichever will best allow a comparison to be made.

3. SAMPLES of items, when required, must be furnished, free of expense, prior to the closing date, and if not destroyed, will, upon request, be returned.

Be sure to date, indicate firm name and manually sign bid, and mail to Department of Administration, Purchasing Division, Montpelier, Vermont.

5. SPECIFICATION CHANGE - Bidders will be notified in writing by the Purchasing Director of the State of Vermont of any changes or variations in the specifications. Verbal instructions from any other source will not be considered.

6. NON-COLLUSION - The State of Vermont is conscious of and concerned about instances where collusion seems evident. It should, therefore, be understood by all bidders that, in signing the bid with which this Request for Quotations is concerned, they agree that the Prices quoted have been arrived at without collusion and that no prior information concerning these prices has been received from or given to a competitive company. If there is sufficient evidence to warrant consideration of this bid by the Attorney General's Department, all bidders should understand that this paragraph may be used as a basis for litigation.

General Regulations & Policies, Federal. (Available from U.S. Department of Agriculture.)

Handbook for Commodity Distribution to Schools. (Available from donated Commodities Section, Purchasing Division.)

Surplus Property Manual. (Available from Central Surplus Property Agency, Purchasing Division.)

History

• Adopted July 20, 1969

Subagency 060 DEPARTMENT OF TAXES

Chapter 006 CONSOLIDATED RETURNS BY CORPORATIONS

10-006 Code Vt. R. 10-060-006-X CONSOLIDATED RETURNS BY CORPORATIONS

Section 58622 CONSOLIDATED RETURNS BY CORPORATIONS

(a) The Commissioner shall permit a taxable corporation to file a consolidated Vermont corporate income tax return as a member of an affiliated group if:

(1) the taxable corporation qualified for and used the privilege of filing a consolidated Federal income tax return for the same taxable year as a member of the same affiliated group; and if

(2) the taxable corporation can satisfy the Commissioner that filing a consolidated Vermont return will not result in a significant reduction of its Vermont corporate income tax liability.

(b) Permission to file a consolidated Vermont return, once granted, shall continue so long as the taxable corporation continues to qualify for and use the privilege of filing a consolidated Federal return in each subsequent year as a member of the same affiliated group:

Provided, however, that the permission shall automatically terminate whenever the Commissioner requires further satisfactory evidence that the requirements of paragraph (a) (2) are met.

History

• Adopted, November 1, 1967
• Effective Date: November 16, 1967

Chapter 007 CORPORATION FRANCHISE TAX

10-007 Code Vt. R. 10-060-007-X CORPORATION FRANCHISE TAX

Introduction

The principle of the Vermont Tax Department in assessing and collecting franchise taxes is to collect all taxes which any corporation may be required to pay, but no more; to develop smooth and efficient functions within its own organization and to cultivate cordial and helpful relations with other public agencies and the taxpayers of the State. This policy is intended to guide the Vermont Tax Department in performing its essential services.

The Vermont Franchise Tax is measured by "entire net income" (based principally upon Federal Net Income) or the portion thereof allocable to Vermont. The rate of tax measured by "entire net income" is four per cent or a minimum of $ 25 whichever is greater. A corporation is entitled to allocate its business income within and without Vermont only if it has a regular place of business outside the State; otherwise 100% of its income must be allocated to Vermont. Income is allocated by the formula most generally used in other States, viz: tangible property, sales or charges for services performed and payrolls. The tax is imposed annually for each of the taxpayer's calendar or fiscal years and is measured by the "entire net income" (or other allocable basis) of the next preceding year of operations. The privilege year and the base year do not coincide with each other in that the tax paid for the privilege of doing business in any particular calendar or fiscal year is measured by the operations and "entire net income" of the preceding calendar or fiscal year.

The tax imposed by Chapter 44 is a franchise, privilege or excise tax. It is not an income tax although income is the measure of computing the amount payable; nor is it a direct tax on the corporation's assets although in peculiar situations assets may be in whole or in part a measure for computing the amount payable.

A foreign corporation doing business in this State is also subject to a Vermont Franchise Tax and the regulations herein stated.

Part I CORPORATONS SUBJECT TO TAX

Article 100 General

Section 950 of the Tax Law subjects to franchise tax all corporations which are not subject to franchise tax under some other provision of the Vermont Law and are not exempt from tax.

Article 101 Definition of Taxpayer

The term "taxpayer" means any corporation which is subject to tax imposed by Section 950, Chapter 44 of the Vermont Statutes, Revision of 1947, as Amended.

Article 102 Definition of Corporation

The term "corporation" includes any entity created as such under the laws of the United States, any state, territory or possessions thereof, the District of Columbia, or any foreign country, or any political subdivision of any of the foregoing, which provides a medium for the conduct of business and the sharing of its gains. It also includes any joint-stock company or association; any business conducted by a trustee or trustees wherein interest or ownership is evidenced by certificate or other written instrument and a dissolved corporation which continues to conduct business in this State. The term "corporation" does not include a membership or other non-stock corporation unless it is doing business for profit.

Article 103 Domestic Corporations Subject to Tax

The tax is imposed on every domestic corporation, with specified exceptions, for the privilege of exercising its corporate franchise; that is to say, for the mere possession of the privilege. Accordingly, a domestic corporation is subject to tax for every fiscal or calendar year, or part thereof, during which it is in existence, irrespective of whether it does any business, owns any property, maintains any office, or engages in any activity, within or without Vermont. For the same reason, a domestic corporation is subject to tax even though it carries on its business entirely outside of Vermont.

Example: A corporation is incorporated under the laws of Vermont on July 1, 1953. It begins to do business on February 1, 1954, setting up its books on the basis of a calendar year. Since the corporation had the privilege of exercising its corporate franchise from July 1, 1953 to December 31, 1953, it is subject to tax for that period.

A domestic corporation which has been dissolved by the filing of a certificate of dissolution or otherwise, is not subject to the franchise tax after such dissolution, unless it continues to do business in Vermont, in which case it remains subject to tax. A dissolved corporation, the activities of which are limited to the liquidation of its business and affairs, the disposition of its assets (other than in the regular course of business) and the distribution of the proceeds, is not doing business. On the other hand, a dissolved corporation which engages in activities in the pursuit of profit or gain is doing business.

Article 104 Foreign Corporations Subject to Tax

The tax is also imposed on every foreign corporation, with specified exceptions, which does business in Vermont in a corporate or organized capacity, irrespective of whether it has qualified to do business in Vermont.

Article 105 Doing Business in Vermont

The term "doing business" is used in a comprehensive sense and includes all activities which occupy the time or labor of men for profit. Irrespective of the nature of its activities, every corporation organized for profit and carrying out any of the purposes of its organization is doing business. In determining whether a corporation is doing business, it is immaterial whether its activities actually result in a profit or a loss.

Whether a foreign corporation is doing business in Vermont is determined by the facts in each case. Consideration is given to such factors as:

(1) the nature and extent of the activities of the corporation in Vermont, compared with its activities elsewhere;

(2) the purposes for which the corporation was organized, compared with its activities in Vermont;

(3) the location of its offices and other places of business;

(4) the continuity, frequency and regularity of the activities of the corporation in Vermont, compared with the continuity, frequency and regularity of its activities elsewhere;

(5) the income of the corporation and the portion thereof derived from activities in Vermont;

(6) the employment in Vermont of agents, officers and employees;

(7) the location of the actual seat of management or control of the corporation;

(8) the mere ownership of real property within the State.

In determining whether a foreign corporation is doing business in Vermont, no consideration is given to the following factors:

(a) the maintenance of cash balances with banks or trust companies in Vermont;

(b) the ownership of shares of stock or securities kept in Vermont in a safe deposit box, safe, vault or other receptacle rented for the purpose, or pledged as collateral security, or deposited with one or more banks or trust companies, or brokers who are members of a recognized security exchange, in safekeeping or custody accounts;

(c) the taking of any action by any such bank or trust company or broker, which is incidental to the rendering of safekeeping or custodian service to such corporation;

(d) any combination of the foregoing activities;

A foreign corporation, the business of which is wholly interstate commerce, may do business in Vermont without becoming subject to the tax. But a foreign corporation, the business of which is partly interstate commerce and partly local business, is subject to the franchise tax imposed for the privilege of doing business in Vermont, and such tax, when measured by "entire net income," is measured by all of its "entire net income," including that derived from interstate commerce.

The mere ownership by a foreign corporation of goods, which are held in Vermont by an independent factor on consignment for sale at his own discretion, does not constitute doing business in Vermont.

A foreign corporation, which regularly maintains a stock of goods in Vermont and makes deliveries to its customers from such stock, is doing business in Vermont so as to be subject to tax.

Example 1: A foreign corporation is engaged in the business of manufacturing. Its factory is located outside Vermont but it maintains a stock of merchandise in Vermont. Orders are filled from its Vermont stock. The corporation is subject to the Vermont Franchise Tax.

Example 2: A foreign manufacturing corporation has its factory outside Vermont. Its only activity in Vermont is the solicitation of orders for its products through a sales office. The orders are forwarded to its home office outside the State for acceptance and the merchandise is shipped by common carrier from the factory direct to the purchasers. The corporation is subject to the Vermont Franchise Tax.

Example 3: A foreign corporation is organized for the purpose of buying and selling securities. It maintains an office in Vermont from which it directs the purchase and sale of securities. The corporation is subject to the Vermont Franchise Tax.

Example 4: A foreign corporation is organized or operated for the purpose of buying and selling securities but does not maintain a physical office anywhere, other than a statutory office in the state of its incorporation. Regular and continuous purchases and sales of securities are directed by its officers or agents located in Vermont. The corporation is subject to the Vermont Franchise Tax.

Example 5: A foreign corporation, the sole assets of which consist of patents, has an office in Vermont at which it issues patent licenses to out-of-state manufacturers and at which it receives royalties. The corporation is subject to the Vermont Franchise Tax.

Example 6: A foreign corporation, formerly engaged in the business of manufacturing in another state, discontinues such business and transfers its office to Vermont where its activities consist solely of the liquidation of intangible personal property, the acquisition of United States Government bonds and the receipt of interest on such bonds, and the holding of directors' meetings. The corporation is subject to the minimum Vermont Franchise Tax.

Example 7: A foreign corporation imports grain and stores it in Vermont. The grain is purchased from time to time by another corporation which resells it to its customers. The foreign corporation is subject to the Vermont Franchise Tax.

Example 8: A foreign corporation which operates several retail stores outside Vermont, leases an office in Vermont for the convenience of its buyers when they come to Vermont. The buyers also purchase merchandise in Vermont, ie: maple syrup, sugar, etc., for other retailers who pay the corporation a commission for such services. Salesmen call at such office to solicit orders from the buyers and merchandise is shipped by the sellers directly to offices of the purchasers outside Vermont. The corporation is subject to the Vermont Franchise Tax.

Example 9: A foreign corporation, which operates several retail stores outside Vermont, leases an office in Vermont for the convenience of its buyers when they come to Vermont. It has several employees permanently assigned to such office. Salesmen call at the office to solicit orders from the buyers, and the merchandise is shipped to such office by the sellers. Upon receipt, the merchandise is examined, separated and ticketed, by the corporation's employees and then shipped by them to the various stores of the corporation outside Vermont. The corporation is subject to the Vermont Franchise Tax.

Article 106 Corporations Not Subject to Tax

The following corporations shall not be deemed to be mercantile, manufacturing, or business corporations within the meaning of Chapter 44, and shall be exempt from the taxes imposed:

I. Railroad, express, telephone, telegraph, steamboat, trolley or electric railway corporations, insurance, surety and guaranty companies, mutual or otherwise;

II. Life, fire and marine insurance corporations and mutual life, fire and marine insurance companies;

III. Cemetery corporations and associations, labor, agricultural or horticultural organizations, fraternal beneficiary societies, no part of the net earnings of which inures to any member or stockholder;

IV. Sanitary corporations and corporations organized for religious, charitable, scientific or educational purposes, no part of the net earnings of which inures to the benefit of any private stockholder or individual member;

V. Business organizations, chambers of commerce or boards of trade not organized for profit, no part of the net earnings of which inures to the benefit of any private stockholder or individual member;

VI. Civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare;

VII. Clubs organized and operated exclusively for pleasure and recreation and other non-profitable purposes, no part of the net earnings of which inures to the benefit of any private stockholders or individual member;

VIII. Farmers' or other mutual hail, cyclone, fire or life insurance companies, mutual water companies, mutual or cooperative telephone companies, or similar organizations of a purely local character, the income of which companies consists solely of assessments, dues and fees collected from the members for the sole purpose of meeting the expenses of the company;

IX. Farmers', fruit-growers' or like associations organized and operated on a cooperative basis (a) for the purpose of processing, preparing for market, handling or marketing the farm products of members or other producers and turning back to them the proceeds of sales, less the necessary marketing, handling or processing expenses, on the basis of either the quantity or the value of the products furnished by them, or (b) for the purpose of purchasing supplies and equipment for the use of members or other persons and, turning over such supplies and equipment to them at actual cost, plus necessary expenses.

Article 107 Change of Classification

A corporation subject to tax under § 950 may, by reason of a change in the nature of its activities or holdings, cease to be subject to such tax and become taxable under some other section of the Vermont Law. Conversely, a corporation subject to tax under some other section of the Vermont Law may, for the same reason, cease to be taxable thereunder and become subject to tax under § 950. The date on which any such change of classification becomes effective will be determined by the facts of each case.

A corporation which becomes subject to tax under § 950 during one of its fiscal or calendar years by reason of a change of classification is treated in the same manner as a corporation which acquired its franchise or began to do business during such year. Similarly, a corporation which ceases to be subject to the franchise tax imposed by § 950 during one of its fiscal or calendar years by reason of a change of classification is treated, in so far as § 950 is concerned, in the same manner as a corporation which is dissolved or ceases to do business in Vermont during such year.

Example 1: A corporation, subject to tax under § 950, which owns and operates a hotel (the personal property in which is owned by another person or corporation) and has no other assets or business, ceases to do business on April 15, 1953 and files necessary documents, see Articles 1000, 1001. The corporation ceases to be subject to tax under § 950 on April 15, 1953.

Example 2: The corporation referred to in Example 1 resumes possession of the hotel and commences to operate it again on June 1, 1954. The corporation again becomes subject to tax under § 950 on June 1, 1954.

Part II NATURE OF TAX

Article 200 General

§ 950, Chapter 44, imposes a franchise tax on every domestic corporation for the privilege of existing as a corporation, and on every foreign corporation which does business in Vermont.

All corporations incorporated in Vermont or all foreign corporations beginning to do business in Vermont immediately become subject to tax. The first privilege and base year of every such corporation is its first calendar or fiscal year.

Article 201 Calendar and Fiscal Years

The term "calendar year" means a period of twelve calendar months ending on December thirty-first (or a period of less than twelve calendar months beginning on the date a taxpayer becomes subject to tax and ending on December thirty-first), in cases where the taxpayer

(a) keeps its books on the basis of such period, or

(b) keeps its books on the basis of any period ending on any day other than the last day of December, or

(c) does not keep books,

and also includes, in the case of a taxpayer which changes the period on which it keeps books from a fiscal year to a calendar year, the period from the close of its last old fiscal year to and including the following December thirty-first.

The term "fiscal year" means

(1) a period of twelve calendar months ending on the last day of any month other than December (or a period of less than twelve calendar months beginning on the date a taxpayer becomes subject to tax and ending on the last day of any month other than December), in cases where the taxpayer keeps its books on the basis of such period,

(2) and also includes, in the case of a taxpayer which changes the period on which it keeps its books from a calendar year to a fiscal year, or from one fiscal year to another fiscal year, the period from the close of its last old calendar or fiscal year to and including the date designated as the beginning of its new fiscal year.

In general, the calendar or fiscal year on the basis of which the taxpayer is required to report for Federal income tax purposes is the calendar or fiscal year on the basis of which it is required to report for purposes of the Vermont Franchise Tax.

Article 202 Description of Franchise Tax

The franchise tax is imposed on every domestic corporation, with specified exceptions, for the privilege of exercising the corporate franchise granted it by the State of Vermont and on every foreign corporation, with specified exceptions, for the privilege of doing business in Vermont in a corporate or organized capacity.

The tax is imposed for each calendar or fiscal year of the taxpayer, or any part thereof, during which the taxpayer has a corporate franchise granted by Vermont or does business in Vermont.

The tax for each such year or part thereof is measured by the taxpayer's "entire net income" at the rate of four per cent or a minimum of $ 25.00, whichever is greater.

A report must be filed by the taxpayer on or before May fifteenth next succeeding the close of each calendar year or, if the report is made on the basis of a fiscal year, within four and one-half months after the close of each fiscal year.

A domestic corporation which ceases to exercise its franchise is required to file a report on the date of such cessation, or at such other time as the Commissioner of Taxes may require, covering each year or period for which no report was theretofore filed. The report is required in any such case, whether the corporation continues in existence and thus remains subject to tax, or is dissolved and thus ceases to be subject to tax. However, in case the corporation continues in existence, the report is tentative and the tax will be adjusted on the next report due, either the next annual report or the final report.

A foreign corporation which ceases to do business in Vermont and thus ceases to be subject to tax, is required to file a report on the date of such cessation, or at such other time as the Commissioner of Taxes may require, covering each year or period for which no report was theretofore filed.

Example 1: A foreign corporation, reporting on the basis of a calendar year, begins to do business in Vermont on March 1, 1953 and continues to do business here throughout the balance of the year. The corporation is subject to an initial minimum franchise tax, prorated, for the privilege of doing business during the year 1953. On or before May 15, 1954 the corporation is required to file a report covering the 1953 operations. The tax on such report is measured as set forth in §§ 950, 951 of the law and represents payment for the privilege of doing business in 1954.

Example 2: A foreign corporation, reporting on the basis of a fiscal year ending November thirtieth begins to do business in Vermont on March 1, 1953 and continues to do business here throughout the balance of its fiscal year. The corporation is subject to a prorated minimum tax for the initial period of operations--March through November 1953. On or before April 15, 1954 the corporation is required to file a report based on the fiscal year ending November 30, 1953. The tax on such report is measured as set forth in §§ 950, 951 of the law and represents payment for the privilege of doing business during the fiscal year ending November 30, 1954.

Article 203 Corporations Ceasing to Possess Franchise or Do Business in Vermont

The franchise tax is for all or any part of each calendar or fiscal year during which the taxpayer possesses a franchise or does business in Vermont. Accordingly, every taxpayer is required to pay a tax measured by its "entire net income" (or other applicable basis) covering operations up to the date on which it ceases to possess a franchise, if a domestic corporation, or ceases to do business in Vermont, if a foreign corporation.

A domestic corporation may cease to possess a franchise as a result of

(a) its dissolution,

(b) its merger with or consolidation into another corporation, or

(c) the surrender, revocation or annulment of its charter.

Article 204 Corporations Ceasing to Be Subject to Tax Under Section 950 Because of Change of Classification

A taxpayer may cease to be subject to tax under § 950 because of a change of classification resulting from a change in the nature of its activities or holdings and, in such event, is required to pay a tax measured by its "entire net income" (or other applicable basis) up to the date of such cessation. As to change of classification, see Article 107.

Part III COMPUTATION OF TAX

Article 300 General

The taxpayer's "entire net income", or the portion thereof allocated to Vermont, is the primary measure for the computation of the franchise tax under § 950. The rate of the tax measured by "entire net income" is four per cent or a minimum of $ 25.00, whichever is greater. The portion of the "entire net income" allocated to Vermont is determined by the percentage of the total sales or charges for services performed, salaries and property in Vermont as against the total of these factors everywhere expressed as a percentage, equal weight given to each.

A--TAX MEASURED BY ENTIRE NET INCOME

Article 301 Definition of Entire Net Income

"Entire net income" means total net income from all sources, and is presumed to be the same as the net income which the taxpayer is required to report to the United States Treasury Department for purposes of the Federal income tax imposed by the Internal Revenue Code of the United States in effect June 1, 1947, without deductions for losses sustained by the corporation in other years although such losses may be deductible under such code, plus any amount allowed as a deduction under such code as compensation for personal services rendered, or as interest, in excess of what the Commissioner of Taxes may determine to be reasonable. Ordinarily, the determination of the Director of Internal Revenue is followed with respect to net income but it is not binding on the Vermont Tax Department.

"Federal net income" is the starting point in the computation of "entire net income." After determining Federal net income, it must be adjusted as follows:

(A) Add to Federal net income:

(1) All interest income which has not been included in computing Federal net income, such as certain obligations of the United States and its instrumentalities, less interest incurred to carry such investments (with the exception of certain State and municipal bonds), to the extent such interest has not been deducted in computing Federal net income;

(2) All Federal taxes on or measured by income or profits which were deducted in computing Federal net income;

(3) Net operating losses of other years which were deducted in computing Federal net income;

(4) The Vermont Franchise Tax computed on the report being prepared, if deducted in computing Federal net income;

(5) The amount deducted in computing Federal net income for interest on indebtedness (whether or not evidenced by written instrument) directly or indirectly owed to an individual stockholder or members of his immediate family (brothers and sisters of the whole or half blood, spouse, ancestors and descendants) who, in the aggregate, own beneficially more than 5% of the taxpayer's issued capital stock, or to a corporate stockholder including its subsidiaries which owns beneficially more than 5% of the taxpayer's issued capital stock, minus 10% of the amount so deducted or $ 1,000.00, whichever is larger. However, this provision does not apply to interest paid or accrued on bonds or other evidences of indebtedness issued, with stock, pursuant to a bona fide plan of reorganization to persons who, prior to such reorganization, were bona fide creditors of the taxpayer or any predecessor corporation, but were not stockholders thereof;

(6) All losses from subsidiary capital which were deducted in computing Federal net income;

(7) In the case of a taxpayer organized outside the United States, all income from sources outside the United States, less all allowable deductions attributable thereto, which were not taken into account in computing Federal net income.

(B) Deduct from Federal net income:

(1) All income and gains from subsidiary capital which were taken into account in computing Federal net income (less any deductions allowed in computing Federal net income which, in the opinion of the Vermont Tax Department, were directly attributable, as a carrying charge or otherwise, to subsidiary capital or to income and gains therefrom), but not any other income from subsidiaries;

(2) The Vermont Franchise Tax based on the period covered by the report if on an accrual basis, or for the previous period if on a cash basis;

(3) Income, war-profits, and excess profits taxes imposed by foreign countries or possessions of the United States, allocable to income included in "entire net income," any part of which was allowed as a credit against the Federal income tax under § 31 of the Internal Revenue Code.

Recoveries with respect to war losses are required to be included in "entire net income", to the extent included in Federal net income, irrespective of whether the war losses were theretofore deducted in computing "entire net income."

Article 302 Year in Which Income or Deductions Included in Entire Net Income

In general, the method of accounting used in computing net income for Federal income tax purposes is used in computing "entire net income" for Vermont Franchise Tax purposes. However, whenever the Vermont Tax Department deems it necessary in order properly to reflect "entire net income" of the taxpayer, it may determine the year or period in which any item of income or deduction shall be included, without regard to the method of accounting used by the taxpayer.

Example: A taxpayer has a building, installation or construction contract covering a period in excess of one year. The taxpayer keeps its books so as to reflect the total income derived from the contract in the taxable year in which the contract is finally completed, and reports its Federal net income accordingly. The Vermont Tax Department may require that income from the contract be apportioned over the entire contract period, on the basis of percentage of completion in each year, or some other appropriate basis.

Article 303 Adjustment of Entire Net Income to Period Covered by Report

If the "entire net income" required to be reported under §§ 950, 951 of the Vermont Law is for a period other than the period covered by the taxpayer's Federal income tax return, its Federal net income is first adjusted in the manner net forth in Article 301, then divided by the number of calendar months or major parts thereof covered by the Federal income tax return, and the result multiplied by the number of calendar months or major parts thereof covered by the report under § 954 of the Vermont Law.

Example: A corporation was organized under the laws of another state in 1950 and carried on its business in such state. It began to do business in Vermont on March 1, 1953. It filed its return for Federal income tax purposes for the calendar year 1953 wherein its net income required to be reported was $ 70,000.00. In computing its "entire net income" for the period from March 1, 1953 to December 31, 1953, its Federal net income for the calendar year 1953 ($ 70,000.00) is first adjusted to conform to "entire net income" as defined in § 949 of the Vermont Law and is then divided by twelve and the result multiplied by ten. The method of computing "entire net income" set forth in the above example is, under similar circumstances, also applicable to corporations reporting on a fiscal year basis for Vermont Franchise Tax purposes.

Article 304 Adjustment to Correct Distortions of Income

In case it shall appear to the Vermont Tax Department that any agreement, understanding or arrangement exists between the taxpayer and any other corporation or any person or firm, whereby the activity, business or income of the taxpayer within the State is improperly or inaccurately reflected, the Vermont Tax Department is authorized to adjust items of income and or deductions and to eliminate assets in computing any allocation percentage, so as equitably to determine the tax.

Where (a) any taxpayer conducts its activity or business under any agreement, arrangement or understanding in such manner as either directly or indirectly to benefit its members or stockholders, or any of them, or any person or persons directly or indirectly interested in such activity or business, by entering into any transaction at more or less than a fair price which, but for such agreement, arrangement or understanding, might have been paid or received therefor, or (b) any taxpayer, a substantial portion of whose capital stock is owned either directly or indirectly by another corporation, enters into any transaction with such other corporation on such terms as to create an improper loss or improper net income, the Vermont Tax Department may include in the "entire net income" of the taxpayer the fair profits which, but for such agreement, arrangement or understanding, the taxpayer might have derived from such transaction.

B--MINIMUM TAX OF $ 25

Article 310 Minimum Tax of $ 25

In no event is the tax for any period less than $ 25, with the exception of the tax assessed for the initial period of operations which may be on a prorated basis.

Part IV ALLOCATION OF NET INCOME (Vermont Allocation Percentage)

Article 400 Computation of Vermont Allocation Percentage

If the taxpayer did not have a regular place of business outside Vermont during the period covered by the report, its allocation percentage is 100%; in other words, the taxpayer may not allocate any of its income outside Vermont.

A regular place of business is any bona fide office (other than a statutory office), factory, warehouse or other space which is regularly used by the taxpayer in carrying on its business. Where as a regular course of business, property of the taxpayer is stored by it in a public warehouse, until it is shipped to customers, such warehouse is considered a regular place of business of the taxpayer. Where as a regular course of business, raw material or partially finished goods of a taxpayer are delivered to an independent contractor to be converted, processed, finished or improved, and the finished goods remain in the possession of the independent contractor until shipped to customers, the plant of such independent contractor is considered a regular place of business of the taxpayer, see Article 403-B.

A taxpayer does not have a regular place of business outside the State solely by consigning goods to an independent factor outside the State for sale at the consignee's discretion.

If the taxpayer had a regular place of business outside Vermont during the period covered by the report, its allocation percentage is generally computed on the basis of its

(1) real and tangible personal property (including real property rented to it) within and without Vermont;

(2) sales or charges for services within and without Vermont and

(3) payrolls within and without Vermont exclusive of salaries of general executives and officers.

The allocation percentage is computed by adding together the percentages of the taxpayer's real and tangible personal property, sales or receipts and payrolls within Vermont during the period covered by the report, and dividing the total of such percentages by three. However, if any one of the factors (property, receipts or payrolls) is missing, the other two percentages are added and the sum is divided by two, and if two of the factors are missing, the remaining percentage is the allocation percentage. (A factor is not missing merely because its numerator is zero, but it is missing if both its numerator and its denominator are zero).

Example: A taxpayer owns no real or tangible personal property and rents no real property either within or without the State. The property factor being missing, the allocation percentage may be computed by adding the percentages derived from the allocation of its sales or receipts and payrolls, and dividing the total by two.

If it appears that the allocation percentage computed on the basis of all or any of the property-sales-payroll factors does not properly reflect the activity, business or income of the taxpayer in Vermont, the Vermont Tax Department may adjust the allocation percentage, as set forth in Article 407.

Article 401 Property Factor

The percentage of the taxpayer's real and tangible personal property within Vermont is determined by the average value of the property.

(a) at the beginning of the taxable year,

(b) at the end of the taxable year within the State, expressed as a percentage of the average of the value of such property,

(a) at the beginning of the taxable year,

(b) at the end of the taxable year both within and without the State.

Tangible' personal property is within Vermont if, and so long as, it is physically situated or located here.

Property of the taxpayer held in Vermont by an agent, consignee or factor is (and property held outside Vermont by an agent, consignee or factor is not) situated or located within Vermont.

Property, while in transit from a point outside Vermont to a point in Vermont, or vice versa, does not have a fixed situs either within or without the State and, therefore, will not be deemed to be "situated" or "located" either within or without Vermont. Accordingly, such property while so in transit should be omitted from both the numerator and the denominator of the property factor. Property in transit from a point outside Vermont to another point outside Vermont is situated or located without Vermont. Property in transit from a point in Vermont to another point in Vermont is situated or located in Vermont. Property ceases to be in transit when it is delivered to or becomes subject to actual possession by the owner at the point of destination.

Article 402 Rented Real Property

(a) As heretofore noted, in determining the property factor, real property rented to the taxpayer, as well as real property and tangible personal property owned by it, must be considered.

(b) In order to avoid unnecessary hardship on taxpayers and for ease of administration, the fair market value of real property, both within and without Vermont, which is rented to the taxpayer is capitalized by the factor 8. Such capitalization is based on the assumption that the annual rental is 12 1/2% of the value of the property. Therefore, the gross rent payable, during the period covered by the report, is multiplied by 8.

(c) "Gross Rent" as used in this article, is the actual sum of money payable or other consideration payable, directly or indirectly, by the taxpayer or for its benefit for the use or possession of the property and includes:

(1) Any amount payable for the use or possession of real property, or any part thereof, whether designated as a fixed sum of money or as a percentage of sales, profits, or otherwise:

Example (1): A taxpayer, pursuant to the terms of a lease, pays the lessor $ 1,000.00 per month and at the end of the year pays the lessor one percent of its gross sales of $ 400,000.00. Its gross rent is $ 16,000.00.

(2) Any amount payable as additional rent or in lieu of rent, such as interest, taxes, insurance, repairs or any other amount required to be paid by the terms of a lease or other arrangement;

Example (2): A taxpayer, pursuant to the terms of a lease, pays the lessor $ 24,000.00 per annum and also pays real estate taxes in the amount of $ 4,000.00 and interest on a mortgage in the amount of $ 2,000.00. Its gross rent is $ 30,000.00.

(3) A proportionate part of the cost of any improvement to real property made by, or on behalf of, the taxpayer which reverts to the owner or lessor upon termination of a lease, or other arrangement, based on the unexpired term of the lease commencing with the date the improvement is completed (or the life of the improvement if its life expectancy is less than the unexpired term of the lease), provided, however, that where a building is erected on land leased by, or on behalf of the taxpayer, the value of the land is determined by multiplying the gross rent by eight, and the value of the building is determined in the same manner as if owned by the taxpayer. The proportionate part of the cost of an improvement (other than a building on leased land) is generally equal to the amount of amortization allowed in computing "entire net income," whether the lease does or does not contain an option of renewal.

Example (3): A taxpayer enters into a 21-year lease of certain premises at a rental of $ 20,000.00 per annum and after the expiration of one year installs a new store front at a cost of $ 10,000.00 which reverts to the owner upon expiration of the lease. Its gross rent for the first year is $ 20,000.00. However, for subsequent years its gross rent is $ 20,500.00 ($ 20,000.00 annual rent plus 1/20th of $ 10,000.00, the cost of the improvement apportioned on the basis of the unexpired term of the lease).

Example (4): A taxpayer leases a parcel of vacant land for 40 years at an annual rental of $ 5,000.00 and erects thereon a building which costs $ 600,000.00. The value of the land is determined by multiplying the annual rent of $ 5,000.00 by eight, and the value of the building is determined in the same manner as if owned by the taxpayer.

"Gross Rent" does not include:

(1) Intercompany rents if both the lessor and lessee are taxed on a combined basis under § 950 of the Vermont Law.

(2) Amounts payable as separate charges for water and electric service furnished by the lessor.

(3) Amounts payable for storage provided no designated space under the control of the taxpayer as a tenant is rented for storage purposes.

In exceptional cases use of the general method outlined above may result in inaccurate valuations. Accordingly, in such cases any other method which will properly reflect the value may be adopted by the Vermont Tax Department, either on its own motion or on request of a taxpayer. Such other method of valuation may not be used by a taxpayer until approved by the Vermont Tax Department. Any such request shall set forth full information with respect to the property, together with the basis for the valuation proposed by the taxpayer. Such other method once approved by the Vermont Tax Department may be used by the taxpayer in its reports for subsequent years until the facts upon which such other method is based are materially changed.

Article 403 Sales and Receipts Factor

The percentage of the taxpayer's business receipts within Vermont is determined by

(a) ascertaining the taxpayer's business receipts within Vermont during the period covered by the report;

(b) dividing the sum of such receipts by the taxpayer's total business receipts within and without Vermont during such period.

Receipts from the following are allocable to Vermont:

(1) Sales of the taxpayer's tangible personal property

(a) located in Vermont at the time of the receipt of or appropriation to the orders irrespective of where the orders were received or accepted;

(b) not located, at the time of the receipt of or appropriation to the orders, at any permanent or continuous place of business maintained by the taxpayer outside Vermont, where the orders were received or accepted in Vermont;

(2) Services performed in Vermont;

(3) Rentals from property situated in Vermont;

(4) Royalties from the use in Vermont of patents and copyrights;

(5) All other business receipts earned in Vermont.

All such receipts of the period covered by the report (computed on the cash or accrual basis, in accordance with the method of accounting used in the computation of the taxpayer's "entire net income") must be taken into account.

Article 403-A Sales of Tangible Personal Property Located within Vermont Receipts from sales of the taxpayer's tangible personal property (such as goods, wares, merchandise, etc.) are allocable to Vermont if the property was located in Vermont (whether or not at a regular place of business maintained by the taxpayer) at the time of the receipt of or appropriation to the orders.

An order for the purchase of tangible personal property is received when it reaches any officer, employee or other agent of the taxpayer authorized to solicit or receive the order on behalf of the taxpayer, irrespective of whether such agent has authority to make a binding acceptance of the order. Thus, an order mailed to the taxpayer's factory or office is received by the taxpayer when it is delivered; an order given to a salesman or other agent of the taxpayer is immediately received by the taxpayer.

If goods are sold by an independent factor outside Vermont, the taxpayer's receipts from the factor are allocable to Vermont if the goods were located in Vermont

(1) at the time of the receipt by the taxpayer of the factor's orders for the goods;

(2) at the time the goods were shipped or otherwise appropriated to the factor's orders by the taxpayer.

Tangible personal property is appropriated to an order when it is set aside or earmarked for or associated with the order by the taxpayer, irrespective of whether title passes at the time of such appropriation.

When the property sold was located in Vermont, either at the time of the receipt of the order or at the time of the appropriation to the order, the receipt from the sale is allocated to Vermont; it is immaterial whether the order was received or accepted within or without Vermont or whether the appropriation of goods to the order took place within or without Vermont.

If a taxpayer received a lump sum in payment for services and also for materials or other property, the sum received must be apportioned on a reasonable basis. That part apportioned to services performed is includible in receipts from services performed, and that part apportioned to materials or other property is includible in receipts from sales. Full details must be submitted with the report.

Example 1: An order for a typewriter is given to the taxpayer's salesman in Pennsylvania and forwarded to the home office of the taxpayer in Illinois where it is accepted. The filling of the order from a stock of goods maintained in Vermont constitutes the appropriation to the order. The receipt from the sale is allocable to Vermont.

Example 2: An order for a custom-built machine is given to the taxpayer's salesman in Pennsylvania and forwarded to the home office of the taxpayer in Illinois where it is accepted. The machine is manufactured at the taxpayer's factory in Illinois and forwarded to the taxpayer's warehouse in Vermont for shipment to the customer in Pennsylvania. The manufacture of the machine in Illinois is an appropriation of the machine to the order, at a time when the machine is not located in Vermont. The receipt from the sale is not allocable to Vermont.

Example 3: An order for a machine is given the taxpayer's salesman in Pennsylvania and forwarded to the home office of the taxpayer in Illinois where it is accepted. The machine is later either purchased in Vermont by the taxpayer, or manufactured in Vermont by the taxpayer, and forwarded to the customer. The purchase or manufacture in Vermont constitutes the appropriation to the order. The receipt from the sale is allocable to Vermont.

Article 403-B Sales of Tangible Personal Property Not Located at a Permanent Place of Business Outside Vermont Receipts from sales of the taxpayer's tangible personal property (such as goods, wares, merchandise, etc.) are allocable to Vermont if such property is not located, at the time of the receipt of or appropriation to the orders (Article 403-A), at any permanent or continuous place of business maintained by the taxpayer outside Vermont, provided the orders are either received or accepted in Vermont. Thus, if the property sold was not in existence or was located outside Vermont at the time the order was received and was located outside Vermont at the time it was appropriated to the order, the receipt from the sale is nevertheless allocable to Vermont, unless it can be shown also

(1) that at one of those times the property was located at a permanent or continuous place of business maintained by the taxpayer outside Vermont.

(2) that the order was both received and accepted outside Vermont.

An order is deemed received or accepted in Vermont if received or accepted by an employee, agent, agency or independent contractor chiefly situated at, connected with, by contract or otherwise, or sent out from a permanent or continuous place of business of the taxpayer within Vermont.

A permanent or continuous place of business maintained by the taxpayer outside Vermont is any bona fide office (other than a statutory office). factory, warehouse, or other space outside Vermont, at which the taxpayer is doing business in its own name in a regular and systematic manner, and which is continuously maintained, occupied and used by the taxpayer in carrying on its business through its regular employees regularly in attendance.

Tangible personal property purchased by the taxpayer and held by the seller for delivery as directed by the taxpayer, property in transit, property stored in a public warehouse, property in the possession of an independent contractor, and property in the possession of an independent factor for sale at his own discretion are not located at a permanent or continuous place of business maintained by the taxpayer.

If goods are sold by an independent factor outside Vermont, the taxpayer's receipts from the factor are allocable to Vermont, unless it can be shown

(1) that at the time of the receipt by the taxpayer of the factor's orders for the goods, or at the time the goods were shipped or otherwise appropriated to the factor's orders by the taxpayer, the goods were located at a permanent or continuous place of business maintained by the taxpayer outside Vermont;

(2) that the factor's orders were both received and accepted by the taxpayer outside Vermont.

An order is accepted in Vermont if it becomes a contract binding on the taxpayer by reason of an act performed in Vermont.

Example 1: A taxpayer receives or accepts in Vermont an order for oranges which it previously had purchased from a grower and which are being held in the grower's warehouse in Florida, from where they are shipped to the customer. The receipt from the sale is allocable to Vermont.

Example 2: A taxpayer receives or accepts in Vermont an order for perfume which it owns and which is being held in the custom house in Boston, from where it is shipped to the customer. The receipt from the sale is allocable to Vermont.

Example 3: A taxpayer receives or accepts in Vermont an order which it fills from a stock of goods in a warehouse regularly maintained by it through its own employees in Michigan. The receipt from the sale is not allocable to Vermont.

Example 4: A taxpayer receives or accepts in Vermont an order for a tractor. If, after receipt of the order, the taxpayer purchases the tractor and has it shipped direct to its customer by the seller, the receipt from the sale is allocable to Vermont; but if the taxpayer manufactures the tractor in its factory outside Vermont, from which it is shipped to the customer, the receipt from the sale is not allocable to Vermont.

Example 5: A taxpayer receives or accepts in Vermont an order of a customer under which goods can be withdrawn from time to time, from a stock of goods kept by the taxpayer in a public warehouse outside Vermont. When goods are withdrawn to fill the order, the taxpayer is notified and it bills the customer. The receipt from the sale is allocable to Vermont.

Example 6: A taxpayer accepts an order through a salesman or officer working out of its Vermont office in another state, and fills such order from a stock of goods kept in a public warehouse outside Vermont. The receipt from the sale is allocable to Vermont.

Example 7: A taxpayer receives or accepts in Vermont an order for shirts which it fills from stock stored at the Pennsylvania plant of the independent contractor who manufactured the shirts for it and who ships the shirts to the customer. The receipt from the sale is allocable to Vermont.

Example 8: A taxpayer receives or accepts in Vermont an order for shirts which it fills from stock stored at the Pennsylvania plant of the independent contractor who manufactured the shirts for it. The taxpayer has an arrangement with the contractor under which space at the contractor's plant is leased to the taxpayer for the storage of the shirts manufactured for it and facilities are made available for the shipment of the shirts to the customer from the plant of such contractor by a shipping clerk employed by the taxpayer. The receipt from the sale is allocable to Vermont.

Article 403-C Compensation for Services

Receipts from services performed within Vermont are allocable to Vermont. All amounts received by the taxpayer in payment for such services are so allocable, irrespective of whether such services were performed by employees or agents of the taxpayer, by subcontractors, or by any other persons. It is immaterial where such amounts were payable or where they actually were received.

Commissions received by the taxpayer are allocated to Vermont if the services for which the commissions were paid were performed in Vermont. If the taxpayer's services for which commissions were paid were performed for the taxpayer by salesmen attached to or working out of a Vermont office of the taxpayer, the taxpayer's services will be deemed to have been performed in Vermont.

Example: The taxpayer is a Vermont sales agent of a Pennsylvania manufacturer and receives in Vermont an order from a New Jersey customer. The order is forwarded to the manufacturer which accepts it and fills it by shipment direct to the customer. The taxpayer's commission is allocable to Vermont.

Where a lump sum is received by the taxpayer in payment for services within and without Vermont, the amount attributable to services within Vermont is to be determined on the basis of the relative values of, or amounts of time spent in the performance of, such services within and without Vermont, or by some other reasonable method. Full details must be submitted with the taxpayer's report.

If a taxpayer receives a lump sum in payment for services and also for materials, or other property, the sum received must be apportioned on a reasonable basis. That part apportioned to services performed is includible in receipts from services, and that part apportioned to materials or other property is includible in receipts from sales. Full details must be submitted with the taxpayer's report.

Article 403-D Rents and Royalties

Receipts from rentals of real and personal property situated in Vermont, and royalties from the use in Vermont of patents or copyrights, are allocable to Vermont.

Receipts from rentals include all amounts received directly or indirectly by the taxpayer for the use or occupation of property whether or not such property is owned by the taxpayer.

Receipts from royalties include all amounts received by the taxpayer for the use of patents or copyrights, whether or not such patents or copyrights were originally issued to or are owned by the taxpayer.

A patent or copyright is used in Vermont to the extent that activities thereunder are carried on in Vermont.

Article 403-E Other Business Receipts

All business receipts earned by the taxpayer within Vermont are allocable to Vermont. Business receipts are not considered to have been earned by the taxpayer in Vermont solely by reason of the fact that they were payable in Vermont or actually were received in Vermont.

Receipts from sales of capital assets (property not held by the taxpayer for sale to customers in the regular course of business) are not business receipts. Receipts from the sale of real property held by the taxpayer as a dealer for sale to customers in the regular course of business are business receipts and are allocable to Vermont, if the real property was situated in Vermont. Receipts from sales of intangible personal property included in business capital, held by the taxpayer as a dealer for sale to customers in the regular course of business, are business receipts and are allocable to Vermont, if the sales were made in Vermont or through a regular place of business of the taxpayer in Vermont.

Article 404 Payroll Factor

The percentage of the taxpayer's payroll allocable to Vermont is determined by dividing the wages, salaries and other personal service compensation of the taxpayer's employees (except general executive officers) within Vermont during the period covered by the report, by the total amount of compensation of all the taxpayer's employees (except general executive officers) during such period.

Wages, salaries and other compensation include all amounts paid in good faith for services to the taxpayer, but do not include amounts paid by the taxpayer which do not have in them the element of compensation for personal services actually rendered or to be rendered.

Wages, salaries and other compensation are computed on the cash or accrual basis, in accordance with the method of accounting used in the computation of the "entire net income" of the taxpayer.

Employees within Vermont include all employees regularly connected with or working out of an office or place of business of the taxpayer within Vermont, irrespective of where the services of such employees were performed. However, if the taxpayer establishes to the satisfaction of the Vermont Tax Department that, because a substantial part of its payroll was paid to employees attached to a Vermont office who performed a substantial part of their services outside Vermont, the computation of the payroll factor according to the general rule stated above would not produce an equitable result, the Vermont Tax Department may permit the payroll factor to be computed on the basis of the amount of compensation paid for services actually rendered within and without the State. On the other hand, wherever it appears that, because a substantial part of the taxpayer's payroll was paid to employees, attached to offices outside the State, who performed a substantial part of their services within the State, the computation of the payroll factor according to the general rule would not properly reflect the amount of the taxpayer's business done within Vermont by its employees, the Vermont Tax Department may require the payroll factor to be computed on the basis of the amount of compensation paid for services performed within and without the State. In any such case, where an employee performed services both within and without the State, the amount treated as compensation for services performed within the State will be deemed to be

(1) in the case of an employee whose compensation depended directly on the volume of business secured by him, such as a salesman on a commission basis, the amount received by him for the business attributable to his efforts within Vermont;

(2) in the case of an employee whose compensation depended on other results achieved, the proportion of the total compensation which the value of his services within Vermont bears to the value of all his services;

(3) in the case of an employee compensated on a time basis, the proportion of the total amount received by him which the working time employed within Vermont bears to the total working time.

Article 405 Definition of Employees

Employees, whose wages, salaries and other personal service compensation are included in the computation of the payroll factor of the income allocation percentage, include every individual (except a general executive officer) where the relationship existing between the taxpayer and such individual is that of employer and employee.

Generally, the relationship of employer and employee exists when the taxpayer has the right to control and direct the individual not only as to the result to be accomplished by him but also as to the means by which such result is to be accomplished. If the relationship of employer and employee exists, the designation or description of the relationship, and the measure, method or designation of the compensation, are immaterial.

A director of a corporation is not an employee, and therefore, compensation paid to directors for acting as such should not be included in computing the payroll factor.

Article 406 General Executive Officers

Personal service compensation paid to general executive officers of the taxpayer for acting as such should not be included in the computation of the payroll factor.

General executive officers include the chairman, president, vice-president, secretary, assistant secretary, treasurer, assistant treasurer, comptroller, and any other office, charged with and performing general executive duties of the corporation. An executive officer whose duties or services are restricted to territory either within or without the state is not a general executive officer.

Article 407 Disretionary Adjustment of Vermont Allocation Percentage

Generally, the allocation formula hereinbefore described will result in a fair apportionment of the taxpayers' income within and without Vermont. However, experience in this and other states which impose similar franchise taxes has shown that due to the nature of certain businesses the formula may work hardships in some cases, and not do justice either to the taxpayer or to the State. Accordingly, provision is made whereby, in such cases, the Vermont Tax Department may authorize some other formula which will more accurately reflect the business activity within Vermont.

The statute provides that where it appears to the Vermont Tax Department that the allocation percentage, computed on the basis of the statutory formula does not properly reflect the activity, business or income of the taxpayer within Vermont, the Vermont Tax Department may adjust such allocation percentage. This may be done by:

(a) excluding one or more of the factors therein;

(b) including one or more other factors, such as expenses, purchases, contract values (minus subcontract values);

(c) excluding one or more assets in computing any factor entering into the allocation percentage, provided the income therefrom is also excluded in determining "entire net income;"

(d) any other similar or different method calculated to effect a fair and proper allocation.

A taxpayer may not vary the regular statutory formula without the prior consent of the Vermont Tax Department.

A taxpayer making application for an adjustment of its income allocation formula must file its report and compute its tax in accordance with the regular statutory formula. It should also attach a rider to the report setting forth full information on which its application is based, together with a computation of the tax which would be due under the proposed method.

Part V REPORTS

Article 500 Corporations Required to File Reports

Reports are required to be filed annually by the following:

(1) Every corporation subject to tax, irrespective of the amount of its "entire net income";

(2) Every receiver, referee, trustee, assignee or other fiduciary, or other officer or agent appointed by any court, who conducts the business of any corporation subject to tax under § 950 of the Vermont Law;

(3) Every foreign corporation which has an officer, agent or representative within Vermont, irrespective of whether such corporation is subject to tax under § 950 of the Vermont Law, provided such corporation is not subject to a franchise or excise tax imposed by any other section of the Vermont Law.

Article 501 Foreign Corporation Having an Officer, Agent or Representative within Vermont

Every foreign corporation which has an officer, agent or representative in Vermont is required to file reports, irrespective of whether it is doing business in Vermont so as to be subject to tax. As to a foreign corporation not doing business in the State so as to be subject to tax, this requirement applies only if it maintains in Vermont, with a fair degree of regularity and continuity, one or more officers, agents or representatives, between whom and the corporation there exists the relationship of employer and employee. (As to when the relationship of employer and employee exists between a corporation and its agents or representatives, see Art. 405.) A foreign corporation not doing business in the State is not required to file reports merely because one or more of its offices, agents or representatives reside or have an office in some other capacity in Vermont or come into the State at infrequent intervals in connection with isolated transactions of the corporation.

Every foreign corporation maintaining one or more officers, agents or representatives in Vermont, which claims that it is not doing business in Vermont so as to be subject to tax, is required to file Form 104-A setting forth full information as to its activities in Vermont, so that the Vermont Tax Department may ascertain whether it is subject to tax. If the Vermont Tax Department determines that the corporation is subject to tax, it will notify the corporation.

Example 1: A foreign corporation which claims that it is not doing business in Vemont is represented in Vermont by a sales agent who maintains an office and sales staff and who is paid by the corporation on a commission basis. The corporation is required to file a report on Form 104-A.

Example 2: A foreign corporation which claims that it is engaged wholly in interstate and foreign commerce has an export representative in Vermont. The corporation is required to file a report on Form 104-A.

Example 3: A foreign corporation sends goods to Vermont to be disposed of by an independent factor, but it does no business in Vermont and has no officer, agent or representative in Vermont. The corporation is not required to file a report.

Article 502 Reports Where Federal Net Income is Changed

If the amount of the net income of any taxpayer, as returned for Federal income tax purposes, is changed or corrected by a final determination of the Internal Revenue Department or other officer of the United States, or other competent authority, the taxpayer is required to report such changed or corrected net income and to concede the accuracy thereof or state wherein it is erroneous.

The ninety day deficiency notice provided by section 272(a) of the Internal Revenue Code is a final determination, unless a timely petition to redetermine the deficiency is filed in the Tax Court of the United States, in which event the judgment of the court of last resort affirming the deficiency, or the redetermination of the deficiency pursuant to the judgment of the court of last resort, is the final determination. The allowance by the Internal Revenue Department of a refund of any part of the tax shown on the taxpayer's return or of any deficiency thereafter assessed, whether such refund is made on the Department's own motion or pursuant to judgment of a court, is also a final determination.

Any taxpayer filing an amended return with the United States Treasury Department shall also file an amended report with the Vermont Tax Department.

Article 503 Form of Reports

Reports are required to be made on forms prescribed by the Vermont Tax Department. In the case of all taxpayers, annual reports are required to be filed on Form 104. In the case of all taxpayers entitled to an allocation, the allocation schedule is required to be completed. As to the form of combined reports, see Part VI. In the case of a foreign corporation which is not a taxpayer, but which has an officer, agent or representative within Vermont, an annual report is required to be filed on Form 104-A. Forms for reporting changes in Federal net income will be made available upon request.

The Vermont Tax Department may require any taxpayer to file such other reports and submit such further information as it may desire in the course of the administration of the provisions of Chapters 44 and 46.

Every report must be signed either by the president, vice-president, comptroller, secretary, treasurer or accounting officer of the taxpayer to the effect that the statements contained in the report are true. The person signing such a return shall be deemed to be the person subject to any pains and penalties of perjury prescribed by § 955 of the Vermont Law.

Annual report forms are supplied by the Vermont Tax Department, but failure to secure a form does not release any corporation from the obligation of making any report required by § 954.

Article 504 Time for Filing Reports

The appropriate annual tax report must be filed on or before May fifteenth next succeeding the close of each calendar year of the corporation, or if the report is made on the basis of a fiscal year within four and one-half months after the close of each fiscal year.

The report of a change in Federal net income which results in a change in Vermont net income must be made on the taxpayer's next annual tax report, or, at the election of the taxpayer, within ninety days after the final determination of such change, or as otherwise required by the Vermont Tax Department.

When the due date of a report falls on Sunday or a legal holiday, the report may be filed on the following day.

Article 505 Time for Filing Reports of Corporations Ceasing to Exercise Franchise or to be Subject to Tax

A domestic corporation which ceases to exercise its franchise is required to file a report on the date of such cessation, or at such other time as the Vermont Tax Department may require, covering each year of period for which no report was theretofore filed. The report is required in any such case, whether the corporation continues in existence and thus remains subject to tax under § 950, or is dissolved and thus ceases to be subject to tax. However, in case the corporation continues in existence, the report is tentative and the tax will be adjusted on the next report due.

A foreign corporation which ceases to do business in Vermont and thus ceases to be subject to tax under § 950, is required to file a report on the date of such cessation, or at such other time as the Vermont Tax Department may require, covering each year or period for which no report was theretofore filed.

Any corporation which ceases to be subject to tax under § 950 because of a change of classification is required to file a report on the date of such change of classification, or at such other time as the Vermont Tax Department may require, covering each year or period for which no report was theretofore filed.

If a corporation taxed on the basis of a combined report, which ceases to be subject to tax under § 950 or which ceases to exercise its franchise but remains subject to tax, secures the permission of the Vermont Tax Department to be included in the next combined report, it need not file a separate report at the time of such cessation.

Article 506 Extension of Time for Filing Reports

The Vermont Tax Department may grant a reasonable extension of time for filing reports whenever good cause exists. An application for an extension of time should be made prior to the due date of the report, and should be mailed or delivered to the Vermont Tax Department, Montpelier, Vermont. Interest will be charged at the rate of 6% per annum.

An extension of time for filing the annual tax report (Form 104) will be granted only on condition that a tentative report is filed and the estimated tax thereon is paid. A tentative report is required to be made in the form prescribed for the annual report.

Article 507 Place for Filing Reports

Reports should be mailed or delivered to the Vemont Tax Department, Montpelier, Vermont.

Article 508 Action to Compel Filing of Reports

An action may be brought at any time by the Attorney General in the name of the State of Vermont, at the instance of the Vermont Tax Department, to compel the filing of reports due under § 954 of the Vermont Law. Such action shall be returnable in the county where the taxpayer is domiciled, if a domestic corporation; and if a foreign corporation, the action shall be returnable to the Washington County Court in Montpelier.

Article 509 Secrecy of Reports

Except in accordance with proper judicial order or as otherwise provided by law, it is unlawful for the Commissioner of Taxes, any officer or employee of the Vermont Tax Department, or any person who is permitted to inspect any report, or to whom any information contained in any report is furnished, to divulge or make known in any manner the amount of income or any particulars set forth or disclosed in any report under § 954 of the Vermont Law.

Article 510 Secrecy of Reports; Exceptions

The provisions relating to secrecy of reports and information contained therein do not prohibit the delivery to a corporation, or its duly authorized representative, of a copy of any report filed by it, or inspection by the Attorney General, or other legal representative of the State of Vermont of the report of any corporation which shall bring an action to set aside or review the tax based thereon, or concerning which an action or proceeding has been recommended by the Commissioner of Taxes, or the Attorney General, or other legal representative of the State of Vermont, or instituted, in accordance with the provisions of the Vermont Law; or the exchange by the Vermont Tax Department with the taxing officials of any other state or of the Federal Government of such information contained in the reports filed under § 954 as it may consider proper, provided such state or the Federal Government grants like privileges to the State of Vermont and such information is to be used for tax purposes only.

Part VI COMBINED REPORTS

Article 600 Corporations Taxed on Basis of Combined Reports

The Vermont Tax Department may require or permit corporations to be taxed on a combined basis where a taxpayer owns or controls, directly or indirectly, substantially all the capital stock of one or more other taxpayers; or where substantially all the capital stock of a taxpayer is owned or controlled, directly or indirectly, by one or more other taxpayers or by interests which own or control, directly or indirectly, substantially all the capital stock of one or more other taxpayers. However, the Department cannot require (although it may permit) a foreign corporation not doing business in the State (which is not a taxpayer) to be included in a combined report, unless it deems such a report necessary, because of intercompany transactions or some agreement, understanding or arrangement in order properly to reflect the tax liability under § 950.

Article 601 Combined Corporations Ceasing to be Subject to Tax Under Section 950

A corporation which is a member of a group taxed on the basis of a combined report, and which ceases to be subject to tax under Sec. 950, may be permitted to be included in the next combined report of the group, instead of paying a separate tax covering the period up to the date of such cessation. Application for permission to report in such manner should be mailed or delivered to the Vermont Tax Department, Montpelier, Vermont.

Article 602 Computation of Tax on Combined Reports

Where corporations are taxed on a combined basis, the tax will be determined as though the combined "entire net income" and capital of all the corporations covered by the report were those of one corporation.

Article 603 Minimum Tax on Combined Reports

In no event is the tax of any corporation included in a combined report less than $ 25.000. Thus, where a tax measured by "entire net income" (Art. 301), is computed on the basis of a combined report, each corporation included therein (other than the corporation paying the combined tax) is required to pay a minimum tax of $ 25.00.

Article 604 Allocation on Combined Reports

Allocation is made on the basis of combined accounts from which intercompany items (including intercorporate receipts) are eliminated, see Part IV.

Article 605 Receipts Factor on Combined Reports

Intercompany business receipts (receipts by any corporation included in the combined report from any other corporation included in such report) are eliminated in computing the percentage of business receipts within Vermont.

Article 606 Form of Reports on Combined Basis

In all cases where a combined report is required or permitted to be filed such report must be filed on Form 104, setting forth the information requested. In addition, a separate report on Form 104 is required to be filed each corporation included in the combined report, but such separate reports need not repeat any information which is contained in the combined report.

Article 607 Combined Reports; When Required or Permitted

In any case where the test of stock ownership or control set forth above is met, a combined report may be permitted by the Vermont Tax Deparment, in determining whether, in a case where the test of stock ownership or control is met, the tax will be computed on the basis of a combined report, the Vermont Tax Department will consider various factors, including the following:

(1) whether the corporations are engaged in the same or related lines of business;

(2) whether any of the corporations are in substance merely departments of a unitary business conducted by the entire group;

(3) whether the products of any of the corporations are sold to or used by any of the other corporations;

(4) whether any of the corporations perform services for, or lend money to, or otherwise finance or assist in the operations of, any of the other corporations;

(5) whether there are other substantial intercompany transactions among the constituent corporations.

What constitutes "substantially all" the capital stock of a corporation, within the meaning of the foregoing provisions, will be determined on the basis of the facts in each case, but ordinarily the actual beneficial ownership or control of 95% or more of the issued and outstanding capital stock entitling the holders to vote for the election of directors or trustees will be considered as meeting the test laid down in the statute.

Article 608 Assessment and Reassessment of Tax on Combined Reports

Where the tax is computed on the basis of a combined report, the Vermont Tax Department may assalss [assess] the entire amount of the tax, and all additional taxes computed on the basis of such report, against any one or more of the taxpayers covered by the report, in such proportions as the Department may determine, but every such taxpayer is liable for the entire tax.

Article 609 Revision of Taxes on Combined Reports

If an application is filed for the revision of a tax computed on the basis of a combined report, the Vermont Tax Department may for cause reassess the tax ("resettle" or "adjust" the account) of every taxpayer covered by the combined report, and if a reassessment is made of the tax of any taxpayer which was not, but might have been, included in the combined report when the tax was originally assessed, the Vermont Tax Department may allow such taxpayer to be included in the combined report and reassess the tax accordingly.

Part VII ASSESSMENT, REVISION AND REVIEW

Article 700 Assessment and Reassessment

On its report, the taxpayer computes the amount of tax which it believes payable under the law. The Vermont Tax Department thereupon "audits and states an account" for the tax; that is to say, the Department examines the report, computes the amount of tax payable under the law, and sends the taxpayer notice thereof, which constitutes the original assessment of the tax. If the Department fails to make an assessment within three years after the report was filed, it will be deemed to have assessed a tax in the amount shown on the report.

In case a taxpayer fails to file a report required by law, the Department is authorized to make an estimate of the tax.

The Department may "reaudit and restate the account"; that is to say, reexamine the report, recompute and reassess the tax, by sending notice thereof to the taxpayer

(1) at any time within three years after the report was filed;

(2) at any time, if it has reason to believe that the report was false, or fraudulent;

(3) if a report had not been field at the time the tax was originally assessed.

At any time before the expiration of the period within which the Department is authorized to recompute the tax and notify the taxpayer thereof, such period may be extended by written consent of the Department; and at any time before the expiration of any such extended period, the period may be further extended by written consent of the Department.

If the taxpayer's Federal net income for any period covered by a report under § 950 is changed or corrected by the Director of Internal Revenue or other competent Federal authority, the taxpayer is required to notify the Vermont Tax Department of such change or correction forthwith with pertinent figures after the final determination of such change or correction. At any time within three years after the time the return was due, or within one year of the date when notification to the Vermont Tax Department by the taxpayer takes place (provided such notification is received within five years of the due date of the return), the Department may "reaudit and restate the account" or recompute and reassess the tax, giving notice to the taxpayer thereof.

If the Vermont Tax Department reaudits and restates the account of any taxpayer (reporting on a cash basis), thereby altering the amount of tax due for such year under § 950, the deductions taken for taxes in reports filed for subsequent years will be adjusted to the extent necessary to reflect any increase or decrease resulting from such reaudit or restatement.

Example: A taxpayer's report based on the calendar year 1952 is reaudited and an additional tax under § 950 assessed for such year. The deduction taken for such taxes in computing the taxpayer's "entire net income" for the base year 1953 will be adjusted to reflect the increase in taxes for the base year 1952. This adjustment decreases the taxpayer's "entire net income" for the base year 1953 and, consequently, the tax for such year in the event that such tax was measured by net income. This will result in a decrease of the deduction claimed for taxes in taxpayer's report for the base year 1954 and an increase in taxpayer's "entire net income" for such base year. Similar adjustments will be made in reports for subsequent years alternately increasing and decreasing the deduction claimed for taxes where the taxes based on such subsequent reports are measured by net income.

If the account of any taxpayer reporting on an accrual basis restated, the deduction for taxes for the year in question will be adjusted accordingly.

Article 701 Assessment of Additional Tax

When the Commissioner of Taxes discovers from the examination of the return or otherwise that the income of any taxpayer, or any portion thereof, has not been assessed, he may, at any time within three years after the time when the return was due, assess the same and give notice to the taxpayer of such assessment. The taxpayer shall thereupon have an opportunity, within thirty days, to confer with the Commissioner of Taxes as to the proposed assessment. The limitation of three years to the assessment of such tax or additional tax shall not apply to the assessment of additional taxes upon fraudulent returns. After the expiration of thirty days from such notification, the Commissioner of Taxes shall assess the income of such taxpayer, or any portion thereof, which he finds has not theretofore been assessed and shall give notice to the taxpayer so assessed, of the amount of the tax and interest and penalties if any. The amount thereof shall be due and payable within ten days from the date of such notice. The provisions of the law with respect to appeal shall apply to a tax so assessed. No additional tax amounting to less than $ 1.00 shall be assessed, nor shall any refund under $ 1.00 be authorized, unless requested.

Article 702 Arbitrary Assessment

When a taxpayer, who has failed to file a return or has filed an incorrect or insufficient return and has been notified by the Commissioner of Taxes of his delinquency, refuses or neglects within twenty days after such notice to file a proper return, or files a fraudulent return, the Commissioner of Taxes shall determine the income of such taxpayer according to his best information and belief and may increase the amount so determined by a penalty not to exceed fifty per cent of such amount.

The Commissioner of Taxes shall have power, upon making a record of his reasons therefore, to waive or reduce any of the additional taxes or interest which may have been imposed.

Article 703 Revision

The taxpayer may file with the Vermont Tax Department, Montpelier, Vermont, an application for revision of his tax, at any time within three years after the original assessment of the tax, or if a reassessment has been made, within one year after such reassessment.

On filing an application for revision, the taxpayer may request an informal hearing before an authorized representative of the Department, at which it may submit such further information as it deems advisable. If such an informal hearing is requested, the Department will, as soon as practicable after such hearing, notify the taxpayer informally, by letter, of the action taken as a result thereof. If such action is satisfactory to the taxpayer, it may then withdraw its application for revision. If, however, the action of the Department following such an informal hearing is not satisfactory to the taxpayer, the application for revision will be set down for formal hearing, at which the taxpayer may submit legal evidence in support of its contentions. After the formal hearing, the Department will "resettle" or "readjust" the account; that is to say, will make a final determination of the tax and will notify the taxpayer thereof.

An application for revision may be made by a written document containing all the pertinent information and must be signed on behalf of the taxpayer by a duly authorized representative.

Article 704 Judicial Review

At any time within ninety days after service of notice of the Vermont Tax Department's final determination on an application for revision, and upon paying or securing payment of the tax, the taxpayer may institute a proceeding in the county court within and for the County of Washington or the county court in and for the county in which such taxpayer is domiciled, if a domestic corporation, to review such determination. Notice shall be served on the Commissioner of Taxes at least twelve days before the date of hearing. Thereupon, appropriate proceedings shall be had and the relief, if any, to which the taxpayer may be found entitled may be granted and any taxes, interest or penalties paid, found by the court to be illegally assessed, shall be ordered refunded to the taxpayer with interest at six per cent per annum for the time of payment, with costs, and judgment entered accordingly.

Article 705 Service of Notice on Taxpayers

Notice of any assessment of tax ("audit and statement of account"), or reassessment of tax ("reaudit and restatement of account:), or any final determination on an application for revision ("resettlement" or "adjustment" of account), may be served on the taxpayer personally, or by registered mail addressed to the taxpayer at the post office address given in its last report under § 954, unless subsequent to the filing of its last report the Vermont Tax Department has received written notice of a change of address, in which event the notice will be sent to the new address shown on such notice.

Article 706 Closing Agreements

The Vermont Tax Department is authorized to enter into a written agreement with any corporation, relating to the liability of such corporation in respect of any tax imposed by § 950 of the Vermont Law which agreement is final and conclusive.

Part VIII PAYMENT, COLLECTION AND REFUND

Article 800 Time for Payment of Tax

The annual franchise tax may be paid to the Vermont Tax Department in full on or before the due date of the report. In cases of corporations operating on a calendar year basis the report is due on May 15th following the close of such calendar year; in cases of corporations operating on a fiscal year basis the report is due four and one-half months after the close of such fiscal year.

A taxpayer which ceases to exercise its franchise or to be subject to tax under § 950 must pay the entire tax for each year or period for which no report was theretofore filed on the date of such cessation or such other time as the Department may require.

If the taxpayer is notified by the Department that an additional tax is payable, such additional tax must be paid by the taxpayer within sixty days after service of such notice.

Article 801 Extension of Time for Payment

On application of any taxpayer before the due date of its report, the Department may grant a reasonable extension of time for payment of any tax, on such conditions as it deems just and proper. Ordinarily, an extension of time for the payment of any tax will be granted only on condition that interest be paid thereon, but in a proper case the Department may, upon application, waive, cancel or reduce the amount of such interest. In any event, a tentative report should be filed, on or before the ate when the regular report is due, and the tax estimated thereon paid.

Article 802 Compromise of Taxes in Case of Insolvency

The Department is authorized to compromise any taxes imposed by § 950 of the Vermont Law, if the taxpayer has been discharged in bankruptcy, or submits proof of insolvency, but the amount payable in compromise shall in no event be less than the amount, if any, deemed by the Commissioner of Taxes to be recoverable through legal proceedings.

Article 803 Action to Collect Taxes

An action may be brought at any time by the Attorney General, in the name of the State of Vermont, at the instance of the Commissioner of Taxes, to recover the amount of any taxes, penalties and interest due under Chapters 44 and 46 of the Vermont Law.

Article 804 Service of Process

Every foreign corporation subject to the provisions of § 950 of the Vermont Law, is required to file with the Vermont Secretary of State a certificate of designation in its corporate name, signed and acknowledged by its president, or a vice-president, or its secretary, or treasurer, under its corporation seal, designating the Secretary of State as its agent upon whom process in any action provided by §§ 970 and 971 may be served within the State, and setting forth an address to which the Secretary of State shall mail a copy of any such process which may be served upon him. When a certificate of designation has been filed by such process, thereafter served upon him, to the address set forth in such certificate. Any such corporation, from time to time, may change the address to which the Secretary of State is directed to mail copies of process, by filing the office of the Secretary of State a certificate to that effect executed, signed and acknowledged in like manner as a certificate of designation as herein provided. Service of process upon any such corporation, or upon any corporation having a certificate of authority under Chapter 265 of the Vermont Law, in any action commenced at any time pursuant to the provisions of §§ 970 and 971, may be made either by personally delivering to and leaving with the Secretary of State, or Deputy Secretary of State, duplicate copies thereof at this office in the City of Montpelier, in which event the Secretary of State will forthwith send by registered mail one of such copies to the corporation at the address designated by it or at its last known office address within or without the State, or to any person designated by the corporation to receive such notification.

Article 805 Liability of Transferees

The amount of the liability of a transferee of property of a taxpayer, in respect of the tax, penalty and interest imposed upon the taxpayer by § 950, is required to be audited, reaudited, determined, paid and collected in the same manner and subject to the same provisions of law as in the case of the taxpayer concerned. Notice of such liability is sufficient if mailed to the transferee at his last known address. The term "transferee" includes an heir, legatee, devisee and distributee.

Article 806 Refunds

If the amount of tax found due as computed by the Vermont Tax Department shall be less than the amount theretofore paid, the excess shall be refunded and interest shall be added at the rate of one-half of one per cent per month, or fraction thereof, from the due date of the return or from the date of payment, whichever is later. The Department will so certify to the Auditor of Accounts who will issue his warrant in favor of the taxpayer entitled to receive the same.

Part IX PENALTIES

Article 900 Penalty

(1) A corporation which fails to make any return or report required by Chapters 44 and 46 shall be liable to a penalty of twenty-five per cent of the tax, to be added thereto and assessed and collected in the manner provided for the assessment and collection of taxes under Chapter 44, or in a civil action to be brought in the Washington County Court at Montpelier at the instance of the Commissioner of Taxes. An officer of any such corporation who makes a fraudulent return or statement with intent to defeat or evade the payment of the taxes prescribed by the law shall be liable to a penalty of not more than $ 1,000.00.

(2) When a taxpayer, without intent to evade any tax imposed by Chapter 44, shall fail to file a return of income or pay a tax, if one is due, at the time required by or under the provisions of such chapter, but shall voluntarily file a correct return of income and pay the tax due within sixty days thereafter, there shall be added to the tax an additional amount equal to five per cent thereof, but such additional amount shall in no case be less than $ 1.00 and an additional one per cent for each month or fraction of a month during which the tax remains unpaid.

(3) When a taxpayer, with intent to evade the payment of a tax, fails for a period of sixty days, to file a return of income or to pay a tax, if one is due, the Commissioner may add to the tax actually found to be due a penalty not to exceed twenty-five per cent of such tax. Such increased amount shall be further increased by the addition of one per cent for each month or fraction of a month from the time the tax was originally due to the date of payment.

(4) A taxpayer who, without fraudulent intent, fails to pay a tax or to make, render, sign or verify a return, or to supply any information, within the time required by law shall be fined not more than $ 100.00.

Part X DISSOLUTION OR CESSATION OF CORPORATIONS

Article 1000 Domestic Corporations

A domestic corporation may dissolve its charter or articles of association by filing with the Secretary of State and the Commissioner of Taxes a sworn statement, setting forth that the obligations of such corporation to its creditors have been discharged by operation of law or otherwise; that all of the assets of such corporation remaining after the discharge of its obligations to creditors, have been apportioned among its stockholders or members according to their respective rights; that claims or demands do not exist against such corporation, and that such corporation is not the owner of real or personal estate located within this State or elsewhere. Such statement shall be subscribed and sworn to by the president and secretary, or any two directors or trustees of such corporation elected at the last regular election of officers by such corporation, and shall definitely set forth the official position of each person subscribing the same.

Article 1001 Foreign Corporations

When a foreign corporation ceases to do business in this State, it shall execute a certificate under its corporate seal stating the exact date whereon it so ceased to do business. Such certificate, when filed with the Secretary of State; shall thereupon revoke the certificate issued to such corporation pursuant to the provisions hereof.

Chapter 009 EFFECTIVE DATE OF CHAPTER 152 OF TITLE 32 V.S.A

10-009 Code Vt. R. 10-060-009-X EFFECTIVE DATE OF CHAPTER 152 OF TITLE 32 V.S.A

Section 5813 EFFECTIVE DATE OF CHAPTER 15 OF TITLE 3 V.S.A

(a) Chapter 152 of Title V.S.A. was enacted into law, as 1966 Public Acts No. 61. on March 19, 1966. The new statute become effective as of January 1, 1966. Chapter 152 supersedes, as hereinafter set forth, the personal income tax and corporate franchise tax provisions of Chapters 151, 153, 155 and 157 of Title 32 V.S.A.

(b) Execpt as provided in paragraph (c) of this Regulation, Chapter 152 now governs, with respect to all taxable years beginning after December 31, 1965, the taxation of individuals, trusts, estates, and corporations; the withholding of taxes by employers; estimations of non-withheld income tax; the filing of returns; and the payment of taxes. Whatever the taxable year involved, Chapter 152 now governs notices of deficiences; assessments of penalties and interest, petitions for refunds, appeals, and actions or proceedings for enforcement and collection, insofar as such notices, assessments, petitions, appeals, actions or proceedings are commenced subsequent to March 19, 1966.

(c) Notwithstanding paragraph (b) of this Regulation, Chapters 153, 155 and 157 remain in effect with respect to the imposition of franchise taxes upon, and to the payment and return of such taxes by, corporations for all "privilege" years beginning prior to January 1, 1967. Statutory Authority: 32 V.S.A. Chapter 152

History

• Adopted, March 31, 1966
• Effective Date: April 1966

Chapter 010 EXEMPTION FOR MILITARY PAY FOR FULL-TIME ACTIVE DUTY WITH THE ARMED SERVICES

10-010 Code Vt. R. 10-060-010-X EXEMPTION FOR MILITARY PAY FOR FULL-TIME ACTIVE DUTY WITH THE ARMED SERVICES

Section 15823(2) 1 EXEMPTION FOR MILITARY PAY FOR FULL-TIME ACTIVE DUTY WITH THE ARMED SERVICES

(a) Definitions "Full-time active duty" shall mean full-time active duty in the active military service of the United States. The term does not include "annual training", "inactive duty for training," or any other period of training duty of less than fifteen (15) consecutive days.

"Armed Service" shall mean that Army, Navy, Air Force, Marine Corps, and Coast Guard (and components thereof, including the reserve components), the Vermont Army National Guard, and Vermont Air National Guard.

(b) Effective dates

• The definition of "full-time active duty" shall be effective for tax years commencing on and after January 1, 1981. The definition of "armed service" shall be effective for tax years commencing on and after January 1, 1980.

ECONOMIC IMPACT STATEMENT

Reserve members of the armed services will be required to pay Vermont Income taxes totaling approximately $ 100,000 annually on their pay for weekend drill and summer camp training. Under prior department practice all reservists' pay was permitted exemption.

Previously all National Guard pay was taxable. Under the adopted regulation Guard pay, other than for weekend drill and summer camp training, will be exempt. The loss in tax revenues from this exemption is approximately $ 15,000 annually.

The net revenue impact is an annual increase in income tax revenues of approximately $ 85,000.

There are no realistic alternatives to this action. We believe the adopted regulation reflects the legislative intent of the statutory exemption.

History

• Adopted, December 29, 1980
• Effective Date: January 1981 (Secretary of State Rule Log # 80-134)

Chapter 011 EXTENSION OF TIME FOR FILING CORPORATE RETURNS

10-011 Code Vt. R. 10-060-011-X EXTENSION OF TIME FOR FILING CORPORATE RETURNS

Section 58682 EXTENSION OF TIME FOR FILING CORPORATE RETURN

(a) When Federal Extension Allowed Without Application - Whenever a corporation in good standing with the Vermont Department of Taxes, without application, qualifies for and uses a Federal extension of time for filing its U.S. corporation income tax return in any year, a similar extension of time shall automatically be allowed for filing its Vermont corporate income tax return in that year. A corporation which uses this Vermont extension must attach to its Vermont return a copy of the statement required to be attached to its Federal return showing that it qualified for the Federal extension in that year.

(b) When Federal Extension Granted Upon Application - Whenever a corporation in good standing with the Vermont Department of Taxes, upon application, is granted a Federal extension for filing its U.S. income tax return, such extension shall not affect the date upon which the corporation's Vermont income tax return is required to be filed unless:

(1) a copy of the corporation's Federal Form 7004, "Application for Automatic Extension of Time to File U.S. Corporation Income Tax Return;" or

(2) a copy of any other Federal extension granted by the Internal Revenue Service is filed at the main office of the Vermont Department of Taxes on or before the date the U.S. Income Tax Return is required to be filed for that year (without regard to any extension of time for filing that Return), together with the payment of an estimated amount of tax which shall not be less than would be required as the first installment under Section 5872.

Whenever a Federal Form 7004 or a copy of a Federal extension is so filed and the required tax payment made, the corporation shall be granted an automatic extension for the filing of its Vermont corporate income tax return until such time as the Federal extension expires or is otherwise terminated.

(c) When No Federal Extension Allowed or Granted - The Commissioner may, for good cause shown, grant to a corporation a reasonable extension of time for the filing of its Vermont corporate income tax return, in spite of the fact that no comparable Federal extension has been allowed or granted. Adopted, June 17, 1976

History

• Effective Date: July 1976

Chapter 012 EXTENSION OF TIME FOR FILING INDIVIDUAL RETURNS

10-012 Code Vt. R. 10-060-012-X EXTENSION OF TIME FOR FILING INDIVIDUAL RETURNS

Section 58681 EXTENSION OF TIME FOR FILING INDIVIDUAL RETURN

(a) When Federal Extension Allowed Without Application - Whenever an individual, without application, qualifies for and uses a Federal extension of time for filing his U.S. income tax return in any year, a similar extension of time shall automatically be allowed for filing his Vermont income tax return in that year. An individual who uses this Vermont extension must attach to his Vermont return a copy of the statement required to be attached to his Federal return showing that he qualified for the Federal extension in that year.

(b) When Federal Extension Granted Upon Application - Whenever an individual, upon application, is granted a Federal extension for filing his U.S. income tax return, such extension shall not affect the date upon which the individual's Vermont income tax return is required to be filed unless a copy of the Federal extension granted by the Internal Revenue Service is filed at the main office of the Vermont Department of Taxes on or before the date the U.S. income tax return is required to be filed for that year (without regard to any extension of time for filing that return). Whenever a copy of a Federal extension is so filed, that individual shall be granted an automatic extension for the filing of his Vermont income tax return until such time as the Federal extension expires or is otherwise terminated:

Provided, however, that when the Commissioner is satisfied that the individual's Vermont income tax liability has not been fully discharged by withholding or installment payments, he may, as a condition to the granting of a Vermont extension, require the payment of the amount which in his opinion is necessary to discharge fully the individual's Vermont income tax liability.

(c) When No Federal Extension Allowed or Granted - The Commissioner may for good cause shown, grant to an individual a reasonable extension of time for the filing of his Vermont income tax return, in spite of the fact that no comparable Federal extension has been allowed or granted.

History

• Adopted, November 1, 1967
• Effective Date: November 1967

Chapter 013 FEE FOR FAILURE TO FILE A RETURN

10-013 Code Vt. R. 10-060-013-X FEE FOR FAILURE TO FILE A RETURN

Section 5869 FEE FOR FAILURE TO FILE A RETURN

Notwithstanding the provisions of 1966 Public Acts No. 61, and Reg. 5813-2 issued under the authority of 32 V.S.A. § 5813, the provisions of 32 V.S.A. § 5869, (which provide for a late filing fee in the event of a failure to file a return at the time prescribed) shall not apply with respect to any failure to file when due any Vermont Income or Withholding Tax return or Vermont Franchise Tax return for a taxable year ending on or prior to March 19, 1966, (the date of passage of 1966 Public Acts No. 61), and the relevant provisions of § 5907 of Chapter 153 of Title 32 V.S.A. and § 6064 of Chapter 155 of Title 32 V.S.A. shall apply with respect to any failure to file such a return; provided, however, that a late filing fee may be imposed under 32 V.S.A. § 5869 upon such an individual, trust, estate or corporation in the event such return is filed only after notification of such failure from the commissioner under 32 V.S.A. § 5863, but such fee shall be imposed only for the period April 1, 1966 to the date of filing of such return.

History

• Adopted: June 15, 1966
• Effective Date: June 1966

Chapter 014 FORM OF VERMONT CORPORATE INCOME TAX RETURN

10-014 Code Vt. R. 10-060-014-X FORM OF VERMONT CORPORATE INCOME TAX RETURN

Section 5862.1 FORM OF VERMONT CORPORATE INCOME TAX RETURN

(a) Vermont Return, Form 104 - The former Vermont corporation franchise tax return was a virtual facsimile of the Federal corporation income tax return, Form 1120. For the purpose of simplicity, the Vermont corporate income tax return, Form 104, has been revised to a single sheet, two-page form. The face of the Vermont return provides for the computation of the Vermont tax beginning with the federal taxable income brought forward from the Federal return. The reverse of the Vermont return is a schedule for the allocation of receipts, salaries and property, providing for the computation of the Vermont allocation percentage for those taxpayers eligible to use it.

(b) Federal Return, Form 1120 or 1120-S - The Vermont return, Form 104, must be accompanied by a legible copy of the U.S. corporation income tax return, Form 1120 (or in the case of a "tax-option" corporation, Form 1120-S), together with all supporting schedules for the same taxable period. The Federal return and schedules form an integral part of the Vermont return. Failure to file any such part constitutes failure to file a Vermont corporate income tax return. Adopted, November 1, 1967

History

• Effective Date: November 1967

Chapter 016 VERMONT INCOME TAX OF NONRESIDENT SHAREHOLDERS OF SMALL BUSINESS

10-016 Code Vt. R. 10-060-016-X VERMONT INCOME TAX OF NONRESIDENT SHAREHOLDERS OF SMALL BUSINESS

Section 58231 VERMONT INCOME OF NONRESIDENT SHAREHOLDERS OF SMALL BUSINESS CORPORATIONS

Some question has arisen in regard to the taxability of dividends and undistributed income and gains enjoyed by nonresident shareholders of small business corporations, qualified as such under the laws of the United States. Such dividends, income and gains are, of course, included in full as Vermont income of resident shareholders under 32 V.S.A. § 5823(a).

For the avoidance of doubt, dividends, and undistributed income and gains of small business corporations are treated under 32 V.S.A. § 5823(b)(4) as income derived from a business, trade, occupation or profession of nonresident shareholders to the extent that the business, trade, occupation or profession is carried on within Vermont.

The purpose of this regulation is to clarify the intent of the legislature that the Vermont personal and corporate income taxes conform with the United States Internal Revenue Code, and that residents and nonresidents be treated on an equitable basis under the Vermont tax laws.

History

• Adopted, November 8, 1968
• Effective Date: November 1968

Chapter 017 VERMONT INCOME TAX REGULATION

10-017 Code Vt. R. 10-060-017-X VERMONT INCOME TAX REGULATION

Section 58131 APPLICABILITY OF OUTSTANDING INCOME AND FRANCHISE TAX REGULATIONS; PROCEDURE ADOPTED WITH RESPECT TO FORTHCOMING INCOME TAX REGULATIONS

(a) Applicability of Outstanding Regulations

• No Regulation adopted by a Commissioner of Taxes under the authority of 32 V.S.A. § 6003 prior to January 1, 1966, shall apply with respect to matters governed by, or interpret or implement, the provisions of Chapter 152 of Title 32.

(b) Procedure for Forthcoming Regulations - Any Regulation adopted by a Commissioner of Taxes under the authority of 32 V.S.A. § 5813 (effective January 1, 1966) governing the individual and corporate income tax provisions of Chapter 152 of Title 32 V.S.A. (1966 Public Acts No. 61) will be numbered by reference to the section of Chapter 152 to which such Regulation applies. Such regulation will also be numbered serially to insure that taxpayers refer to the latest Regulation, if more than one have been adopted, applying to a single section. An example is as follows: "Reg. 5833(a) -1": regulation governing Section 5833(a) of Chapter 152, 32 V.S.A., which is the first Regulation adopted applying to that section.

Income Tax Regulations of general applicability will be numbered by reference to 32 V.S.A. § 5813, the section authorizing the Commissioner to adopt income tax Regulations governing Chapter 152. Adopted, March 31, 1966

History

• Effective Date: April 1966

Chapter 018 INCOME TAX CREDIT FOR RENEWABLE ENERGY RESOURCES

10-018 Code Vt. R. 10-060-018-X INCOME TAX CREDIT FOR RENEWABLE ENERGY RESOURCES

Section 1.5921 DEFINITIONS

1.59211 "Qualifying Costs" shall mean amounts actually paid (or, in the case of a taxpayer who uses the accrual method of accounting for tax purposes, amounts actually incurred) for the purchase and installation of equipment forming all or part of the renewable energy system.

(a) "Qualifying Costs" shall include amounts paid for the purchase and installation of the principal components of such system, but shall not include costs of ordinary architectural components such as insulation, skylights, drapes or windows.

(b) "Qualifying Costs" shall not include any allowance for labor performed by the taxpayer.

1.59212 "Renewable Energy System" means a system which provides heating or cooling, generates electrical power or produces mechanical power by the use of solar, wood, hydro or wind power.

(a) "Renewable Energy System" shall not include a fireplace or similar device capable of being operated in an open configuration, or a wood stove.

(b) "Renewable Energy System" shall include a wood furnace which operates a central heating system, whether or not such furnace is capable of burning other fuel.

1.59213 "Resident Individual" means, for any taxable year, an individual qualifying for residency in this state for the entirety of that taxable year.

1.59214 "Completed Installation" means that the necessary components of the system are in place and operational.

1.59215 "Dwelling" means the building in Vermont used by the taxpayer as a regular place of abode.

1.59216 "Business Property" means real property in Vermont used primarily for the operation of the taxpayer's trade or business or held primarily for the production of income. Property used both as a dwelling and as business property shall be considered a dwelling unless more than 50% of the floor space qualifies as business property.

Section 1.5922 CREDIT FOR DWELLINGS

(a) Any resident individual taxpayer who completes installation of a renewable energy system for such taxpayer's dwelling between January 1, 1978, and July 1, 1983, shall be entitled to a credit against such taxpayer's Vermont income tax liability in an amount equal to 25% of the qualifying costs of such system, but in no event shall such credit exceed $ 1,000.

(b) Where a residence is owned by more than one person, the credit shall be divided among the owners according to their ownership share, but in no event shall the total of credits with respect to the installation of any one system exceed $ 1,000. A husband and wife owning a residence as tenants by the entirety or joint tenants may claim the entire credit on a joint return, or, if separate returns are filed, may divide the credit, but in no event shall the total credits exceed $ 1,000.

(c) Such tax credit shall be deducted from the taxpayer's income tax liability for the taxable year in which the installation of the renewable energy system was completed. If the amount of such tax credit exceeds the taxpayer's income tax liability for such taxable year, the amount thereof which exceeds such tax liability may be carried over for deduction from the taxpayer's income tax liability in the next succeeding taxable year or years until the total amount of the credit has been used. However, no such tax credit shall be carried over for deduction after the fourth taxable year succeeding the taxable year in which installation of the renewable energy system was completed.

Section 1.5923 TAX CREDITS FOR BUSINESSES

(a) Any taxpayer who completes installation of a renewable energy system upon business property located in this state between January 1, 1978, and July 1, 1983, shall be entitled to claim an income tax credit in an amount equal to 25% of the qualifying costs, or $ 3,000, whichever is less.

(b) A taxpayer who installs more than one renewable energy system may claim a credit in the amount of 25% of the total qualifying costs of all such systems, but in no event may the taxpayer claim a total credit of more than $ 3,000, for installations in a single year.

(c) Such tax credit shall be deducted from the taxpayer's tax liability for the taxable year in which the installation of such system is completed. If the amount of such tax credit exceeds the taxpayer's income tax liability for such taxable year, the amount thereof which exceeds such tax liability may be carried over for deduction from the taxpayer's income tax liability in the next succeeding taxable year or years until the total amount of the tax credit has been deducted from tax liability. However, no such tax credit shall be carried for deduction after the fourth taxable year succeeding the taxable year in which the renewable energy system was acquired.

(d) Credits earned by a partnership or a subchapter(s) corporation are to be passed through the individuals on the basis of their share of profits and losses as shown on Federal Schedule K1.

Section 1.5924 MISCELLANEOUS

(a) Taxpayers who install more than one system in a taxable year may claim a credit in the amount of 25% of the total costs of all such systems installed. However, where credits are claimed only for installations on dwellings, total credit claimed in any taxable year shall not exceed $ 1,000. Where all installations are on business property, the total credit claimed in any taxable year shall not exceed $ 3,000. Where credits are claimed for installations on both dwellings and business properties, the total credit claimed in any taxable year shall not exceed $ 4,000.

(b) Alterations to an existing renewable energy system shall be eligible for the credit in the year in which the alterations are completed and the qualifying costs are paid or accrued, if such alterations are in the nature of capital improvements and not repairs.

(c) The credit provided by 32 V.S.A. § 5922 or § 5923 shall reduce the taxpayer's tax obligation after the application of any credits provided by 32 V.S.A. § 5825 or § 5827, 5828(a) but before the credits provided by 32 V.S.A. § 5829 or § 5967.

(d) Public utilities regulated by the Public Service Board shall be ineligible for tax credits under this subchapter.

History

• Adopted: July 12, 1978
• Effective Date: July 1978

Chapter 019 JOINT FILINGS OF MARRIED COUPLES

10-019 Code Vt. R. 10-060-019-X JOINT FILINGS OF MARRIED COUPLES

Section 5861(C).2 JOINT FILINGS OF MARRIED COUPLES

32 V.S.A. 5861(c) as amended permits joint filing of Vermont income tax returns, if such returns are permissable under the laws of the United States.

Therefore, beginning with returns filed for the taxable year 1968, a married couple whether resident or nonresident may file joint or separate Vermont income tax returns as permitted under the laws of the United States, irrespective of the joint or separate filings made of their U.S. Income tax return.

When a separate or joint return is filed with the State of Vermont which differs from the election made by the taxpayers in filing their federal income tax return covering the same taxable period, a copy of the computation for federal income tax purposes should accompany their Vermont tax return. This computation should be based on what the federal computation would have been had the federal election been the same as the state election. Whenever possible the computation should be made on actual federal tax forms.

The rules and regulations under the laws of the United States applicable to Income, exemptions and deductions for the computation of this mock federal return will apply.

History

• Adopted, January 30, 1969
• Effective Date: February 1969

Chapter 020 LAND GAINS TAX

10-020 Code Vt. R. 10-060-020-X LAND GAINS TAX

Section 1.10001 TAX IMPOSED

(General: Treatment of the Land Gains Tax for Federal Income Tax Purposes)

1.100011 Regulatory Authority

These regulations are promulgated pursuant to Section 10009(a) of Title 32, Vermont Statutes Annotated.

1.100012 Tax as Selling Expense

The Land Gains Tax itself is a transfer tax for the purpose of the Federal Income Tax and is therefore a selling expense. Thus, in determining Federal Income Tax the Land Gains Tax will be a deduction against ordinary income or will reduce amount realized depending on whether the seller is in the business of selling land, an investor in land or whether he is in some other category. However, in determining the amount of gain for the purpose of the Land Gains Tax, this tax itself cannot reduce the amount realized.

1.10004(a)1 Transfers not Subject to the Tax

Transfers not subject to the tax include gifts, transfers by reason of death, distributions (as opposed to sales or satisfaction of a cash legacy with land) from estates, transfers merely to correct deeds, and straw transfers where there is no consideration because, while there is a transfer of title, there is no consideration. In these cases, there is no requirement that any forms be filed under the Land Gains Tax or that any withholding be made by the buyer or that any tax be paid by the seller. However, the Property Transfer Tax Return should indicate the type of transaction in cases where property so transferred has been held less than six years by the transferor.

1.10004(a)2 Leases

Leases are not subject to the Land Gains Tax. However, a 99 year or longer lease will be treated as a transfer of fee interest, as will perpetual leases, and will be subject to the Land Gains Tax.

1.10004(a)3 Mineral, Timber, and Flowage Rights

A sale of mineral rights or timber rights for a limited period of time is not a transaction which is subject to this tax. However, the sale of flowage rights is subject to this tax.

1.10004(a)4 Gravel, Soil, Cut Timber

Sales of gravel, soil, cut timber, and similar items are not subject to this tax.

1.10004(a)5 Governmental Sales

Sales by the United States or its instrumentalities are not subject to this tax; however, sales by the State of Vermont and its instrumentalities are subject to the tax.

1.10004(a)6 Partition

In the case where common owners are simply receiving a specific area quantity portion of property for no consideration through partition, such a transfer is not subject to this tax.

Section 1.10005 BASIS, GAIN AND HOLDING PERIOD

1.10005(a)1 Basis

Basis is determined under Internal Revenue Code rules and is the initial cost plus improvements to the land such as putting in roads, sidewalks, sewer systems, water system, etc.

1.10005(a)2 Improvements Not Yet Completed

In the event that sales of lots reflect in the sales price the cost of improvements which have not yet been completed, a projection (as made for Federal Income Tax purposes) of those costs allowable can be made for purposes of determining gain.

1.10005(a)3 Basis of Property Acquired by Reason of Death

Land acquired by reason of death will have a basis equal to fair market value at date of death unless the alternate valuation date is used by the estate, in which case that valuation will constitute the basis for that property.

1.10005(a)4 Capitalized Expenses

If Section 266 of the Internal Revenue Code is used by the seller for Federal Income Tax purposes, he may increase his basis by those expenses attributable to land which he capitalized under Section 266.

1.10005(b)1(a) Selling Expenses

In determining gain for the purposes of the Vermont Land Gains Tax, the Internal Revenue Code rules for computing amount realized are to be used. In determining the amount realized, the gross consideration paid to the seller is to be reduced by those selling expenses which are capital in nature and which are directly connected with the sale of a particular parcel. Thus, legal fees, surveying costs, sales commissions and the like actually paid to the extent directly related to the sale of a particular parcel, can reduce the amount realized.

1.10005(b)1(b) Allocation of Expenses

In the normal calculation of the tax, gross consideration for both buildings and land is reduced by allowable selling expenses attributable to both buildings and land; the resulting amount is then allocated between buildings and land. Thus, no direct allocation of selling expenses between land and buildings is necessary.

1.10005(b)1(c) Allocation on Fair Market Basis

If, in a sale of buildings and land, the gross consideration attributable to land is the starting point of the calculation, selling expenses must be allocated between land and buildings on a fair market value basis.

1.10005(b)2(a) Divorces

The rule for the purpose of this tax with respect to divorces is that if there is a gain for Federal Income Tax purposes, there is a gain under the Land Gains Tax.

1.10005(b)2(b) Jointly Owned Property

Where there is a division of jointly owned property pursuant to 15 V.S.A. § 751, the Land Gains Tax is not applicable and both basis and holding period relate back to the original acquisition.

1.10005(b)2(c) Court Award in Lieu of Alimony

Where a court pursuant to 15 V.S.A. § 754 awards one spouse a portion of the other spouse's real property in lieu of alimony, there is a sale or exchange for purposes of Land Gains Tax.

1.10005(b)3(a) Allocation

In the event that buildings and land are sold or that a principal residence and more than 5 acres (up to 10 acres if local residential zoning ordinances so require) are sold, allocation must be made on a fair market value basis.

1.10005(b)3(b) Condominiums

In the case of a sale of a condominium unit, the undivided land interest will be subject to the tax providing there is a gain on the sale.

1.10005(b)4(a) Foreclosures

With respect to foreclosures or voluntary conveyances, in almost all cases there will be a loss to the seller (the defaulting buyer). There is no doubt that there is a transfer of title for consideration but because in almost all, if not all, cases the transaction will result in a loss to the seller (the defaulting buyer), and because there are a number of these situations, no returns will be required, no withholding will be required, and no tax will be due.

1.10005(b)4(b) Gain on Foreclosure

In the rare case where there is gain to the seller (mortgagor) in a foreclosure proceeding or a voluntary conveyance, of course, the tax should be paid, returns filed and money withheld by the buyer (mortgagee) and paid over to the Department of Taxes.

1.10005(b)4(c) Basis and Holding Period

In the event of a foreclosure or voluntary conveyance, a new basis and holding period will result unless § 1038 of the Internal Revenue Code is applicable.

1.10005(c)1 Exemptions

nonrecognition provisions in the Internal Revenue Code dealing with the sale or exchange of capital assets which apply to this tax include §§ 332, 333, 337, 31, 361, 721, 731, 1031, 1032, 1033, 1034, and 1038, and are applicable to the Land Gains Tax only to the extent to which there is actual nonrecognition of gain under the Internal Revenue Code with respect to each particular transaction.

1.10005(c)2 Nonrecognition Under §§ 1033, 1034

Where nonrecognition is provided under § 1034 of the Internal Revenue Code, the Land Gains Tax must be paid at the time of the transfer and a claim for refund made by the taxpayer when he has determined what his nonrecognition is, if any, with interest at 6% per annum, unless the reinvestment under § 1034 precedes the sale, in which case the recognized gain will be known; then the exact amount of tax, if any, should be paid. The same treatment shall apply to conversions under § 1033 into similar property.

1.10005(c)3 Investment in Non-Vermont Land

Where nonrecognition is granted under §§ 1031 and 1033 of the Internal Revenue Code, the nonrecognition granted by the Internal Revenue Code will not apply in instances where Vermont land is exchanged for non-Vermont land or here proceeds of sale or conversion are used to invest in non-Vermont land.

1.10005(c)4 Sale of Land Without Dwelling

There is a specific exemption for five acres (up to 10 acres if local zoning ordinances so require for residential purposes) necessary for use of a dwelling used by the seller as his principal residence; however, if a portion of that otherwise exempt property should be sold without the house, that portion sold would not be necessary for use as a dwelling and would not qualify for exemption.

1.10005(c)4(a) Seller's Principal Residence Exemption

The signing of the property transfer tax return itself will constitute a sworn statement that the residence is the principal residence of the seller when the box next to the appropriate statement on the property transfer return is checked.

1.10005(c)4(b) Multiple Use of a Building

In the case of multiple use of a building, the percentage of the building used as a principal residence is the percentage of the otherwise exempt land which will be permited exemption from this tax.

1.10005(c)4(c) Principal Residence of Seller

In the case of a principal residence, if the seller moves out of what was his principal residence to another principal residence and continually attempts to sell his former principal residence, the exemption for the five acres (up to 10 acres if local zoning ordinances so require for residential purposes) of land will apply so long as the former principal residence is not occupied. However, if the principal residence is converted into investment property by way of renting it out, the exemption does not apply unless the taxpayer can show with respect to the particular facts of his case whether that the particular arrangement did not constitute a true conversion to investment property or was of such a nature that the principal residence could be sold as soon as a willing buyer was found.

1.10005(c)4(d) Principal Residence of Decedent

In the event that the principal residence of a decedent is sold by the decedent's estate or his heir, the principal residence exemption does not apply because that exemption runs to the taxpayer who is the seller and in this case the residence would not be the principal residence of the estate.

1.10005(c)5 Exempt Organizations

Organizations exempt from Federal income tax are subject to the land gains tax.

1.10005(c)6 Development Corporations and Local Development Corporations

Land owned by a development corporation or local development corporation as defined in Title 10, § 242(4) and § 302(4) is exempt from the land gains tax.

1.10005(c)7 Principal Residency of Buyer

A further exemption exists for the seller when the buyer certifies to the Commissioner of Taxes that he is domiciled in Vermont or will be in 60 days, that the dwelling to be purchased will be used as his principal residence, and that he understands that as a Vermont domiciliary all of his income is subject to Vermont income tax laws.

1.10005(c)7(a) Purchases of Raw Land

Further, with respect to purchases of raw land, the purchaser must further certify that he will commence construction of his principal residence within one year from date of transfer and that he will complete construction and occupy the home within two years from date of transfer. The deed or other transfer instrument must state that the amount of the tax of which the seller has been relieved is in lien running on the land in the favor of the State of Vermont until the tax has been paid or the purchaser has filed a statement with the Department of Taxes that the dwelling has been constructed and occupied within the conditions previously certified.

1.10005(c)7(b) Extensions of Time

Should the buyer find that for reasons beyond his control the construction cannot meet the conditions certified, he should apply for an extension of time from the Commissioner of Taxes. Such extensions will be granted only for unavoidable delays in the most extreme cases.

1.10005(c)7(c) Buyer Liable for Tax

In the event conditions are not met or the certification was untrue, the buyer is liable for the tax.

1.10005(c)7(d) Acreage Limitations

The same acreage limitations apply as apply to the seller.

1.10005(d)1 Holding Period

The holding period for the purpose of this tax follows the holding period rules in the Internal Revenue Code, including "tacking". Tacking under the Internal Revenue Code normally occurs when there is a sale or exchange in which nonrecognition of gain is permitted and the basis is either a carry-over basis or a substituted basis. Thus, in the case of a gift, the holding period of the donor is added on to the holding period of the donee who may eventually sell the property. Likewise, in the case of a tax-free incorporation under § 351 of the Internal Revenue Code, the corporation will be able to add on to its holding period the holding period of the transferor of the property. Also, transactions subject to § 1034 of the Internal Revenue Code may involve tacking (see § 1223(7) of the Internal Revenue Code).

When tacking is used, the inclusion of the holding period of any person other than the seller or exchanger cannot exceed the time for which such person held actual and recorded title to the land in his own name.

1.10005(d)2 Holding Period of Property Acquired by Reason of Death

Where a taxpayer takes property by reason of death, the holding period will begin at date of death of the decedent as under the Internal Revenue Code. See 26 USC § 1014 and 26 CFR 1.1014-4 (a)(2). However, where there is a tenancy by the entirety, death of one of the spouses shall not create a new holding period; the holding period shall be from the date of the creation of the tenancy by the entirety to the date of transfer irrespective of the death of one of the spouses and including any period where the property was held by one spouse before the creation of the tenancy by the entirety.

1.10005(d)2(a) Cash Legacy Discharged with Land

When a cash legacy is discharged with land, the holding period of the legatee begins at the time of distribution of the land.

1.10005(d)3 Tenancy by the Entirety

In the case of a tenancy by the entirety where a spouse owns the property in his or her name and then creates such a tenancy, the period in which the spouse held it in his or her name can be added to the period in which the property was owned as tenants by the entirety. The converse is also true; that is, when a tenancy by the entirety is dissolved other than by reason of death or transfer for consideration, the holding period during the period of the tenancy will be added to the holding period of the spouse owning that property in his or her own name.

1.10005(d)4 Liquidation Under § 333

In the case of a liquidation under § 333 of the Internal Revenue Code, the holding period by the distributee of land from the corporation will be the shorter of the distributee's ownership of stock in the corporation or the corporation's ownership of the land.

1.10005(d)5 Partition

In the case of partition when there is no consideration, the holding period runs from the date of joint ownership.

Section 1.10006 LIABILITY FOR TAX

1.100061 Persons Liable for the Tax

The seller is liable for the payment of the Vermont land gains tax. The buyer is liable for withholding 10% of the consideration attributable to the land which he pays to the seller, and will also be liable for the land Gains Tax itself in the event he fails to comply with the conditions for exemption represented to the seller under 32 V.S.A. § 10002.

1.100062 Subchapter S Corporations and Partnerships

In the event that the seller is a subchapter "s" corporation operating under § 1371, et seq., of the Internal Revenue Code, the corporation itself is taxable. In the event that the seller is a partnership, the partnership itself is liable for the tax.

Section 1.10007 WITHHOLDING AT SOURCE; PAYMENT

1.100071 Filing

Even though there may be no ultimate tax liability and no withholding liability, there must be filing of withholding returns and land gains returns in every case where there is a transfer of property for consideration held for less than six years. The exceptions to this general rule are:

(a) sales of perpetual easements for $ 1.00 or less;

(b) foreclosures and voluntary conveyances in lieu of foreclosures where there is no gain;

(c) sales of land owned by development corporations or local development corporations as defined in Title 10, § 252(4) and § 302(4);

(d) sales of up to five acres (up to 10 acres if local residential zoning ordinances so require) necessary for use of a dwelling used by the seller as his principal residence;

(e) sales to the State of Vermont by an organization qualifying under § 501(c)(3) of the Internal Revenue Code.

IN THE CASE OF A SALE INVOLVING AN EXEMPTION BASED ON THE BUYER'S STATED INTENT 1) TO MAKE THE PROPERTY HIS PRINCIPAL RESIDENCE, 2)TO PURCHASE LAND DIRECTLY CONTIGUOUS TO HIS PRINCIPAL RESIDENCE, OR 3) TO BUILD A HOUSE WHICH WILL BE THE PRINCIPAL RESIDENCE OF THE OCCUPANT ON THE NEXT SUCCEEDING SALE, FULLY COMPLETED RETURNS (LAND GAINS AND WITHHOLDING) MUST BE FILED BY BOTH SELLER AND BUYER.

1.100071(b) No Filing Required

No filing is required in the case of gifts, transfers by reason of death, distributions (as opposed to sales) from estates, straw transactions when there is no consideration, and transfers merely to correct deeds.

1.100072(a) Withholding by the Buyer

The buyer is required to withhold 10% of the consideration paid to the seller. This amount is to be paid by the buyer to the Department of Taxes. In the case of a sale of land and buildings, the 10% withholding is to be on that consideration attributable to the land. In no event is this amount to be held by the attorney for either buyer or seller.

1.100072(b) Buyer Liable for Withholding

If a buyer withholds 10% but does not remit it to the Department will not hold the seller responsible for any tax due because of the failure of the buyer to remit the withheld monies to the Department and will seek relief directly against the buyer.

1.100072(c) No Withholding Required for Property Held Six Years or More

When there is a transfer of title for consideration, withholding must be made whether or not there is any ultimate tax liability upon the seller. However, withholding can be avoided generally in two ways and in one instance it is not required at all. In the case of property held six years or more, no withholding is required, no filing is required and no tax is due; however, the state on the Property Transfer Return regarding holding period is required.

1.100072(d) Advance Certificates

If advance certificates are received from the Department as prescribed in § 10007(c) of the law, withholding is not required.

1.100072(e) Simultaneous Filing

If simultaneous filing is made by buyer and seller, the exact amount of the tax as shown on the Land Gains Tax return should be paid and no withholding is necessary. But if a deficiency is determined to exist, the buyer will be liable to the extent of 10% of the consideration.

1.100072(f) Principal Residence of Seller

In no case where there is a sale of a principal residence of the seller with five acres (up to 10 acres if local residential zoning ordinances so require) or less necessary for use as a dwelling of the seller will withholding be required by the buyer, nor will a withholding return be required. However, if there is more than the exempt acreage sold with such principal residence, the general withholding and filing rules apply. See Reg. § 1.10007 - 1 regarding filing when purchaser claims exemption.

1.100072(g) Reliance on Certification

In the event that an advance certificate has been obtained by the seller, the buyer is entitled to rely entirely on that certification and will not be held liable in the future for any withholding with respect to that particular transaction.

1.100072(h) Conditional Certifications

The advance certification procedure assumes that the tax will be paid at the time the certification is received. However, in some cases it will be necessary to grant conditional certification in order to permit a seller to consummate a sale. Such conditional certifications will be granted, the condition being that the buyer withhold the exact amount of tax indicated on the conditional certification.

1.100072(i) Sales by United States

Sales by the United States or its instrumentalities will require no withholding, but a withholding return must be filed for transfers of property held less than six years.

1.100072(j) No Withholding or Filing Required

See Regulation § 1.10007 - 1 for cases where neither withholding nor filing is required.

1.100073(a) Liens

A lien against the buyer or seller does not arise by operation of law except with respect to transactions involving exemption because of the buyer's representation to the seller of intent either to make the property his principal residence, or to build a house which will be the principal residence of the occupant on the next succeeding sale, as referred to below in Regulation § 1.10007 - 3(b). The Department of Taxes must notify the buyer or seller of a tax due or actually assess the buyer or seller before the lien arises. Then in order to protect the State's interests, the Department of Taxes must file a lien in the appropriate town land records.

1.100073(b) Lien on Raw Land

In the event that the seller sells or exchanges raw land and claims an exemption based on the buyer's representation that he intends either to construct his principal residence on the land, or to build a house which will be the principal residence of the occupant on the next succeeding sale, the lien against the buyer will arise by operation of law. Since the deed will indicate that the land gains tax in such a case is a lien running with the land, no further filing will be made by the Department until the tax becomes delinquent.

Section 1.10008 INSTALLMENT SALES

1.100081 Installment Sales Reporting

Installment sales reporting is not permitted unless the total Land Gains Tax liability exceeds $ 2,000. In the case of installment sales, if the buyer, seller, and the Department of Taxes agree, the buyer may withhold the exact amount of tax due with respect to payments made after the initial payment.

1.100082 Leases with Options to Purchase

Leases with options to purchase are treated as installment sales if any portion of the rent is to be applied against the purchace price. Thus, withholding will be required when rental payments are made. A lease with an option to buy in which none of the rent is applied against the purchase price will not constitute an installment sale for the purposes of this tax.

1.100083 Seller Takes Back Mortgage

If a seller takes back the mortgage, such a transaction will be treated as an installment sale for purposes of this tax. If a seller takes back a mortgage and then makes a disposition of the note, the balance of the tax becomes due from the seller at that time.

1.100084 Quarterly Withholding

In cases where installment payments are made on a monthly basis, the buyer should withhold and remit taxes to the Department on a quarterly basis.

1.100085 Amount Due on Each Installment

The amount of taxes due on each separate installment, including the first installment, shall bear the same proportion to the total amount of taxes due as the amount of that installment bears to the total consideration.

1.100086 Filing

Seller must file returns within 30 days of each payment to the Department by the buyer. Seller may elect to file once a year, for years after year of sale, by April 15 on a Land Gains form. Such an election must be filed with this Department at the time when the first Land Gains Tax return is filed.

History

• November 13, 1973
• AMENDED: July 15, 1974

Chapter 021 LITTER LEVY REGULATIONS

10-021 Code Vt. R. 10-060-021-X LITTER LEVY REGULATIONS

Section 10.11710 General

(a) The regulations are promulgated pursuant to Title 10 V.S.A. § 1172(b).

(b) "Commissioner" means the Vermont Commissioner of Taxes unless specifically designated otherwise.

(c) "Tax" means the levy imposed by Chapter 36 of Title 10, V.S.A.

(d) If the taxability of a particular item or concern is not clear, a ruling should be requested in writing from the Department of Taxes, Container Tax Section, Montpelier, Vermont 05602.

Section 10.11711 Beverages

(a) "Beverage" is defined to exclude "unadulterated, natural, reconstituted or frozen fruit, vegetable or meat juices". If a beverage qualifies under any of the foregoing exclusions, it is not taxable. The term "natural" means that there can be no additions or subtractions from the juices to alter their natural state in any way. The term "reconstituted" refers only to those juices which have been dried and then have added to them water in no amount greater than the water present in their natural state. The term "unadulterated" means those juices which have had no substance added to them which is not naturally occuring in such juices. Thus, while a juice may not be "natural", it may still be "unadulterated" and hence qualify under the exclusion from the term "beverage".

(b) Concentrates and syrups do not constitute "similar soft drinks in liquid form" and thus are excluded from the definition of "beverage". If a liquid is not normally consumed exactly as it is found in the container, it shall be deemed to be a concentrate or syrup.

(c) Liquids intended for medicinal purposes only are excluded from the definition of "beverage". Any liquid which can be used for other than medicinal purposes, even though it can also be used for medicinal purposes, shall not be excluded from the definition of "beverage". Examples of liquids which can be used for medicinal purposes but which do not qualify for this exclusion are mineral waters and some spirituous liquors.

Section 10.11712 Biodegradable

"Biodegradable Material" means organic material which is capable of being broken down by bacteria into basic elements. Beverage containers consisting of 90% or more biodegradable material are deemed to be "containers made of biodegradable material" and are, therefore, not "containers" by definition; thus, they are exempt from the levy.

Glass, metal and plastic are not biodegradable materials.

Section 10.11714 Distributor

(a) The term "distributor" shall include a distributor who is also a dealer. Thus, a distributor who owns vending machines and sells taxable containers through such machines shall be treated as a distributor.

(b) For filing and payment requirements, refer to Regulation Sections 10.1172 - 1 and 10.1172

Section 10.11721 Incidence of Tax

(a) For the purpose of § 1172(b) of Title 10 V.S.A., "manufacturer or distributor" includes any such person (i) who makes deliveries in vehicles owned, leased or controlled by such person into Vermont on a regular basis of taxable beverage containers to Vermont dealers, distributors or manufacturers, or (ii) who is required to file income tax returns with the State of Vermont by reason of activities engaged in in this State. Thus, the tax shall be paid by such a manufacturer or distributor and not by the retailer, group of retailers or retail chain.

(b) Persons qualifying as retailers, groups of retailers or retail chains, who are themselves required to pay the tax, may, with the approval of the Commissioner, authorize an out-of-state manufacturer or distributor to pay the tax on their behalf. However, such retailer, group of retailers or retail chain shall remain primarily liable for the payment of tax.

The incidence of the tax upon retailers, groups of retailers or retail chains required to pay the tax directly to the Commissioner arises at the time of receipt by such retailer, group of retailers or retail chain or the taxable beverage container.

(c) In situations in which both a manufacturer and a distributor are subject to Vermont's jurisdiction for the purpose of this tax (including manufacturers and distributors described in subsection (a) of this regulation) and the manufacturer sells taxable beverage containers to the distributor, the tax is upon the sale from the manufacturer to the distributor and the manufacturer shall pay the tax unless that sale is made prior to July 1, 1972, in which case the tax is upon the sale, on or after July 1, 1972, by the distributor to the dealer and the distributor shall pay the tax. Both the manufacturer and distributor are required to maintain such records as are necessary to establish payment of the tax by the manufacturer. Failure to establish such payment may result in assessment of the tax against both the manufacturer and distributor.

In the situation in which the manufacturer is not subject to the jurisdiction of the state for the purpose of this tax but the distributor is, the tax is upon the sale from the distributor to the dealer. The distributor is required to pay the tax. The distributor is required to maintain such records as are necessary to establish payment of the tax.

(d) The tax applies to the sale by manufacturers or distributors to establishments which do not resell the beverage container for use off the premises of such establishments. For example, the sale by a manufacturer or distributor of beer or other beverage in taxable beverage containers to eating and drinking estalishments is subject to the tax since the sale is to a dealer of a taxable beverage container intended for use or consumption in Vermont.

Section 10.11722 Registration; Filing; Payment; Extensions; Liability for Tax

(a) Registration

On or before August 1, 1972, or in the case of manufacturers, distributors or retailers becoming subject to this tax after August 1, 1972 within 15 days after becoming so taxable, shall file with the Commissioner a certificate of registration in such form by him prescribed.

(b) Liability

Any taxpayer who fails to pay the tax to the Commissioner as required shall be personally and individually liable for the amount of such tax, and if the taxpayer is a corporate entity, the personal liability shall extend and be applicable to any officer or agent of the corporation who as an officer or agent of the corporation is under a duty to transmit the tax to the Commissioner.

(c) Form and Verification of Returns

The returns required to be filed under Chapter 36 of Title 10, V.S.A., shall be in such form and manner as the Commissioner prescribes and shall be filed at the office of the Department of Taxes. Those returns shall be verified by written declarations that the statements therein are made subject to the pains and penalties of perjury. When a return is made by a corporation, the person signing it shall be considered to be the person who is subject to the pains and penalties of perjury. The Commissioner shall cause to be prepared blank forms for the returns and shall furnish them upon application, but failure to secure or receive such a form shall not relieve a taxpayer from the obligation of filing any return herein required.

(d) Filing

Returns in the form prescribed by the Commissioner of Taxes shall be filed by the persons required to pay the tax for each calendar quarter on or before the thirtieth day of the month following the quarter for which the return is being filed and the tax paid.

The Commissioner may require filing on other than a quarterly basis if he deems it necessary for the proper administration of this tax.

Even though there may be no actual tax liability for a particular period, a return must be filed. Failure to do so will result in assessment of late filing fees pursuant to regulation § 10.1172 - 4.

(e) Extension of Time for Filing of Returns

For good cause shown, the Commissioner may extend the time within which a taxpayer is required to file a return. If the extension results in an extension of the time for the payment of the tax liability with respect to which the return is filed, the taxpayer shall pay, at the date that tax liability is paid within the authorized extension period, without assessment or demand, an amount of interest computed at the rate of one-half of one per cent per month or fraction thereof on that tax liability from the time when the tax liability was originally required to be paid to the time of payment.

(f) Payment of Tax

(i) Every person required to file a tax return shall, at the time of filing the return, pay to the Commissioner the taxes imposed by Chapter 36 of Title 10, V.S.A. Then the Commissioner, in his discretion, deems it necessary to protect the revenues to be obtained under Chapter 36 of Title 10, V.S.A., he may require any person required to pay the tax imposed by Chapter 36 of Title 10, V.S.A., to file with him a bond, issued by a surety company authorized to transact business in this state and approved by the Commissioner of Banking and Insurance of this state as to solvency and responsibility, in an amount fixed by the Commissioner, to secure the payment of any tax or penalties or interest due or which may become due from that person under Chapter 36 of Title 10, V.S.A. In the event that the Commissioner determines that a taxpayer is to file a bond, he shall give notice to him to that effect, specifying the amount of the bond required. That person shall file a bond within ten days after the giving of the notice unless within those ten days he shall request in writing a hearing before the Commissioner at which the necessity, propriety and amount of the bond shall be determined by the Commissioner. The determination shall be final and shall be complied with within fifteen days after the giving of notice thereof. In lieu of a bond, securities approved by the State Treasurer or cash in such amount as the Commissioner may prescribe, may be deposited with the State Treasurer who shall keep such securities or cash in his custody; and the Commissioner may at any time without notice to the depositor apply them to any tax or interest or penalties due, and for that purpose the securities may be sold by the State Treasurer at public or private sale without notice to the depositor thereof.

(ii) Notwithstanding paragraph (i) of this subsection, the Commissioner, if he believes the collection from a taxpayer of any deficiency, penalty or interest to be in jeopardy, may demand, in writing, that the taxpayer pay the deficiency, penalty or interest forthwith. The demand may be made concurrently with, or after, the notice of deficiency or the assessment of penalty or interest given to the taxpayer. The amount of deficiency, penalty or interest shall be collectible by the Commissioner on the date of the demand, unless the taxpayer files with the Commissioner a bond in an amount equal to the deficiency, penalty or interest sought to be collected as security for such amount as finally may be determined. In the event that it is finally determined that the taxpayer was not liable for the amount of the deficiency, penalty or interest referred to in any demand under this subsection, the Commissioner shall reimburse the taxpayer, promptly upon such determination, for the reasonable cost to the taxpayer of any bond obtained by him for the purposes of this subsection.

Section 10.11723 Examination of Records; Assessments; Hearings

(a) Examination of Records and Witnesses

The Commissioner, for the purpose of ascertaining the correctness of any return or for the purpose of making a determination of the tax liability of any taxpayer, may examine or cause to be examined by any agent or representative designated by him for that purpose, any books, papers, records or memoranda of the taxpayer bearing upon the matters required to be included in any return. The Commissioner or such officers as he may designate may require the attendance of the taxpayer or of any other person having knowledge the premises, at any place in the county where the taxpayer or person resides or has a place of business or in Washington County, if the taxpayer is a nonresident individual or is a corporation not having a place of business in this state, and may take testimony and require proof material for his information, and may administer oaths or take acknowledgement in respect of any return or other information required by Chapter 36 of Title 10, V.S.A., or the rules, regulations and decisions of the Commissioner.

(b) Determination of Tax

If a return required by Chapter 36 of Title 10, V.S.A., is not filed, or if a return when filed, is incorrect or insufficient, the amount of tax due shall be determined by the Commissioner from any information available. Notice of the determination shall be given to the person liable for the payment of the tax. The determination shall finally and irrevocably fix the tax thirty days after giving notice of the determination unless the person against whom it is assessed shall apply in writing to the Commissioner for a hearing, or unless the Commissioner of his own motion shall redetermine the tax. After the hearing, the Commissioner shall give written notice of his determination to the person against whom the tax is assessed.

(c) Review of Commissioner's Decision

(a) Any aggrieved taxpayer may, within thirty days after any decision, order, finding, assessment or action of the Commissioner made under Chapter 36 of Title 10, V.S.A., appeal to the county court, by filing a petition of appeal with the county court as prescribed by law and on giving security, approved by the Commissioner, conditioned to pay the tax levied, if it remains unpaid, with interest and costs, as set forth in subsection (c) of this section.

(b) The appeal provided by this section shall be the exclusive remedy available to any taxpayer for review of a decision of the Commissioner determining the liability of the taxpayer for the tax imposed.

(c) Irrespective of any restrictions on the assessment and collection of deficiencies, the Commissioner may assess a deficiency after the expiration of the period specified in subsection (a) of this section, notwithstanding that a petition of appeal regarding the deficiency has been filed by the taxpayer, unless the taxpayer, prior to the time of his portion of the deficiency (including interest and other amounts) in respect of which the petition or appeal is made and all costs and charges which may accrue against him in the prosecution of the proceeding, including costs of all appeals, and with surety approved by the county court, conditioned upon the payment of the deficency (including interest and other amounts) as finally determined and all costs and charges. If as a result of a waiver of the restrictions on the assessment and collection of a deficiency any part of the amount determined by the Commissioner is paid after the filing of the appeal bond, the bond shall, at the request of the taxpayer be proportionately reduced.

Section 10.11724 Penalties; Interest; Late Filing Fees; Abatements; Refunds

(a) Abatement of Tax Liabilities

The Commissioner may, upon making a record of his reasons therefore, waive, reduce or compromise any of the tax, penalties or interest or other amounts provided in Chapter 36 of Title 10, V.S.A., and these regulations.

(b) Fee For Late Filing

(i) When a taxpayer, without fraud or willful intent to defeat or evade any tax liability imposed by this Chapter, fails to file a return at the time prescribed, the taxpayer shall pay, at the time that return is filed, without assessment or demand, in addition to the tax liability due, if any, a late filing fee of $ 10.00 for each thirty days or fraction thereof expiring before the filing of a proper return in accordancae with these regulations. In no event shall such late filing fee exceed $ 50.00 or 50% of the tax, whichever is greater.

(ii) When a taxpayer fraudulently or with willful intent to defeat or evade any tax liability imposed by Chapter 36 of Title 10, V.S.A., fails to file a return at the time prescribed, the taxpayer shall pay, at the time that return is filed, without assessment or demand, in addition to the tax liability due, if any, a late filing fee of $ 25.00 for each thirty days or fraction thereof expiring before the filing of a proper return in accordance with these regulations. In no event shall such late filing fee exceed 100% of the tax.

(c) Refunds

The Commissioner shall refund or credit any tax, penalty or interest erroneously or illegally paid if application to the Commissioner for the refund shall be made within two years from the thereof.

(d) Interest

Any person who shall fail to pay the tax imposed by Chapter 36 of Title 10, V.S.A., on or before the date when the same is required to be paid (irrespective of any extensions granted) shall pay interest on said tax at the rate of 1/2 of 1% each month or fraction thereof if the same remains unpaid, to be calculated from the date the tax was required to be paid. All such interest shall be payable to and recoverable by the Commissioner in the same manner as is the tax imposed by Chapter 36 of Title 10, V.S.A. For reasonable cause, the Commissioner may abate all or any part of such interest.

(e) Penalties

(i) Whenever the tax assessed under Chapter 36 of Title 10, V.S.A., is unpaid, a penalty of 10% of the amount of such tax as determined by the Commissioner shall be added to said assessment as well as interest at the rate of 1% of such tax for each month or fraction of a month during which the tax remains unpaid (irrespective of any extensions granted).

(ii) Whenever any tax assessed under Chapter 36 of Title 10, V.S.A., is unpaid due to negligence or disregard of the provisions of Chapter 36 of Title 10, V.S.A., or of any ruling or regulation of the Commissioner issued pursuant to the provisions of Chapter 36 of Title 10, V.S.A., but without intent to defraud, a penalty of 25% of the amount of such tax as determined by the Commissioner shall be added to said assessment as well as interest at the rate of 1% of such tax for each month or fraction of a month during which the tax remains unpaid (irrespective of any extensions granted). This penalty shall be in lieu of the penalty prescribed in paragraph (i) of this subsection.

(iii) Whenever any tax assessed under Chapter 36 of Title 10, V.S.A., is unpaid due to fraud with intent to evade the tax, a penalty of 50% of the amount of such tax as determined by the Commissioner shall be added to said assessment as well as interest at the rate of 1% of such tax for each month or fraction of a month during which the tax remains unpaid (irrespective of any extensions granted). This penalty shall be in lieu of the penalties prescribed in paragraphs (i) and (ii) of this subsection.

(iv) For reasonable cause the Commissioner may waive or abate all or any part of such penalties and interest.

Section 10.11725 Record Keeping; Notice; Limitations of Time

(a) Records to be Kept

Every person required to pay the tax imposed by Chapter 36 of Title 10, V.S.A., shall keep records of every sale of taxable beverage containers and of amounts paid, charged or due thereon and of the tax payable thereon. These records shall include a true copy of each sales slip, invoice, receipt, statement or memorandum. The records shall be available for inspection and examination at any time upon demand by the Commissioner or his duly authorized agent or employee and shall be preserved for a period of three years, except that the Commissioner may consent to their destruction within that period or may require that they be kept longer.

(b) Notice

Any notice may be given by regular mail to the person for whom it is intended in a postpaid envelope addressed to the person at the address given in the last tax return filed by him or in any application made by him or, if no return has been filed or application made, then to any address obtainable. The mailing of the notice shall be presumptive evidence of its receipt by the person to whom addressed. Any period of time which is determined by the giving of notice shall commence to run from the date of mailing of the notice.

(c) Limitation of Time

(i) The provisions of law relating to limitations of time for the enforcement of a civil remedy shall not apply to any proceeding or action taken by the state or the Commissioner to levy, appraise, assess, determine or enforce the collection of any tax or penalty under Chapter 36 of Title 10, V.S.A. However, except in the case of a willfully false or fraudulent return with intent to evade the tax, no assessment of additional tax shall be made after the expiration of more than three years from the date of the filing of a return; provided, however, that when no return has been filed, the tax may be assessed at any time.

(ii) When, before the expiration of the period prescribed herein for the assessment of an additional tax, a taxpayer has consented in writing that the period be extended, the amount of the additional tax due may be determined at any time within the extended period. The period so extended may be further extended by subsequent consents in writing made before the expiration of the extended period. If a taxpayer has consented in writing to the extension of the period for assessment, the period for filing an application for credit or refund shall not expire prior to six months after the expiration of the period within which an assessment may be made pursuant to the consent to extend the time for assessmesnt of additional tax.

Section 10.11726 Enforcement and Collection

(a) Tax a Debt to the State

Any tax liability imposed by Chapter 36 of Title 10, V.S.A., becomes, for the time the tax liability is due and payable, a debt of the taxpayer to the state.

(b) Action to Collect Taxes; Limitations

Action may be brought by the attorney general of the state at the instance of the Commissioner in the name of the state to recover the amount of the tax liability of any taxpayer, if the action is brought within six years after the date the tax liability was collectible. The action shall be returnable in the county where the taxpayer resides or has a place of business, and if the taxpayer neither resides nor has a place of business in this state, the action shall be returnable in Washington County.

(c) Levy for Nonpayment

When all or any portion of a tax liability imposed by Chapter 36 of Title 10, V.S.A., is not paid within sixty days after it becomes collectible, the Commissioner may issue a warrant under his hand and official seal directed to the sheriff of any county of this state. The warrant shall command the sheriff to levy upon and sell the real and personal property of the taxpayer for the payment of the unpaid tax liability imposed by Chapter 36 of Title 10, V.S.A., together with allowable fees and costs. The levy and sale shall be effected in the manner, and shall be subject to the limitations, prescribed for the levy, distraint and sale of property for the nonpayment of town taxes under §§ 5191 through 5193 and §§ 5253 through 5263 of Title 32, V.S.A. The sheriff shall return the warrant to the Commissioner and pay to him the money collected thereunder within the time specified in the warrant.

(d) Liability for Failure or Delinquency

An individual, fiduciary, or officer or employee of any corporation or partner or employee of any partnership, who, with intent to evade any requirement of Chapter 36 of Title 10, V.S.A., or any lawful requirement of the Commissioner hereunder, fails to pay or remit a tax liability when due or to make, sign, verify or file a return when required to do so, or to supply any information required by or under Chapter 36 of Title 10, V.S.A., or who, with like intent, makes, renders, signs, verifies or files any false or fraudulent return or information, shall be fined not more than $ 1,000.00 for each violation.

(e) Tax Liability as Property Lien

(i) If any corporation, partnership or individual required to pay or remit any tax liability under Chapter 36 of Title 10, V.S.A., neglects or refuses to pay it in accordance therewith after notification or assessment thereof, the aggregate amount of the tax liabiltiy then due and owing, together with any costs that may accrue in addition thereto, shall be a lien in favor of this state upon all property and rights to property, whether real or personal, belonging to the corporation, partnership or individual. The lien shall arise at the time the notification or assessement is made by the Commissioner and shall continue until the aggregate tax liability with costs is satisfied in full or becomes unenforceable by reason of lapse of time. The lien shall be valid as against any subsequent mortgagee, pledgee, purchaser, or judgment creditor when notice of the lien and the sum due has been filed by the Commissioner with the clerk of the town or city in which the property subject to lien is situated, or, in the case of an unorganized town, gore or grant, in the office of the clerk of the county wherein the property is situated. In the case of any prior mortgage on any real or personal property so written as to secure a present debt and also future advances by the mortgagee to the mortgagor, the lien herein provided, when notice thereof has been filed in the proper clerk's office, shall be subject to the prior mortgage unless the Commissioner also notifies the mortgagee of the recording of the lien in writing, in which case any indebtedness thereafter created from the mortgagor to the mortgagee shall be junior to the lien herein provided for.

(ii) The Commissioner shall issue to the taxpayer a certificate of release of the lien if:

(1) The Commissioner finds that the liability for the amount demanded, together with costs, has been satisfied or has become unenforceable by reason of lapse of time; or

(2) There is furnished to the Commissioner a bond with surety approved by the Commissioner in a sum sufficient to equal the amount demanded, together with costs, the bond to be conditioned upon the payment of any judgement rendered in proceedings regularly instituted by the Commissioner to enforce collection thereof at law or of any amount agreed upon in writing by the Commissioner to constitute the full amount of the liability; or

(3) The Commissioner determines at any time that the interest of this state in the property has no value.

(iii) The lien provided for by this section may be foreclosed at any time after the tax liability with respect to which the lien arose becomes collectible. In the case of real property, the lien may be foreclosed in the manner prescribed in §§ 4523 through 4530 of Title 12, V.S.A., and in such rules as the Supreme Court may promulgate for the foreclosure of mortgages on real estate. In the case of personal property, the lien may be satisfied in the manner prescribed in Article 9 of Title 9A, V.S.A., for the disposition of collateral under a security interest or in the manner provided by law for the foreclosure of other security interests in personal property.

Section 10.11731 Deposit in Lieu of Tax

The tax imposed by § 1172(a) of Title 10, V.S.A., shall not be imposed if the taxpayer provides the Commissioner with a certificate from the Vermont Agency of Environmental Conservation certifying that such taxpayer is complying with the requirements of § 1173 of Title 10, V.S.A.

Section 10.11733 Container

The word "container" means only closed, sealed (airtight) containers and does not include vessels such as cups and glasses, even though such vessels are used in connection with the sale of a beverage at an eating and drinking establishment; nor does the word "container" include vessels which have tops placed on them at the time of sale to the consumer for take-out purposes at establishments such as restaurants, snack bars, and drive-ins.

History

• Adopted: August 29, 1972
• Effective Date: September 1972

Chapter 023 MEALS AND ROOMS TAX REGULATIONS

10-023 Code Vt. R. 10-060-023-X MEALS AND ROOMS TAX REGULATIONS

REG. SEC. 1.9202

STATUTORY PROVISIONS; DEFINITIONS

REG. SEC. 1.9203

STATUTORY PROVISIONS; RECORDS, INSPECTION

REG. SEC. 1.9242

STATUTORY PROVISIONS; COLLECTION OF MEALS AND ROOMS TAX BY OPERATOR AND IMPOSITION OF GROSS RECEIPTS TAX

REG. SEC. 1.9245

STATUTORY PROVISIONS; OVERPAYMENT; REFUNDS

REG. SEC. 1.9271

STATUTORY PROVISIONS; LICENSES REQUIRED

REG. SEC. 1.9202

STATUTORY PROVISIONS; DEFINITIONS

Reg. § 1.9202(3)-1 "Hotel" Defined.

Vermont law broadly defines a hotel as "an establishment that holds itself out to the public by offering sleeping accommodations for a consideration, whether or not the major portion of its operating receipts is derived therefrom and whether or not the sleeping accommodations are offered to the public by the owner or proprietor or lessee, sublessee, mortgagee, licensee, or any other person or the agent of any of the foregoing. The term includes inns, motels, tourist homes and cabins, ski dormitories, ski lodges, lodging homes, rooming houses, furnished-room houses, boarding houses, and private clubs, as well as any building or structure or part thereof to the extent to which any such building or structure or part thereof in fact is held out to the public by offering sleeping accommodations for a consideration" including a furnished house, condominium, or other dwelling room or self-contained dwelling unit rented to the transient, traveling, or vacationing public for a period of fewer than 30 consecutive days and for more than 14 days per calendar year.

Hotel accommodations are subject to the Vermont Meals and Rooms tax.

Reg. § 1.9202(3)-2 Examples.

The following lists are non-exclusive:

A. Hotel accommodations subject to the tax:

1. Sleeping accommodations offered to the public for a consideration on premises operated by a private person, entity, institution or organization, when the rental of such accommodations totals fifteen (15) or more days in any one year. Note that the hotel may offer its accommodations to a smaller consumer market than the entire population. For example, a bunk house operated by a ski club is a hotel and rentals of sleeping accommodations, by both members and non-members, are taxable.

2. Rentals of sleeping accommodations provided by or to an entity organized pursuant to Section 501(c)(3) of the Internal Revenue Code on premises other than premises owned and operated by the 501(c)(3) entity and used exclusively in furtherance of an exempt purpose. 32 V.S.A. § 9202.(3)(C). For example, members of a charitable organization that sponsors a conference at a public hotel and convention center must pay the rooms tax on their rentals of accommodations and meeting rooms, even if the conference is in furtherance of the organization's charitable purposes.

3. Rentals of sleeping accommodations in a campground that offers such accommodations to the public for a consideration. The term "sleeping accommodations" includes cabins, tents or other structures that may be used by occupants for sleeping purposes. It does not include bare land or land and recreational vehicle hookup.

4. Sleeping accommodations offered to the public for a consideration by owners or operators of real property, including private residential dwellings, where the occupants are not permanent residents and the property is rented for fifteen (15) days or more in a calendar year. For example, the rental of a residential dwelling, though typically occupied by its owners, is subject to the tax when the dwelling is rented to occupants for a total of fifteen (15) days or more during a year, and the occupant does not qualify as a permanent resident. See 32 V.S.A. § 9202.(7) (definition of permanent resident); Reg. § 1.9202(7).

B. Accommodations not subject to the tax:

1. Rentals of sleeping accommodations for a total of less than fifteen (15) days in any one year. For example, if the owners of a seasonal lakeside cabin rent the property to occupants for two weeks annually, no tax is due because the occupancy is not for fifteen (15) or more days of the year.

2. Rentals of sleeping accommodations provided by an entity organized pursuant to Section 501(c)(3) of the Internal Revenue Code on premises owned and operated by the 501(c)(3) entity and used exclusively in furtherance of an exempt purpose. See 32 V.S.A. § 9202.(3)(C).

Rentals of a plot or parcel of land in a campground on which a customer may park a recreational vehicle or pitch a tent, unless the recreational vehicle or tent is provided by the operator. Note, however, that the use of campgrounds that provide recreational facilities is subject to the sales tax. See 32 V.S.A. § 9771.(4); Reg. § 1.9771(4).

4. Rentals of sleeping accommodations to permanent residents. See 32 V.S.A. § 9202.(7); Reg. § 1.9202(7). For example, if a hotel operator or an owner of residential property rents sleeping accommodations under the terms of a lease to an occupant for one calendar month, the occupant is a permanent resident and the occupancy is not taxable.

Reg. § 1.9202(3)-3 Operators of Multiple Rental Units.

If an owner or operator reporting tax as a single reporting entity rents more than one room, rental property or rental unit concurrently, each individual rental of a room, property or unit is counted collectively when determining the number of days that the properties are occupied. It is immaterial that the operator may hold separate licenses for separate rental locations.

Examples:

1. An operator rents two separate rooms to two different individuals, each for the same two-week period. The operator does not rent any rooms for the remainder of the year. All occupancies are subject to the tax because the operator rented the accommodations, collectively, for fifteen (15) days or more in a year. (Two rooms at fourteen (14) days each equals twenty-eight (28) rental days.)

2. An operator manages two rental locations under a single meals and rooms tax account, and each location is separately licensed. One of the locations is rented for two weeks of the year. The other is rented for one week of the year. Tax is due on each rental because the cumulative number of rentals for the reporting entity is fifteen (15) or more days. (One room for fourteen (14) days plus one room for seven (7) days equals twenty-one (21) rental days.)

3. A booking agent books accommodations for several different owners of rental properties, some of which are single family homes. If the booking agent rents for 15 or more days, it must collect rooms tax for all bookings, even if any particular rental home listing by the booking agent is not rented for 15 or more days in one year.

Reg. § 1.9202(5)-1 "Occupant" Defined.

A. The term "occupant" includes any person who, for a consideration, uses, possesses, or has a right to use or possess any room in a hotel, whether or not the room contains sleeping accommodations or is to be used for that purpose.

Example 1: A salesperson who rents a room to display samples in a hotel is an occupant.

Example 2: A person who pays a site fee at a wedding venue so that wedding guests have access to the ballroom area of the hotel is an occupant.

B. An occupant may be a business entity.

Example: A corporation rents a room or rooms, on a continual basis, in a hotel for use by its employees as the need arises. The occupant is the corporation, and it is immaterial that different employees may use the rooms.

Reg. § 1.9202(6)-1 "Occupancy" Defined.

A. "Occupancy" means the use or possession, or the right to the use or possession, of any room or rooms in a hotel for any purpose, or the right to the use or possession of the furnishings or to the services and accommodations accompanying the use and possession of a room or rooms.

B. "Occupancy" does not include the use or possession, or the right to the use or possession, of any room or rooms in a "hotel" when occupied by

a permanent resident, as defined in Reg. § 1.9202(7)-1;

2. an employee when the occupancy is granted by an operator as all or part of the employee's remuneration for employment; or

3. children when enrolled in a summer camp for children. The term "summer camp for children" does not include family vacation camps, resorts, or any programs that are designed for families or adults, rather than specifically for children.

Reg. § 1.9202(7)-1 "Permanent Resident" Defined.

The term "permanent resident" includes:

A. Occupants for at least thirty (30) consecutive days. A person who occupies any room in a hotel for at least thirty (30) consecutive days becomes a permanent resident effective as of the thirty-first day and will continue to be considered a permanent resident thereafter as long as occupancy remains continuous and uninterrupted. Any discontinuance or interruption in occupancy results in the creation of a new and separate rental. A change of rooms in the same hotel will not be considered a discontinuance or interruption of occupancy. Transfer from one hotel to another operated under a different meals and rooms license, however, begins a new period of occupancy even when the hotels are owned by the same person or entity. Since qualification as a permanent resident under this subsection is not effective until the person has occupied a room or rooms in a hotel for thirty (30) consecutive days, rent for the first thirty (30) days of occupancy remains subject to meals and rooms tax.

B. Tenants under leases covering at least thirty (30) days. A person who has a right to occupy a room pursuant to a pre-existing lease for at least thirty (30) consecutive days, or one calendar month, whichever is less, is considered a permanent resident for the entire period of occupancy pursuant to the lease. Accordingly, no meals and rooms tax is payable with respect to any rent paid or received under the lease. If the lease is broken and actual occupancy is for less than thirty (30) days, or in the case of the month of February, less than the calendar month, such person will not be considered a permanent resident for any portion of the occupancy.

For purposes of this regulation, a lease is an oral or written agreement that creates a landlord-tenant relationship between the parties. A lease must contain the essential terms of the agreement, and transfers the right of exclusive possession to the tenant. A lease is distinguishable from a license or contract to occupy in which a hotel owner or operator retains rights of possession and care of the premises, and may revoke the occupancy at his or her pleasure.

The tax applies solely to occupancies by transient occupants or lodgers and does not apply when a lease creates a landlord-tenant relationship. Accordingly, occupancies by persons considered tenants under the provisions of the Vermont Residential Rental Agreements Act (RRAA), 9 V.S.A. § 4451. et seq., are not subject to the tax.

Conversely, agreements containing provisions inconsistent with the RRAA are not leases for meals and rooms tax purposes.

Reg. § 1.9202(8)-1 Rent - Itemization of Charges.

The charges for services, such as laundry service, and for facilities, such as the use of a swimming pool or exercise room, that are optionally available to hotel occupants at an extra charge do not constitute rent provided the charges are separately stated and itemized on the customer's bill or invoice. If the charges for any services or the use of facilities are not itemized, or the services or facilities are available without any charge in addition to that normally made for the room, the total amount charged is considered rent and is subject to meals and rooms tax.

Additional charges for items that are intrinsic to the occupancy are considered rent and are subject to the tax, even if such items are separately stated on the bill. Examples of such charges include, but are not limited to, charges for a lake or mountain view room, local telephone usage charges, the use of an extra bed or crib, the use of a safe, pet charges, and hotel or inn closure fees entitling occupants to exclusive use of the property.

Itemi zed charges for the optional use of facilities, such as a pool or fitness center, or for access to items such as rental movies or cable television, may be subject to sales tax under 32 V.S.A. § 9771.(4).

Reg. § 1.9202(8)-2 Rent - Tips.

A. The term "rent" does not include tips. "Tip" means either

1. a sum of money gratuitously and voluntarily left by a customer for service, or

2. a charge for service that is indicated by the seller on the bill, invoice or charge statement that

a) does not exceed twenty percent (20%) of the total room charges. Charges in excess of twenty percent must be reported as taxable rent, even if fully distributed to service employees; and

b) is separately accounted for and fully distributed to service employees, in addition and supplemental to normal salary and wages, which must meet or exceed state and federal minimum wage requirements. The charge for service may not be used to make up for wages.

i. If any portion of the service charge is retained by the operator, rather than by service employees, the portion retained constitutes rent and is thus subject to the tax.

ii. For meals and rooms tax purposes, business owners and operators are not service employees, even when they perform functions typically performed by service employees.

For meals and rooms tax purposes, business owners and operators are not service employees, even when they perform functions typically performed by service employees.

B. Examples

1. A hotel occupant voluntarily leaves a 25% tip in his hotel room for housekeeping staff at the end of the occupancy. The gratuity is shared by the hotel's two housekeepers, neither of whom are owners or operators of the hotel: The tip, left voluntarily and gratuitously by the occupant, is not part of the taxable room charge.

2. A hotel adds a 22% service charge to a customer's bill for rent of a block of rooms for use by a wedding party. The gratuity is fully distributed to the housekeeping staff, none of whom own or operate the hotel. Because the service charge is not gratuitous, the 2% in excess of the allowable 20% tip is part of the taxable room charge.

3. Same as 2, above, but the service charge is split equally between the housekeeping staff and the hotel operator. Because the service charge is not fully distributed to the service employees, the amount retained by the hotel operator (11%) is part of the room charge and is subject to the tax.

Reg. § 1.9202(8)-3 Rent - Package Plans.

A. Itemization of charges

Where charges for lodging, meals, rental of equipment, use of facilities, or lessons are purchased under a package plan rather than on an item-by-item basis, only the meals and lodging portion of the charge for the package plan is subject to meals and rooms tax if the charges are separately stated on the customer's bill or invoice. Separately stated charges for the rental of equipment and use of facilities are subject to sales tax. Separately stated charges for lessons or other services (except expressly taxable services, such as telecommunications service) are not taxable.

B. Allocation of charges

A taxpayer may elect to allocate the charge for the package plan among its various components, but such allocation must be easily ascertainable from the financial records of the taxpayer and must be based on reasonable formulae. The Department shall accept an allocation of the charges if the portion allocated to sales subject to the sales and use tax and to nontaxable services equals or is less than the charges that would be incurred for those sales and services if purchased separately from the package plan for the same period. Where the charges allocated for sales subject to sales and use tax and nontaxable services are greater than the separate charges for such items for a comparable time period, the burden will be on the taxpayer to demonstrate that the allocation is reasonable.

C. Advertising Advertising that indicates the sales price for package plans is not required to separately state the charges for each component of the plan, but shall state that the price includes, or is subject to, Vermont meals and rooms tax. See Reg. § 1.9242-2. If any portion of the package plan is subject to Vermont sales tax, the advertising shall similarly state that the price includes, or is subject to, the sales tax.

Reg. § 1.9202(8)-4 Rent - Forfeited Deposits on Rooms.

A deposit or any portion of a deposit paid by a customer to reserve the right to occupy a hotel room is subject to the meals and rooms tax when forfeited by the customer and retained by the operator. When reporting the retained deposit, the operator may allocate the total amount retained between rooms receipts and the tax. The retained deposit should be reported as taxable rent in the tax period in which it is ascertainable by the operator.

Reg. § 1.9202(8)-5 Rent - Charges by Booking Agents.

All amounts collected by booking agents for occupancies, except the rooms tax itself, is rent under the rooms tax and tax must be collected.

Example: An online platform offers hotel rooms in the State. An occupant pays $ 200 to the platform and reserves the room. The platform must collect tax on the $ 200 occupancy.

Example: A business operates an advertising and listing website for Vermont accommodations. It does not book accommodations or take payment. Rather, the business directs the occupant elsewhere to book and pay for the accommodations. The business is not a booking agent because it does not book accommodations and collect rent.

Reg. § 1.9202(8)-6 Rent - Exemptions.

A. Government Rent charged directly to and paid directly by the federal government or any of its agencies or instrumentalities is exempt from rooms tax. Amounts charged to and paid by an individual employed by one of these entities are not exempt, even if the entity reimburses the employee, and must be included in the gross receipts computation. Similarly, if payment is made using a credit card that bears the name of the governmental entity, the purchase is not exempt if the employee, rather than the entity, is responsible for paying the charged amount. Any amounts charged for rent to individuals who present a Tax Exemption Card issued by the United States Department of State that identifies the individual as a diplomatic or consular official and specifically exempts that individual from the tax on meals and/or rooms are exempt.

Any amounts charged directly to and paid directly by the State of Vermont or any of its agencies, instrumentalities, public authorities, public corporations, political subdivisions, cities, towns, school districts and Vermont state colleges including the University of Vermont are exempt. Amounts charged to and paid by an individual employed by one of these entities are not exempt, even if the entity reimburses the employee, and must be included in the gross receipts computation. Similarly, if payment is made using a credit card that bears the name of the governmental entity, the purchase is not exempt if the employee, rather than the entity, is responsible for paying the charged amount. Amounts charged to governments other than the federal government and State of Vermont or subdivisions are taxable.

B. Schools Charges for living quarters, sleeping or household accommodations to any student necessitated by attendance at a school are exempt from tax. A school means an incorporated nonstock educational institution, including an institution empowered to confer educational, literary, or academic degrees, which has a regular faculty, curriculum, and organized body of pupils or students in attendance throughout the usual school year, which keeps and furnishes to students and others records required and accepted for entrance to a school of secondary, collegiate, or graduate rank, no part of the earnings of which inure to the benefit of any individual. The term "school" includes fraternities and sororities which are associated with a college or university.

C. Hotel operated by a nonprofit.

Rent charged by a hotel operated by a nonprofit as described in this paragraph is exempt from tax. An establishment operated by a nonprofit corporation or association organized and operated exclusively for religious, charitable, or educational purposes which, in furtherance of any of the purposes for which it was organized, operates a hotel as defined under the Meals and Rooms tax law shall not collect tax on the rent charges.

D. Continuing Care Retirement Communities.

Charges for rent by a continuing care retirement community certified under 8 V.S.A. Chapter 151 are exempt from tax.

Reg. § 1.9202(10)-1 "Taxable Meal" Defined.

Generally, taxable meals are food or beverage offered for a charge, to be consumed on or off premises, available for immediate consumption. With minimal exception, food or beverage furnished by restaurants, as defined in 32 V.S.A. § 9202.(15), is subject to the meals and rooms tax. Only certain food or beverage typically sold for immediate consumption - such as heated food or beverage - is subject to the tax when furnished by an establishment that does not qualify as a restaurant. For example, items considered grocery items are not taxable meals.

The Meals and Rooms tax is a gross receipts tax and includes all charges for the meal, even if those charges are itemized, including meal delivery charges and set-up and serving charges.

If the delivery includes alcohol, the alcohol tax rate of 10% applies to the delivery charges - either the entire charge if meals and alcohol are delivered with no itemization, or only that portion of the delivery charge related to the alcohol if the delivery fee for alcohol and meals are itemized.

Meals that are bartered in exchange for goods or services are included in the gross receipts of an establishment at a value equal to the value of the goods or services exchanged.

A. When the charge for a taxable meal includes a minimum charge or admission charge that may otherwise be subject to sales tax, see 32 V.S.A. § 9771.(4), those charges are also subject to meals tax unless separately stated on the receipt or invoice and separately reported to the Department. If the operator allocates the charges between the taxable meals and taxable sales, such allocation must be easily ascertainable from the financial records of the taxpayer and must be based on reasonable formulae.

More specifically, food or beverage, as defined by 32 V.S.A. § 9202.(12), is taxable as follows:

B. When furnished by a restaurant:

1. The charge for all food or beverage, when furnished in Vermont by a restaurant, see 32 V.S.A. § 9202.(15), with the exception of those items listed in subsection D of this regulation, is taxable.

C. When furnished by other than a restaurant:

Prepackaged food or beverage, as defined in 32 V.S.A. § 9202.(14), does not constitute a taxable meal and is not subject to tax.

2. Fruits, vegetables, candy, flour, nuts, coffee beans and similar unprepared grocery items sold self-serve for take-out from bulk containers are not subject to tax.

3. Nonprepackaged food or beverage (for example, single-serving bakery items sold in quantities of less than three, or self-serve fountain drinks) is taxable.

D. Items taxable regardless of where sold and whether or not prepackaged:

1. sandwiches of any kind, except frozen,

2. food or beverage furnished from a salad bar,

3. heated food or beverage, as defined by 32 V.S.A. § 9202.(13). Note that items such as single servings of tea, where the customer must combine the tea bag and hot water, constitute a heated beverage; and

4. food or beverage sold through a vending machine.

E. Grocery-type items furnished for take-out, other than those taxable under Reg. § 1.9202(10)-1 C., above, are nontaxable:

1. whole pies or cakes, loaves of bread,

2. single-serving bakery items sold in quantities of three or more,

3. delicatessen and nonprepackaged candy sales by weight or measure, except party platters,

4. whole uncooked pizzas,

5. pint or larger closed containers of ice cream or frozen confection,

eight ounce or larger containers of salad dressings or sauces,

7. maple syrup, and

8. quart or larger containers of cider or milk.

Reg. § 1.9202(10)-2 Taxable Meals - Exemptions.

A. General Exemptions

Some receipts are exempted from the definition of taxable meal under 32 V.S.A.

§ 9202. (10)(D) and no meals tax is to be collected for these receipts. Food or beverage otherwise taxable may be exempt from the tax because of where, by, or to whom it is served. For example, food furnished on school premises, or on trains, buses or airplanes, and food or beverage served at state and federal correctional facilities to inmates and employees is not subject to the tax. (See 32 V.S.A. § 9202.(10)(D)(ii) for full list of these exemptions).

Note that the exemptions are strictly construed; accordingly, charges for items such as pizzas delivered to a student dormitory, catering of a private event on a college campus, or restaurant lunches delivered to employees of a correctional facility are not exempt from the tax.

Exemptions under the sales and use tax (chapter 233 of title 32) do not apply to meals and rooms tax. There is no exemption, for example, for meals purchased by organizations qualifying under section 501(c)(3) of the Internal Revenue Code.

B. Government purchases and sellers

Amounts charged for meals directly to or paid by the federal government and State of Vermont are exempt in the same manner as amounts charged for rent. See § 1.9202(8)-6(A). Meals purchased by a Vermont or Federal government employee are taxable even if the government reimburses the employee for the purchase.

Meals sold to other state governments or their employees are taxable.

C. Resale Meals and beverages are exempt when purchased for resale. To be eligible, the purchaser must provide an exemption certificate and tax must be collected when the purchaser sells the taxable meals and beverages to the consumer.

D. Meals sold by a religious or charitable nonprofit.

Meals are exempt from tax when sold by a religious or charitable nonprofit when the following conditions are met:

2. The meal must be served or furnished on the premises of the nonprofit.

The nonprofit must be organized and operated exclusively for religious or charitable purposes.

4. The sale of the meals must be in furtherance of any of the purposes for which the nonprofit was organized; and

5. The net proceeds of the sales of meals or beverages must be used exclusively for the purposes of the corporation or association.

If the meal is sold or furnished off the premises of the nonprofit at events such as bazaars, fairs, picnics, church suppers, or similar events the meals are exempt only if the nonprofit sells off premises for no more than four events of a day's duration per calendar year. Further, if the premises where the event is held is required to have a meals and rooms registration license, the sales are not exempt from the meals and rooms tax.

E. Schools Meals are exempt from tax when served if furnished on the premises of a school and:

1. Served by the school or an entity under written contract with the school to provide school dining facilities such as a cafeteria or food court; or

If served at an event for the benefit of the school, sponsored by the school and serving the school's educational purpose.

Meals furnished to a private event on school grounds are taxable if provided by an off-site caterer and exempt from tax if provided by the school or an entity under written contract with the school to provide school dining facilities.

F. Other locations

Meals are exempt from tax when:

1. prepared by the employees of and served on the premises of a hospital licensed by the State Board of Health under Vermont Statutes Title 18, Chapter 43;

furnished by any person while operating a summer camp for children;

3. provided to the elderly pursuant to the Federal Older Americans Act;

purchased under the USDA Supplemental Nutrition Assistance Program;

5. served or furnished on the premises of a continuing care retirement community certified under Vermont Statutes Title 8, Chapter 151; and

6. prepared and served by the employees, volunteers, or contractors of any nursing home, residential care home, assisted living residence, home for the terminally ill, therapeutic community residence as defined pursuant to 33 V.S.A. chapter 71, or independent living facility.

G. Exemptions - Alcoholic Beverages.

Sales of alcoholic beverages served for immediate consumption are subject to the same exemptions as the exemptions for food and beverages.

Reg. § 1.9202(10)-3 Meals - Tips.

A. The term "taxable meal" does not include tips. "Tip" means either

1. a sum of money gratuitously and voluntarily left by a customer for service, or

2. a charge for service that is indicated by the seller on the bill, invoice or charge statement that

a. does not exceed twenty percent (20%) of the total meals charges. Charges in excess of twenty percent must be reported as taxable meals, even if fully distributed to service employees; and

b. is separately accounted for and fully distributed to service employees, in addition and supplemental to normal salary and wages, which must meet or exceed state and federal minimum wage requirements. The charge for service may not be used to make up for wages.

i. If any portion of the service charge is retained by the operator, rather than by service employees, the portion retained constitutes taxable meals and is subject to the tax.

ii. For meals and rooms tax purposes, business owners and operators are not service employees, even when they perform functions typically performed by service employees. Service employees under the meals tax are employees who directly serve patrons of the restaurant, including wait staff and bartenders but do not include those who do not direct serve the customer, such as cooks, kitchen staff and dish washers.

B. Examples:

1. A customer voluntarily leaves a 25% tip on a taxable meal charge. The tip is retained by the waitperson. Because the tip has been left gratuitously by the customer, it is not subject to the tax.

2. A restaurant operator helps her employees by waiting on a few tables when the restaurant is busy. If a non-gratuitous service charge is added to a customer's bill, any portion of such charge retained by the operator is subject to the tax. In contrast, gratuitous tips left for the operator are not taxable, even if they exceed 20% of the taxable meal charge.

3. A restaurant adds a standard 22% service charge to all taxable meal charges for parties of eight or more. Even if the full amount is distributed to service employees, 2% of the service charge is subject to tax because the service charge is not left voluntarily by the customer, and exceeds 20%.

4. Same as 3, above, but the restaurant operator retains one-half of the 22% service charge, and distributes one-half to service employees. The operator must report and pay tax on 11% of the service charge, which is the amount retained and not distributed to service employees.

Reg. § 1.9202(10)-4 Taxable Meal Facilitators.

A. Taxable Meal Facilitator Definition

A taxable meal facilitator is a person who facilitates the sale of a taxable meal or alcoholic beverage and collects the charges for the taxable meal or alcoholic beverages. A taxable meal facilitator is an operator under the rooms and meals tax law and must register for a rooms and meals tax account. It must collect meals and alcohol tax on all charges for the taxable meal and alcoholic beverage including any delivery or facilitation charge it retains. It may purchase meals purchase for resale from restaurants if it provides a fully executed exemption certificate.

B. Examples

Example 1:

A company offers meal ordering from local restaurants on a website platform. The company itself does not prepare meals. A customer orders a pizza for a price of $ 20. The company arranges for the preparation of the pizza from a local restaurant, pays the restaurant $ 12 for the pizza, and delivers the pizza to the customer. The company retains the remaining amount as its facilitation fee and for the cost of delivery.

The company may purchase the pizza free from meals tax from the restaurant as a purchase for resale if it executes exemption certificate Form M-3 and files it with the restaurant. The customer is charged $ 21.80 ($ 20 plus 9% meals tax). The facilitator, not the restaurant, must report and remit the tax.

Example 2:

A company administers a website guide to restaurants, providing menus and recommendations. It directs customers to visit or order from restaurants directly, but does not collect any charges for taxable meals or alcoholic beverages. It is not a taxable meal facilitator because it does not collect the charges from the customer.

Reg. § 1.9202(15)-1 "Restaurant" Defined.

A. A restaurant is "[a]n establishment from which food or beverage of the type for immediate consumption is sold or for which a charge is made." 32 V.S.A. § 9202.(15)(A). The term includes eating establishments whether stationary or mobile, temporary or permanent.

B. In addition, any establishment with 80 percent or more of its gross receipts from taxable alcoholic beverage, food or beverage is a "restaurant" under Vermont law. 32 V.S.A. § 9202.(15)(B). The 80 percent requirement will be met where the establishment's sales in the previous taxable year meet, or in the first taxable year are reasonably projected to meet, the 80 percent threshold.

Reg. § 1.9202(15)-2 Restaurants - Eighty Percent Rule.

The term "restaurant" is broadly defined and includes, but is not limited to, cafes, cafeterias, dining rooms, diners, lunch counters, snack bars, private or social clubs, bars, taverns, street vendors, and caterers. These facilities are restaurants regardless of the 80 percent rule. In addition, establishments with 80 percent or more of their total gross receipts from the sale of alcoholic beverages, food or beverage, as set forth in Sections 9202(10)(B) and 9202(10)(C) of Title 32 and not exempted under 32 V.S.A. § 9202.(1)(D), are restaurants. 32 V.S.A. § 9202.(15)(B).

As a result of the 80 percent rule, less traditional venues, such as all or portions of grocery or convenience stores that serve taxable food or beverage, may be restaurants for meals and rooms tax purposes.

Examples:

A. When more than one food or beverage selling activity occurs at the same location, all food and beverage sales activity will generally be considered in determining if the establishment meets the 80 percent requirement. For example, if a single operator sells both groceries and taxable meals and there is no physical separation of the two operations, sales relating to the grocery store operations will be considered in determining whether the establishment meets the 80 percent requirement. If it meets the 80 percent requirement, certain items that may not otherwise be subject to the tax, such as bottled beverages (other than quart or larger containers of cider or milk, see 32 V.S.A. § 9202.(D)(i)) are taxable.

B. When more than one food or beverage selling activity occurs at the same location but there is a physical separation of the two operations so that customers of one may not pass freely into the other, each operation will be considered separately to determine if it meets the 80 percent requirement. For example, if an establishment maintains separate rooms and separate entrances for the respective purchases of groceries and taxable meals, each operation will be considered separately, even if a common kitchen is used. If the area selling taxable food and beverage, standing alone, meets the 80 percent requirement, items that may not otherwise be subject to the tax, such as bottled beverages (other than quart or larger containers of cider or milk, see 32 V.S.A. § 9202.(D)(i)) are taxable when purchased in that area, but not when purchased from the grocery operations (assuming that such area does not meet the 80 percent requirement).

C. Use of a separate cash register, standing alone, does not constitute a physical separation as discussed in paragraphs A and B, above.

D. In those instances where separate and distinct operators occupy the same location and collect and report taxable sales on a separate basis, their operations will be considered separately for the purpose of the 80 percent requirement.

E. A snack bar does not constitute a restaurant when located on the premises of a retail grocery or convenience store. 32 V.S.A. § 9202.(15)(C); see also 32 V.S.A. § 9202.(17) (definition of "snack bar").

F. Prepackaged items such as ice cream bars, chips and soft drinks sold by a street vendor are subject to the tax, even when the vendor sells 80 percent or more of the prepackaged items. The items are taxable because the street vendor operates a restaurant, see 32 V.S.A. § 9202.(15)(A) (definition of "restaurant"), and "any food or beverage furnished within the state by a restaurant for which a charge is made" is subject to the tax. 32 V.S.A. § 9202. (10)(A). Note that there are exceptions to this general rule of taxability pursuant to 32 V.S.A. § 9202.(10)(D) discussed at Reg. § 1.9202(10)-2.

Reg. § 1.9202(15)-3 Food and Beverage "for Immediate Consumption".

The phrase "for immediate consumption," as used in statute and regulation, means that the food or beverage offered for sale is:

1. in a form that requires no further processing by the purchaser, not including minimal preparation such as toasting, or microwave heating of refrigerated foods where the store provides the heating units; and

2. in a size or portion that ordinarily may be immediately consumed by one person. Note, however, that restaurants may serve prepared food or beverage items that are specifically for more than one person. For example, appetizers may feed two or more individuals, but are sold for immediate consumption; an ice cream parlor may serve sundaes or other desserts prepared specifically for two or more persons.

Reg. § 1.9202(15)-4 Local Option Meals and Rooms Tax and City Charter Meals, Entertainment and Lodging Tax.

A. Some Vermont municipalities impose a local option or city charter tax on taxable meals and alcoholic beverages, or on lodging furnished in the municipality, or on both. See 24 V.S.A. § 138. The tax is due on charges subject to the Vermont meals and rooms tax. It is administered and collected in one of two ways:

1. In several Vermont jurisdictions, the tax is authorized by city charter, and is administered and collected by the municipality. Operators should contact the municipality for specific information concerning the imposition and collection of the tax.

2. For other municipalities that impose the local option tax pursuant to 24 V.S.A. § 138., the tax is administered and collected by the Department. Operators must collect the local option tax on receipts subject to the state tax if the meal or lodging was provided in a municipality with a local option tax. The tax collected for each municipality must be separately reported on the operator's return.

B. Operators collecting the meals and rooms tax in local option municipalities may state either the combined meals and rooms tax and local option tax as a single tax amount, or separately state the meals and rooms and the local option tax. If sales of taxable meals and alcoholic beverages and/or lodging are made on a tax- included basis, notice must be made to the customer that the price includes both state and local tax. An operator may not make sales on a tax-included basis for one tax and separately itemize the other.

C. Examples:

1. Meals served to patrons of a restaurant located in municipalities that impose the local option tax are subject to the tax.

2. A restaurant in a municipality that imposes the local option tax contracts to cater an event in a municipality that does not impose the tax. No local option tax applies, unless the customer picks up the taxable meals at the restaurant. If the caterer is in a municipality that does not impose the tax, but the meal is furnished in a municipality that does, the tax would apply.

3. A mobile vendor sells sandwiches, coffee, or other taxable meals at various locations during the day. Local option tax applies to any sales made in municipalities that impose the tax.

4. A pizza shop takes telephone orders at its store located in a municipality subject to the local option tax, and delivers taxable food to its customers. Only those orders delivered in municipalities where the tax is imposed are subject to the tax. Similarly, a pizza shop located in a municipality that does not impose the tax must collect the local option tax on deliveries in municipalities subject to the tax.

5. An inn in a local option municipality rents a room. The charge is subject to the local option tax.

6. A real estate agency located in a municipality that imposes the local option tax rents a cottage for one week (subject to the meals and rooms tax) to a customer. The rental is located in a municipality that does not impose the local option tax. The transaction is not subject to the tax. Conversely, if the agency was in a municipality that does not impose the tax, but the rental is in a municipality that does, the local option tax applies.

Reg. § 1.9202(20) Booking Agents

A. Defined A booking agent is a person who 1) facilitates the rental of an occupancy; 2) collects rent for an occupancy; and 3) who has the right, access and ability to offer, reserve, book, arrange for, remarket, distribute, broker, resell or facilitate an occupancy.

A booking agent may utilize an internet platform or other method to offer accommodations. Those offering advertising, directories or listings of accommodations of other operators, without collecting rent, are not booking agents.

B. Obligations under the Meals and Rooms Tax

A booking agent has the same obligations as operators under the Meals and Rooms Tax.

REG. SEC. 1.9203

STATUTORY PROVISIONS; RECORDS, INSPECTION

Reg. § 1.9203-1 Records; General Requirements.

Every person required to collect and remit to the commissioner any tax imposed by Chapter 225 of Title 32 shall maintain all records necessary for a determination of the correct tax liability. Such records must show the total and individual sales prices of taxable and nontaxable items.

Such records shall include, but are not necessarily limited to, the books of account ordinarily maintained by the average prudent business person engaged in the activity in question, together with all bills, receipts, invoices, cash register tapes, sales slips, or other documents of original entry supporting the entries in the books of account, and all schedules or working papers used in conjunction with the preparation of tax returns. See also Reg. § 1.9242-3.

Reg. § 1.9203-2 Inspection.

On request by the commissioner or the commissioner's duly authorized agent or employee, all required records must be made available for inspection at all reasonable times. "All reasonable times" includes, at minimum, the regular business or office hours of the premises where sleeping accommodations are rented or taxable meals are sold. The commissioner or the commissioner's duly authorized agent or employee may enter in or upon such premises, at all reasonable times, to examine such records in order to determine whether the operator is complying with the meals and rooms tax laws.

If a taxpayer retains records required to be retained under this regulation in both electronic and hard-copy formats, the taxpayer shall make the records available to the commissioner in the form requested by the commissioner.

Nothing in this regulation shall be construed to prohibit a taxpayer from demonstrating tax compliance with traditional hard-copy documents or reproductions thereof, in whole or in part, whether or not the taxpayer also has retained or has the capability to retain records on electronic or other storage media in accordance with this regulation. The taxpayer is not relieved, however, of its obligation to provide electronic records when so requested by the commissioner.

Reg. § 1.9203-3 Electronic Records.

A. Electronic records used to establish tax compliance shall contain sufficient transaction-level detail information so that the details underlying the electronic records can be identified and made available to the commissioner upon request. A taxpayer has discretion to discard duplicated records and redundant information provided its responsibilities under this regulation are met.

B. At the time of inspection, the retained records must be capable of being retrieved and converted to a standard record format.

C. Taxpayers are not required to construct electronic records other than those created in the ordinary course of business. A taxpayer who does not create the electronic equivalent of a traditional paper document in the ordinary course of business is not required to construct such a record for tax purposes.

D. Electronic records must contain a level of record detail that is equivalent to that which is contained in an acceptable paper record. Codes may be used to identify some or all of the data elements, provided that the taxpayer provides a method that allows the commissioner to interpret the coded information.

E. Business Process Information

Upon the request of the commissioner, the taxpayer shall provide a description of the business process that created the retained records. Such description shall include the relationship between the records and the tax documents prepared by the taxpayer and the measures employed to ensure the integrity of the records.

The taxpayer shall be capable of demonstrating:

1. the functions being performed as they relate to the flow of data through the system;

2. the internal controls used to ensure accurate and reliable processing; and

3. the internal controls used to prevent unauthorized addition, alteration, or deletion of retained records.

F. Access to Electronic Records

The manner in which the commissioner is provided access to electronic records as required in this regulation may be satisfied through a variety of means that shall take into account a taxpayer's facts and circumstances through consultation with the taxpayer:

1. The taxpayer may arrange to provide the commissioner with the hardware, software and personnel resources necessary to access the records.

2. The taxpayer may arrange for a third party to provide the hardware, software and personnel resources necessary to access the records.

3. The taxpayer may convert the electronic records to a standard record format that is agreed to and specified by the commissioner.

4. The taxpayer and the commissioner may agree on other means of providing access to the records.

Reg. § 1.9203-4 Records Retention - Time Period.

Records required to be retained under this regulation shall be preserved for a period of three years in accordance with 32 V.S.A. § 9203. The time for retention shall begin to run from the date on which the taxpayer is required to file the return or the return is filed, whichever is later. A prudent taxpayer may choose to retain such records for a longer period of time. See 32 V.S.A. § 9273.(b) (permits assessment of additional tax beyond the three-year period in certain instances).

REG. SEC. 1.9242

STATUTORY PROVISIONS; COLLECTION OF MEALS AND ROOMS TAX BY OPERATOR AND IMPOSITION OF GROSS RECEIPTS TAX

Reg. § 1.9242-1 Collection of Meals and Rooms Tax by Operator.

A. Each operator is required to give notice to each purchaser of taxable meals or alcohol and to each occupant of a hotel that it is charging meals and rooms tax, and shall give notice to each such purchaser or occupant of the amount of tax charged.

B. An operator shall not indicate in any manner that it is paying the tax due from a hotel occupant or from a purchaser of taxable meals or alcohol. The operator must demand and collect the tax from each purchaser or occupant and remit the tax to the commissioner.

Reg. § 1.9242-2 Required Notice of Tax Due.

A. Any receipt, invoice, bill or statement of charges given to any hotel occupant or to any purchaser of taxable meals or alcohol must include a statement of the amount of tax charged.

B. If meals, rooms or alcohol are sold inclusive of the tax, the operator must give notice to the purchaser or occupant that the amount charged includes the applicable tax. The notice shall consist of one or more of the following:

1. A sign or signs, viewable by all purchasers or occupants, stating that the price charged includes the applicable tax.

2. A statement on the menu or price list stating that the price charged includes the applicable tax, provided that a copy of such menu or price list is presented to each purchaser or occupant.

3. A statement on the receipt, invoice, bill or statement given to the purchaser or occupant that the price charged includes the applicable tax.

C. At the request of a purchaser or occupant, an operator shall provide the purchaser or occupant an itemized statement of the taxable charges for meals, alcohol or rent, and the amount of tax computed thereon.

D. An operator shall maintain books and records that clearly reflect the breakdown of charges for taxable meals, alcohol or occupancies and the amount of tax charged and collected on each transaction. See 32 V.S.A. § 9203.; Reg. § 1.9203.

E. An operator that fails to abide by the foregoing provisions of this regulation shall be responsible to the commissioner for payment of meals and rooms tax that should have been collected from the purchaser or occupant on the entire amount charged to the customer for taxable meals, alcohol or occupancies.

Reg. § 1.9242-3 Computation of the Gross Receipts Meals and Rooms Tax Due from Operator.

A. Each operator shall compute the meals and rooms tax due for each required reporting period based on the gross receipts from the sales of meals and alcohol and from the charges for occupancies for that period.

B. "Gross receipts" means the total amount of all charges for meals and alcohol and the total charges for rents during the reporting period. It does not include taxes collected by the operator.

C. "Gross receipts" means the total amount of all charges for meals and alcohol and the total charges for rents during the reporting period. It does not include taxes collected by the operator.

D. Gross receipts, less the following exemptions (which are narrowly construed), equals taxable receipts:

1. Any amounts representing tax charged to the customer where the operator provided the customer appropriate notice of the tax being charged.

Any amounts charged for the sales of meals or for hotel occupancies when such charges are specifically exempted from tax under the provisions of Chapter 225 of Title 32 of the Vermont Statutes Annotated.

3. Any amounts charged to individuals by a provider or operator that were subsequently refunded to those individuals, but only to the extent that the tax associated with the charge was also refunded.

E. To compute the tax due from the operator for the reporting period, gross receipts for taxable meals, for alcohol and for rooms shall each be multiplied by the applicable tax rate, and such amount remitted to the commissioner. If the amount of tax collected exceeds the amount computed, the operator may retain the difference, provided that the tax collected from each customer was computed in the manner set forth in 32 V.S.A. § 9241.

F. If sales are made on a tax-included basis, and receipts do not accompany each sale (for example, vending machine sales, alcoholic beverage sales at bars), vendors may calculate the tax and maintain records of tax based on the following formula:

Tax = Gross Receipts - (Gross Receipts / (1 + Tax Rate))

Note that all tax-included sales must be properly noticed to the public. See Reg. § 1.9242-2 (Required Notice of Tax Due); Reg. § 1.9202 (15)-4 (Local Option Meals and Rooms Tax and City Charter Meals, Entertainment and Lodging Tax).

Reg. § 1.9242-4 Treatment of Discounts, Coupons and Gift Certificates.

A. Discounts Discounts are simply reductions in the price of the taxable meal or rent. Tax need only be collected on the amount collected for the taxable meal or rent.

Example: a hotel is offering the discounted rate of $ 150 for accommodations for a holiday weekend. The rate is normally $ 200. Rooms tax must be collected on the

$ 150 of rent collected.

B. Coupons If the coupon is issued by the establishment, the tax treatment is similar to a discount. Tax need only be collected on the amount of rent or meals collected. If an operator honors a coupon issued by another entity, the tax treatment depends on whether the operator is reimbursed for the coupon. If the operator is reimbursed for the coupon, tax is due on the rent or meals charge plus the amount reimbursed by the coupon's issuer. If the operator is not reimbursed, then the tax need only be collected on the amount collected for the taxable meal or rent.

Example: A restaurant places coupons in the newspaper for 20% off a meal, and a customer presents the coupon. The meal is $ 100 but $ 80 with the coupon. Tax must be collected on the $ 80 meal.

Example: A restaurant honors a coupon issued by an association of retired tax examiners. The association reimburses the restaurant for the discount if requested by the restaurant. The restaurant must collect tax on the meal charge paid by the customer plus the reimbursement from the association.

C. Gift Certificates and Gift Cards] No meals and rooms tax is collected at the time of sale of gift cards or certificates. Gift certificates are treated like cash. When used, the business collects the meals tax on the total amount of the charge, even if paid by a gift card.

REG. SEC. 1.9245

STATUTORY PROVISIONS; OVERPAYMENT; REFUNDS

Reg. § 1.9245-1 Refunds.

A. An operator holding a meals and rooms tax license may, upon written application to the commissioner, receive a refund of any tax, interest or penalty which

1. the operator remitted to the commissioner more than once, or

2. has been erroneously or illegally collected or computed.

B. Charges for meals furnished by restaurants, charges for prepared foods and heated foods, and charges for rooms in hotels are presumed taxable. Accordingly, an operator seeking refund of any tax bears the burden to prove that the tax was erroneously or illegally collected or computed. Additionally, the operator must affirmatively establish that any erroneously or illegally collected tax is or will be returned to the customer that paid the tax and therefore bore the tax burden. An operator making sales on a tax-included basis pursuant to Reg. § 1.9242-2 has collected tax from the customer.

C. If tax is incorrectly computed by an operator and remitted to the commissioner, and the operator, rather than the customer, paid the tax and thus bore the tax burden, the operator may show that it is entitled to a tax refund. For example, if the operator collected the tax at the applicable tax rate from its customers, but remitted the tax to the commissioner at a higher, incorrect tax rate, the difference between the collected and remitted amount shall be refunded to the operator, subject to the operator's written request supported by sufficient, affirmative proof that it is entitled to the refund.

D. Overpayments of tax shall first be credited against any outstanding tax liabilities for any of the taxes administered by the Department that are due from the operator, and the balance shall be refunded. Interest is computed on any refund beginning forty-five (45) days after the date the return was filed, or forty-five (45) days after the date the return was due, including any extensions of time thereto, with respect to which the excess payment was made, whichever is later. No credit or refund will be allowed after three (3) years from the date from which the return was due.

Reg. § 1.9245-2 Bad Debt.

A. Where the operator is unable to collect accounts receivable in connection with which he or she has already remitted the tax to the commissioner, the operator may apply to the commissioner for a refund or credit. Bad debt shall be defined as in Section 166 the Internal Revenue Code. 26 U.S.C. § 166.

B. An operator claiming an amount is uncollectable must be able to demonstrate to the satisfaction of the commissioner that the amount of any receipt for which a refund or credit is being claimed is actually worthless and uncollectable. The fact that a check is returned or a credit card not honored will not be considered sufficient evidence, in and of itself, that a receipt is uncollectable.

C. An operator seeking recovery for bad debt shall deduct the debt on the return for the period during which the bad debt is written off as uncollectable in that operator's books and records and is eligible to be deducted for federal income tax purposes. If the operator is not required to file federal income tax returns, the operator may deduct a bad debt on a return filed for the period in which the bad debt is written off as uncollectable in the operator's books and records and would be eligible for a bad debt deduction for federal income tax purposes if required to file a federal income tax return.

D. If an operator takes a deduction for bad debt, and the debt is subsequently collected in whole or in part, the tax on the amount so collected must be paid and reported on the return filed for the period in which the collection is made.

E. If the amount of bad debt exceeds the amount of taxable sales for the period during which the bad debt is written off, the operator may file a refund claim with the commissioner in accordance with 32 V.S.A. § 5884. The three-year limitations period shall be measured from the due date of the return on which the receipt was required to be reported.

F. For the purposes of reporting a payment received on a previously claimed bad debt, any payments made on a debt or account are applied first proportionally to the taxable price of the meals or rooms and the tax thereon, and secondly to interest and any other charges.

REG. SEC. 1.9271

STATUTORY PROVISIONS; LICENSES REQUIRED

Reg. § 1.9271-1 Licenses Required

A. Every operator of a hotel or seller of taxable meals or alcoholic beverages must separately register with the Department and obtain separate licenses for each fixed location where a hotel is operated or where taxable meals or alcoholic beverages are sold. If an operator uses preset locations on a seasonal basis, each location is considered a fixed location and must be separately registered.

B. Operators of mobile facilities that sell taxable food directly to the public (for example, hot dog vendors or lunch wagons) must obtain one license per each mobile facility.

C. An operator that operates more than one vending machine is only required to obtain one license that will cover all of the vending machines. The operator of the vending machines shall provide the Department with a list of each machine's location upon request.

D. Display of license and tax account number.

1. An operator must display its license to operate a hotel or to sell taxable meals or alcoholic beverages upon its premises in such a manner that it may be readily viewed by its customers.

2. In any advertisement for a short-term rental, including online, a short-term rental operator must post the meals and rooms tax account number corresponding to that short-term rental location. If the operator is a booking agent, it may operate using one account number.

E. Licenses are nonassignable and must be surrendered immediately to the commissioner if a business holding such license is sold or otherwise transferred, ceases doing business, or is ordered to cease operations by the commissioner or a court. Surrender of a meals and rooms license does not relieve the operator from liability for the tax.

F. Failure by an operator to register a hotel or restaurant with the Department, to obtain a meals and rooms license, or to surrender such license in the event the business is sold or otherwise transferred, ceases doing business, or is ordered to cease operations by the commissioner or a court, does not relieve the operator from liability for the tax.

History

• EFFECTIVE DATE:
• July 1969
• AMENDED:
• June 1980 Secretary of State Document #80-52; March 1, 2010 Secretary of State Document #10-007; June 2010 [correction to heading]; June 1, 2022 Secretary of State Document #22-018
• STATUTORY AUTHORITY: 32 V.S.A. §3201

Chapter 025 PROPERTY TRANSFER TAX DEFINITIONS

10-025 Code Vt. R. 10-060-025-X PROPERTY TRANSFER TAX DEFINITIONS

Section 1.9601 PROPERTY TRANSFER TAX DEFINITIONS

1.9601(1)1 Definition of "Deed"

(a) General Definition - The term "Deed" includes any deed, instrument, bill of sale, or other writing evidencing a transfer of title to real property. Such term also includes a sheriff's Deed and the Deed of a guardian, trustee, executor, or administrator, as well as an order or decree of a board, commission, or court evidencing a transfer of title to real property. Deeds to cemetery plots are not included in the term.

(b) Installment Sales - Installment agreements for the purchase of real property which effectively create an equity of redemption in the purchaser will be considered Deeds when recorded with the town clerk unless the transfer of title itself is delayed by the agreement and the purchaser has no right of possession under the agreement. If an agreement is treated as a Deed at the time of recording under this subsection, the later recording of a Deed to the property under the agreement will not be subject to the transfer tax. See Reg. 1.9606-1(g) concerning the property transfer return to be filed when an installment agreement is treated as a Deed.

(c) Mobile homes - Bills of sale, deeds, or other instruments evidencing transfer of title to mobile homes treated as real property under Reg. § 1.9601(10) - 1 are included in the definition of Deed.

1.9601(3)1 Definition of "Title to Property"

• Transfer of Building on Leased Land

The term "Title to Property" includes those interests in real property which approximate an estate in fee simple under 32 V.S.A. § 9601(3). The transfer of a building on leased land through a bill of sale or Deed will be considered the transfer of title to real property even though the land is not also transferred.

1.9601(5)1 Definition of "Transfer" - "Primary Obligee" in Foreclosure Situations

The term "Primary Obligee" is defined as the person acquiring title to real property as a result of foreclosure or voluntary conveyance in lieu of foreclosure.

1.9601(6)1 Definition of "Value"

(a) Nominal consideration - A transfer for nominal consideration occurs when the sales price of the real property is significantly less than its fair market value.

(b) Exclusion of Alternative Energy Sources

(1) Alternative Energy Sources - Alternative energy sources are excluded from the definition of Value under Section 9601(6) by reference to 32 V.S.A. § 3845. For the alternative energy plant, structure, or facility to be excluded from the definition of Value, it must:

(A) generate electricity or produce energy which is:

(i) used on the premises for private, domestic, or agricultural purposes, and

(ii) not used for sale to or exchange with the public, or

(B) collect and/or store energy, or

(C) convert organic matter to methane or another usable form of fuel.

(2) Land Upon Which Facility is Located - Up to one-half acre of land may also be excluded from Value if the alternative energy source as described in paragraph (1) above is located upon is. For land to be excluded from Value, the facility must be the exclusive structure on that portion of the land and must not be incorporated into a structure used for living purposes other than the generation, collection, or conversion, etc., of energy.

(c) Foreclosures and Voluntary Conveyances in Lieu of Foreclosure

(1) Foreclosure Sales - The Value of property acquired in a foreclosure sale will be the bid price plus any existing liens or encumbrances not removed by the foreclosure sale. The right of the United States to redeem the property after sale under 28 U.S.C. § 2410(c) shall not be considered a lien or encumbrance for the purposes of the preceding sentence. If the bid price is nominal, the Value will be the fair market value at the time of sale.

(2) Strict Foreclosures and Voluntary Conveyances in Lieu of Foreclosure - The Value of property acquired in a strict foreclosure action or by voluntary conveyance in lieu of foreclosure will be the sum of:

(a) The outstanding principal sum owed to the acquiring party, plus

(b) Amounts paid by the acquiring party to others to discharge their interests in the property, plus

(c) Liens and encumbrances assumed by the acquiring party, plus

(d) Amounts paid to the mortgagors by the acquiring party to acquire title.

(d) Perpetual easements granted to utilities

• When a perpetual easement is transferred to a public utility for nominal consideration as a condition of service to a customer, the Value of the easement shall be deemed to be $ 1.00.

See Reg. 1.9606 1(f) for details on reporting such a transfer on the property transfer return.

1.9601(10)1 Definition of "Property" - Mobile Homes

The term "Property" includes mobile homes which have effectively become real property because they are affixed to the land. Factors which tend to show that the mobile home has become affixed to the land include, but are not limited to, some or all of the following:

(1) The mobile home has been set up on blocks or otherwise stabilized so that the wheels do not form a major part of the structural support;

(2) The mobile home has been connected to utilities such as electricity, sewage, water, gas, or oil;

(3) Skirting has been erected around the base of the mobile home;

(4) The wheels and/or tires have been removed;

(5) The mobile home has been situated in a place which makes its removal unlikely.

See Reg. 1.9601(1) 1(c) concerning what constitutes a Deed to a mobile home.

Section 1.9603 EXEMPTIONS FROM PROPERTY TRANSFER TAX

1.9603(2)1 Exemption for Transfers to Governmental Entities

(a) In General - Transfers to the United States of America, the State of Vermont, or any of their instrumentalities, agencies, or subdivisions (including Vermont towns) are exempt from the property transfer tax. Transfers from these entities are not exempt under this section.

(b) Federal Instrumentalities - The exemption provided for transfers to the federal government or its instrumentalities is intended to exempt only those federal agencies which cannot be subjected to a state tax under federal law and the U. S. Constitution. The following are general, advisory guidelines for determining whether an organization is a federal instrumentality;

(1) The activities of the organization are within the authority of its enabling legislation, as enacted by Congress.

(2) The organization is not engaged in commercial activity for the private profit of its owners or members (other than the United States).

(3) The federal government holds all, or substantially all, of the ownership of the organization.

(4) The federal government, or its appointees, directly controls the activities of the organization.

(5) The federal government contributes significant financial aid to the organization, either at the inception of the organization or as it operates.

(6) Congress intended the organization to be immune from taxation.

1.9603(5)1 Exemption for Property Transferred Between Related Persons Without Actual Consideration - Transfer From an Estate

A transfer of real property from an estate (through an executor's or administrator's deed or by court decree) to a beneficiary of the estate will be exempt from the property transfer tax only if the beneficiary was related to the decedent as husband, wife, parent, child, grandparent or grandchild, and only if the transfer occurs without actual consideration. Adopted children and stepchildren shall be considered blood relations in examining the preceding relationships.

1.9603(5)2 Exemption for Transfers in Trust Without Actual Consideration

(a) Transfers in Trust - Transfers of real property in trust, without actual consideration, are exempt from the property transfer tax to the extent the transfer is to the benefit of the donor or a person related to the donor as husband, wife, parent, child, grandparent, or grandchild. Adopted children and stepchildren shall be considered blood relations in examining the preceding relationships.

The phrase "benefit to the donor" in 32 V.S.A. § 9603(5) means that the equitable interest in the land must remain in the donor (or above-mentioned relations) and that the equitable interest retained be of the same type and quality which the donor previously owned outright.

To the extent that actual consideration passes to the donor or to the extent that the equitable interest reserved for the donor (or above-mentioned relations) does not coincide with the benefits enjoyed by the donor before the transfer, the transaction shall not be considered to be a transfer in trust to the benefit of the donor. Basically, only legal title can be transferred to the trust; the equitable interest must remain in the donor (or in one or more of the above-mentioned relations) for the transaction to be non-taxable.

"Equitable interest" is defined as the right to control, use, possess, or occupy the property.

(b) Transfers From a Trust - Transfers from a trust described in subsection (a) which convey or release real property free of trust to persons related to the donor as described in subsection (a) are exempt from the property transfer tax to the extent so transferred without actual consideration.

1.9603(8)1 Exemption for Transfers by Partition Without Actual Consideration

Transfers by partition among co-owners of joint tenancies, tenancies in common, or tenancies by the entirety are exempt from the property transfer tax as long as no consideration is exchanged and upon the condition that the property transferred to each owner represents that owner's proportionate interest in the property. For example, two individuals who paid equal amounts to purchase real property and who take title as tenants in common may divide the property, and the transfer will be exempt if each receives property equal in value to half the value of the entire property. If one cotenant received property worth more than half of the entire property's value, the transfer of value in excess of half the total value would not be exempt under this section. Similarly, if part of the property is sold and part retained upon the partition, the part sold would not be exempt.

Section 1.9605 PAYMENT OF TAX

1.9605-1 Payment of Tax

(a) Property Lying in Two or More Towns - In the case of a transfer by Deed of title to property which overlaps two or more towns, the full amount of the tax imposed on the transfer shall be paid to the clerk of the town in which the Deed is first delivered for recording, regardless of the fact that some of the property transferred does not form part of that town. No further tax will be due upon subsequent recordings of the same Deed in the other towns in which the property lies, provided a properly acknowledged property transfer return is presented as proof of prior payment.

(b) Record in County Clerk's Office - No property transfer tax shall be payable to a county clerk upon the additional recording of a Deed in accordance with 27 V.S.A. § 402 if the property transfer tax in respect of the Deed has already been paid, as evidenced by a properly acknowledged property transfer return.

(c) Vouchers - Property transfer tax payment vouchers issued by the Department of Taxes, when properly completed by the taxpayeer, shall be accepted by town clerks as evidence of payment of equivalent property transfer tax liability.

The Department of Taxes shall refund the face value of any property transfer tax payment voucher which has not been used as evidence of payment of property trnsfer tax when it is returned to the Department by the taxpayer to whom it was originally issued.

Section 1.9606 PROPERTY TRANSFER RETURN

1.9606-1 Property Transfer Return

(a) Content of Return - The property transfer return shall be in such form as the Commissioner shall, from time to time, designate. The return shall bear certificates as required by 32 V.S.A. §§ 9606 and 9608.

(b) Returns Covering More Than One Deed - When two or more Deeds are executed simultaneously in a transaction which effectively results in only a single conveyance to one or more transferees, one property transfer return may be filed in respect of the deeds.

For example, in the creation of a joint tenancy or tenancy by the entirety through the use of a straw conveyance, or in certain sale-leaseback arrangements, the actual conveyance to the ultimate transfer return.

(c) Submission of Acknowledged Property Transfer Return Upon Additional Recording - When a deed is presented to a town clerk for additional recording, the transferee's copy of a previously acknowledged property transfer return shall be submitted to the town clerk in lieu of filing a new property transfer return. Following the acknowledgement by the town clerk of the copy of the Deed presented for additional recording, the transferee's copy of the return shall be returned to the person who submitted it.

(d) Oath or Affirmation - The oaths or affirmations required by 32 V.S.A. § 9606(b), (c) and (e) shall be self-administered by the persons who sign them. No additional acknowledgement, certificate or jurat need by completed in order for the oaths or affirmations to be effective.

(e) Effect of Divorce Decree

(1) Where real property located in Vermont is transferred from one spouse to the other spouse pursuant to a Vermont decree of divorce or pursuant to a decree of divorce of a foreign jurisdiction recognized in Vermont, such decree of divorce will negate the necessity of obtaining the signature of the transferor spouse, provided that the transfer takes place within one year from the issuance of the decree of divorce. The spouse who is the transferee pursuant to the decree of divorce must sign the property transfer return.

(2) Where a decree of divorce requires that one spouse execute a deed in favor of the other spouse conveying real property located in Vermont, both the transferor and the transferee are required to sign the property transfer return.

(f) Public Utility Easements - When a perpetual easement is transferred to a public utility for nominal consideration as a condition of service to a customer, the Value of the transfer is deemed to be § 1.00 under Reg. § 1.9601(6) - 1(d). In such a case, the property transfer return must state that the easement was a condition of utility service in the section headed "Special Circumstances".

(g) Installment Sales - When an installment agreement is treated as a Deed under Reg. § 1.9601(1) - 1(b) because it effectively creates an equity of redemption in the purchaser, the return should state that the installment agreement was filed as a Deed in the section headed "Special Circumstances".

Section 1.9607 ACKNOWLEDGEMENT OF RETURN AND TAX PAYMENT

1.96071 Acknowledgement of Return

(a) Form ot Acknowledgement

(1) Deed Acknowledgement - The acknowledgement, required by 32 V.S.A. § 9607 to be affixed to a Deed, shall be the following impression of a rubber stamp, when properly completed by the town clerk:

[See graphic or tabular material in printed version]

(2) Return Acknowledgement - The acknowledgement required by 32 V.S.A. § 9607 to be affixed to the return appears on the return.

(b) Acknowledgement of Deeds Additionally Recorded - A town clerk should not acknowledge a Deed unless satisfied that the transfer evidenced by that Deed is fully covered by an acknowledged property transfer return submitted in accordance with Reg. § 9606-1(b) or (c). No additional acknowledgement of the property transfer return need be provided to the transferee if the property transfer tax has already been paid.

(c) Installment Sales - When an installment agreement is treated as a Deed under Reg. § 1.9601(1) - 1(b), the installment agreement shall be acknowledged by the town clerk as in subsection (a) above. A subsequent recording of the Deed shall be acknowledged by the town clerk if satisfied that the property transfer tax was paid (i.e., by reference to the acknowledged installment agreement).

Section 1.9611 REGULATIONS IMPLEMENTING PROPERTY TRANSFER TAX

1.96111 Appeals Procedure

If the Commissioner finds that any taxpayer has failed to discharge in full the amount of any property transfer tax, or that a penalty or interest should be assessed, the Commissioner (or the Commissioner's delegate) shall notify the taxpayer of the deficiency and the penalty and interest, as the case may be, by mail. Upon receipt of a notice of deficiency or assessment of penalty or interest, the taxpayer may, within thirty (30) days after the date of the notice, petition the Commissioner in writing for a determination of that deficiency or assessment. The Commissioner will thereafter grant hearing upon the matter and notify the taxpayer in writing of the Commissioner's determination.

History

• Adopted: August 3, 1979
• Effective Date: August, 1979 (Secretary of State Rule Log # 79-64)

Chapter 026 RATE OF WITHHOLDING

10-026 Code Vt. R. 10-060-026-X RATE OF WITHHOLDING

Section 68.58411 RATE OF WITHHOLDING

(a) Effective for the first payroll period beginning on or after May 13, 1979, Vermont income taxes to be deducted and withheld from the wages of an employee for any payroll period shall equal twenty-three percent (23%) * of the federal taxes to be withheld from the employee for the same payroll period.

• [formerly twenty-five percent (25%)]

(b) For the convenience of employers, general instructions and withholding tables are available from the Department of Taxes, Montpelier, Vermont, showing the amount of Vermont taxes to be withheld from employees earning various wages on a weekly, bi-weekly, semi-monthly, monthly, and daily or miscellaneous payroll period.

History

• Adopted, July 24, 1979
• Effective Date: August 1979 (Secretary of State Rule Log # 79-68)

Chapter 028 ORGANIZATION AND RULES OF PROCEDURE

10-028 Code Vt. R. 10-060-028-X ORGANIZATION AND RULES OF PROCEDURE

Rule No.1 Organization and Operation

(a) Organization.

The Department of Taxes is established by 3 V.S.A. § 212. 32 V.S.A. § 3101 provides that the Department shall be administered by a Commissioner of Taxes, who is appointed biennially by the Governor with the advice and consent of the Senate.

3 V.S.A. § 253 provides that the Commissioner may appoint a Deputy, with approval of the Governor, who shall perform such duties as the Commissioner shall direct.

There is a Division of Property Valuation and Review which, through its Director, shall assist listing officials, conduct the equalization study of municipalities grand lists, set education tax rates and assist the Commissioner in administration of various property related programs and taxes.

The Commissioner shall organize the Department into such other divisions and appoint such other directors as in the Commissioner's judgment promote the fair and efficient administration of taxes within the Commissioner's jurisdiction.

(b) Location and Assistance to the Public.

The main office of the Department of Taxes is located at 133 State Street, Montpelier, immediately west of the State House. The telephone number in (802) 828-2505. The hours of work are 7:45 a.m. to 4:30 p.m., Monday through Friday. Persons having business with the Department or requesting assistance may write or call the Department, may come to the main office during working hours., or may contact the Department through the VTtax system if the person is registered in that system.

(c) Tax Department Forms.

The Department utilizes a wide variety of forms in the administration of the tax laws. The forms are changed frequently to reflect changes in law and for administrative reasons. Forms are available on the Department's website, tax.vermont.gov, and at the main office of the Tax Department. Commonly used forms, such as income tax returns, are available at Town Offices across Vermont. Additional information on Vermont tax requirements are available at public libraries. In most cases, Department forms must be used to accomplish the transaction in question, such as when reporting income, transferring property or claiming exemption from sales tax. Many tax forms may be completed and filed electronically and in some cases, electronic filing is required.

(d) Tax Department Guidance.

The Department issues formal regulations interpreting the tax laws and establishing procedures. From time to time it issues technical bulletins, fact sheets, and other notices which are a less formal way of providing information to taxpayers. Instructions also accompany tax forms.

Rule No.2 Definitions

The definitions set forth in 3 V.S.A. § 801 are hereby adopted and made applicable to these Rules.

Rule No.3 Formal and Informal Proceedings

The following types of proceedings will be treated as formal proceedings that are governed by the provisions of Chapter 25 of Title 3, the Vermont Administrative Procedure Act:

(a) Proceedings wherein a determination by the Commissioner of Taxes is required by statute to be made after an opportunity for hearing. These proceedings are referred to as appeals.

(b) Rule-making proceedings under the Vermont Administrative Procedures Act.

(c) Requests for declaratory rulings.

All other petitions, applications, submissions, requests, charges, etc. will be treated as informal proceedings.

Rule No.4 Appeals

(a) Right to Appeal. A taxpayer or claimant (hereinafter in this rule references to taxpayer includes claimant) may appeal to the Commissioner any action of the Department for which appeal is provided by law including assessment, denial in part or whole of a refund claim, denial or reduction of a property tax adjustment or renter rebate, suspension or revocation of a license or certificate, requirement of a bond and notice of development or discontinuance, by filing a written notice of appeal as provided by Rule 6 herein within the time allowed by statute for appeal. The notice of appeal should advise the Department of the reason for the appeal.

(b) Prehearing Meeting. Prior to hearing, the taxpayer may elect to meet informally with the Department's representative. The purpose of such a meeting is to resolve or narrow the issues in dispute to the extent consistent with law. In evaluating any settlement proposal or resolution of the appeal, the Department shall consider evidence and arguments that support the taxpayer's position, hazards of litigation, factors affecting collectability of an assessment, equity among taxpayers and the requirements of law. A taxpayer is not required to meet prior to the hearing. At the taxpayer's option, the prehearing meeting may be conducted by telephone.

(c) Right to a Hearing. A taxpayer who appeals as provided above has the right to a hearing before the Commissioner or at the Commissioner's discretion, the Commissioner's designated hearing officer (hereinafter in this rule references to Commissioner includes the Commissioner's designated hearing officer).

(d) Commissioner's Hearing. If the Department and taxpayer (referred to herein as the "parties") are unable to resolve all issues, the matter will be docketed for hearing before the Commissioner. The hearing is the parties' opportunity to present evidence to the Commissioner in support of their respective positions. The admissibility of evidence will be determined pursuant to 3 V.S.A. § 810(1)-(4) which is attached hereto as Appendix A. Notice of hearing shall be mailed to the taxpayer at the last address provided by the taxpayer to the Department no less than three weeks before the date of the hearing unless the parties agree to a shorter notice period. The parties and witnesses shall be present at the hearing except as follows:

(1) the facts may be presented to the Commissioner by written stipulation of the parties at any time prior to the hearing.

(2) upon the Commissioner's grant of a taxpayer's motion supported by good cause, a hearing may be conducted over the telephone:

The testimony of a witness on direct examination may be submitted in writing upon written approval of the Commissioner or designated hearing officer, but only if the witness will be made available at the hearing for questioning on the witness's qualifications on the matter at issue and for cross-examination. A copy of the testimony shall be supplied to the opposing party and the hearing officer no less than two weeks in advance of the hearing. Written testimony shall be subject to the same rules of admissibility and cross-examination as oral testimony at the hearing.

At the end of the hearing the Commissioner's record is closed and the findings of fact made by the Commissioner shall be based exclusively on the evidence and matters officially noticed as required by the Vermont Administrative Procedure Act.

(e) Continuance of Hearing. A hearing will be continued only by leave of the Commissioner which may be granted upon written motion showing just cause, such as, but not limited to:

(1) complexity of legal or factual issues;

(2) newly discovered evidence which by due diligence could not have been discovered in time for the hearing;

(3) illness;

(4) a scheduling conflict;

(5) stipulation of the parties.

(f) Post Hearing Filings. Following the hearing and within the time prescribed by the Commissioner, the parties may file proposed findings of fact and/or memoranda of law. The Commissioner may request the parties to file proposed findings of fact and / or memoranda of law. The time for filing may be extended only upon motion granted by the Commissioner.

(g) Transcript. Hearings shall be recorded by the Commissioner and shall be transcribed on the request of any party to a pending appeal and upon payment by the requesting party of the reasonable costs thereof.

Rule No.5 Appearances in Appeals

(a) A party to an appeal before the Commissioner may appear for himself or herself or in the case of a corporation, partnership, trust, municipality or other entity created by law, through its duly authorized agent, or the party may be represented by either an attorney or a certified public accountant, if such representative is currently licensed to practice in the State of Vermont. The name of the attorney or certified public accountant or person who has signed the appeal letter or a subsequent notice of appearance will be entered in the Department's records. A representative must submit a completed power of attorney on the Department form, executed by the taxpayer.

(b) All notice given to or by a party's representative of record shall be considered in all respects as notice to or from the party until such time as the represented party notifies the Department that the representative of record is no longer authorized as the party's representative.

(c) An attorney or certified public accountant not residing or not licensed to practice in the State of Vermont may appear for a party if he or she is associated with a resident and licensed attorney or certified public accountant who has entered his or her appearance for the same party.

Rule No.6 Filing and Service of Documents in Formal Proceedings

(a) Notices of appeal, shall be in writing and delivered to the Vermont Department of Taxes, 133 State Street, Montpelier, VT 05633-1401; Delivery may only be by mail, email or through the MyVTax system. Filing with the Department shall be deemed to occur when a mailed document is marked as received by the Department, when a document is delivered to the Department in person, and when an email, or MyVTax submission is received by the Department.

(b) Every document filed by a party subsequent to the initial notice or request in a formal proceeding shall be served upon the attorney of record if there is one and if not, upon the other party. Service upon an attorney or upon a party shall be made by delivering a copy to him or her or by mailing it to him or her at the last known address. Delivery of a copy means handing it to his or her representative or to the party, or leaving it at his office with the person in charge thereof or, if the office is closed or the person to be served has no office, leaving it at his dwelling house or usual place or abode with some person of suitable age and discretion then residing therein. Service by mail shall mean first-class mail, in a sealed and properly stamped envelope. Service by mail is deemed complete upon posting the mail in a proper United States Post Office receptacle.

Rule No.7 Requests for Rule-Making and Declaratory Rulings under 3 VSA Section 808 and 831(c)

(a) The Department shall initiate rulemaking to adopt as rule an existing practice or procedure when so requested by 25 or more persons or by the Legislative Committee on Administrative Rules.

(b) Upon request of a taxpayer, the Department will issue a declaratory ruling as to the applicability of any statutory provision or of any rule or practice of the Department. Declaratory rulings may be obtained only for actual, not hypothetical or possible, fact situations. If the applicability of a Vermont statute depends upon the how federal law applies to the facts, the Department may require the taxpayer to have obtained a letter ruling from the Internal Revenue Service prior to obtaining a declaratory ruling on the application of Vermont law. A written ruling will be made within sixty days of receipt of the facts involved and the point of interpretation as to which the ruling is requested, unless additional time is required due to the complexity of the request. If additional time is needed, the requester shall be notified within the original sixty days of the date by which the ruling is expected to be issued.

(c) Requests for rulemaking and for declaratory ruling must be in writing, signed by the taxpayer or taxpayer's representative, and delivered in the same manner as required for delivery of notices of appeal in Rule 6.

Rule No.8 Licenses and Certificates

An application for a license or certificate shall be submitted on a completed official application form. The Commissioner may consider any credible information in the application or exhibits filed therewith or otherwise available to the Department in determining whether to impose a bond requirement with respect to the applicant or a related business. If a bond is required, that requirement may be appealed as provided in Rule 4 herein.

History

• EFFECTIVE DATE:
• Original effective date not provided.
• AMENDED:
• July 4, 2012 Secretary of State Rule Log #12-018; January 1, 2019 Secretary of State Rule Log #18-046
• STATUTORY AUTHORITY: 3 V.S.A. §§ 212, 3101

Chapter 029 RULES OF PRACTICE-INCOME, TRUST & ESTATE TAXES

10-029 Code Vt. R. 10-060-029-X RULES OF PRACTICE-INCOME, TRUST & ESTATE TAXES

Section I Forms

a. Only those forms, notices and reports prescribed by the Commissioner of Taxes or his designated agents may be used for filing purposes.

b. The Commissioner or his designated agent may withhold approval, at any time, of the use of any form which has not been duly authorized or where a prescribed form is no longer applicable.

c. Prescribed forms may be revised by the Commissioner of Taxes or his designated agent as the need arises.

d. Copies of prescribed forms may be obtained from the Department of Taxes either in person, by telephone or written request.

e.

(1) Forms presently available for use of income taxpayers and income tax practitioners are:

| Form 103 - | Personal income tax return | | --- | --- | | 103A- | Special Tax limitation schedule | | 109 - | Fiduciary Return of Income | | 176 - | Statement of Claimant to Refund due on Behalf of | | Deceased Taxpayer | | | 103ES - | Estimate of Non-Withheld Tax | | 126AES - | Estimated Tax Payment Form & Amended Estimate of Non- | | Withheld | | | 104 - | Corporate Income Tax Return | | 104S - | Election by Small Business | | 706 - | Corporation Extension | | Consent of Stockholders | | | VW-102 - | Withholding Statement | | (Combined federal and State form) | | | 105 - | Reconciliation of Quarterly Withholding Statements | | 110 - | Return of Income Tax Withheld | | 115 - | Extension Certificate issued when request is granted to | | file return beyond due date | | | Booklet - | Vermont Income Tax Withholding Instructions, tables and | | Statutes | |

(2) Other forms and form letters used in administration of the above taxes:

| Form 103B- | Schedule of Non-Vermont Derived Income | | --- | --- | | 122A- | Adjustment to Income Tax Return (Tax Due) | | 145 - | Adjustment to Income Tax Return (Refund Due) | | 140 - | Notice of Refund or Income Tax Liability Due (Old & New) | | 126ES - | Estimated Tax Notice | | 507 - | Notification of Assessment | | Tax Notice | | | Notice of Tax Lien | | | 831C - | Proof of Claim | | 652 - | Delinquent Account Information | | Petition (Withholding Taxes) | | | Order requiring weekly filing of withholding taxes | | | Petition for Contempt | | | Petition (Corporation Taxes) | | | Sheriff greeting | | | Petition (non-resident) | | | 160 - | Estate Information Return | | 166 - | Assessment of Inheritance Taxes and Other for Payment | | 142 - | Decedents Estate Transfer Tax Notice | | Stipulation for Inheritance Tax | | | Stipulation for Transfer and additional Estate Taxes | | | Stipulation for Inheritance, Transfer and additional | | | State Taxes | | | Administrative Form Letters | |

Section II Information

a. Requests for information which is not in violation of Title 32 V.S.A. 5815, "Secrecy of Records" may be obtained if available, by telephone, correspondence or a personal visit to the Vermont Department of Taxes, Montpelier, VT.

b. Where certified copies of records are requested, the Commissioner may require a reasonable charge to be paid.

Section III Appeals

Upon receipt of a notice of deficiency or assessment of penalty or interest the taxpayer may, within twenty days after the date of the notice or assessment, petition the Commissioner in writing for a determination of that deficiency or assessment. The Commissioner shall thereafter grant a hearing upon the matter and notify the taxpayer in writing of his determination concerning the deficiency, penalty or interest.

Receipt of written notification from the taxpayer will be accepted as a formal appeal but where the taxpayer desires an informal conference or review of his return arrangements will be made for both the convenience of the department and the taxpayer.

Where an adjustment or deficiency assessed by the department is in error, a revised notice of adjustment and assessment will be issued without necessity of a formal hearing unless the taxpayer desires such a hearing.

Chapter 030 RULES OF PRACTICE-MISCELLANEOUS TAX

10-030 Code Vt. R. 10-060-030-X RULES OF PRACTICE-MISCELLANEOUS TAX

Section I Forms

a. Only th ose forms, notices and reports prescribed by the Commissioner of Taxes or his designated agents may be used for filing purposes.

b. The Commissioner or his designated agent may withhold approval, at any time, of the use of any form which has not been duly authorized or where a prescribed form is no longer applicable.

c. Prescribed forms may be revised by the Commissioner of Taxes or his designated agent as the need arises.

d. Copies of prescribed forms may be obtained from the Department of Taxes either in person, by telephone or written request.

e. Forms presently used and available for administration of the following taxes are included in this rule (binder).

Telephone Tax

Beverage Tax

Tobacco Tax

Electrical Energy Tax

Cigarette Taxes

Banks

Insurance Premium Tax

Amusement and Musical Machine Licenses

Various Form Letters

II Information

Information relative to the above noted Taxes may be obtained by writing or calling the Vermont Department of Taxes, Montpelier, Vermont.

Section II Information

Information relative to the above noted Taxes may be obtained by writing or calling the Vermont Department of Taxes, Montpelier, Vermont.

History

• Adoption date unknown.

Chapter 031 RULES OF PRACTICE-PROPERTY TAX

10-031 Code Vt. R. 10-060-031-X RULES OF PRACTICE-PROPERTY TAX

Section I Forms

a. Only those forms, notices and reports prescribed by the Commissioner of Taxes or his designated agents may be used for filing purposes.

b. The Commissioner or his designated agent may withhold approval, at any time, of the use of any form which has not been duly authorized or where a prescribed form is no longer applicable.

c. Prescribed forms may be revised by the Commissioner of Taxes or his designated agent as the need arises.

d. Copies of prescribed forms may be obtained from the Department of Taxes either in person, by telephone or written request.

e. Forms presently available for Property Tax Administration are exhibited in this binder. They include forms used in:

Administration of the Equalization

Assistance to Listers

Local Property Tax

Re-appraisal Contract Programs

Section II Information

Information concerning any of the several Property Tax programs may be obtained by writing or calling the Vermont Department of Taxes, Montpelier, Vermont.

Chapter 033 SALES AND USE TAX REGULATIONS

10-033 Code Vt. R. 10-060-033-X SALES AND USE TAX REGULATIONS

Section 1.9701 GENERAL PROVISIONS

Reg.§ 1.9701(4) - 1 Sales Price.

Except as noted below, "sales price" for purposes of calculating tax means the total amount of consideration, including cash, credit, property, and services for which personal property or services are sold, leased or rented.

Where the seller receives credit, property (other than a like-kind trade-in), a service, or other nonmonetary considerations in exchange for personal property or services, the sales price includes the monetary value of such consideration. If the value of the consideration cannot be determined, it is presumed to equal the price at which the seller normally offers the product for sale.

Even where stated as a charge separate from the charge for the property or service, the sales price includes charges for labor to create the product sold, charges for services necessary to complete the sale, and delivery charges.

"Delivery charges" means charges by the seller of personal property or services for preparation and delivery to a location designated by the purchaser of personal property or services including, but not limited to, transportation, shipping, postage, handling, crating, and packing. Direct mail delivery charges that are separately stated on an invoice or similar billing document given to the purchaser are excluded from the definition of "delivery charges." 32 V. S.A. § 9701(26).

If a shipment includes exempt property and taxable property, the seller may allocate the delivery charge by using:

1. a percentage based on the total sales prices of the taxable property compared to the sales prices of all property in shipment; or

2. a percentage based on the total weight of the taxable property compared to the total weight of all property in the shipment.

If the seller elects not to allocate the delivery charge, the entire charge is subject to the tax.

Reg.§ 1.9701(4) - 2 Exclusions from Sales Price.

The following are excluded from the sales price when they are separately stated on the invoice, bill of sale, or similar document given to the purchaser:

1. Any discounts, including cash, term, or coupons not reimbursed by a third party that are allowed by the seller and taken by the purchaser on the sale;

2. Interest, financing and carrying charges on credit extended on the sale;

Any tax (such as the Vermont sales tax) that is legally imposed directly on the purchaser that the seller collects and remits;

4. Charges for the installation of the property sold;

5. A credit given for trade-in of like-kind property. A trade-in of like-kind property occurs where the seller is in the business of selling such property and accepts as part of the consideration property of the buyer that serves the same function as the property sold. The fact that the property taken in trade can no longer serve the same function because it is worn, damaged, or obsolete does not disqualify the property from being a like-kind trade-in; and

6. Telecommunications nonrecurring charges.

A. "Distinct and identifiable products" does not include:

1. Packaging - such as containers, boxes, sacks, bags, and bottles - or other materials - such as wrapping, labels, tags, and instruction guides - that accompany the retail sale of the products and are incidental or immaterial to the retail sale thereof. Examples of packaging that are incidental or immaterial include grocery sacks, shoeboxes, dry cleaning garment bags and express delivery envelopes and boxes.

2. A product provided free of charge with the required purchase of another product. A product is "provided free of charge" if the sales price of the product purchased does not vary depending on the inclusion of the product provided free of charge.

3. Items included in the definition of "sales price." See Reg. § 1.9701(4) -

B. The term "one non-itemized price" does not include a price that is separately identified by product on binding sales or other supporting sales-related documentation made available to the customer in paper or electronic form including, but not limited to an invoice, bill of sale, receipt, contract, service agreement, lease agreement, periodic notice of rates and services, rate card, or price list.

C. A transaction that otherwise meets the definition of a bundled transaction as defined above is not a bundled transaction if it is:

1. The retail sale of tangible personal property and a service where the tangible personal property is essential to the use of the service, and is provided exclusively in connection with the service, and the true object of the transaction is the service; or

2. The retail sale of services where one service is provided that is essential to the use or receipt of a second service and the first service is provided exclusively in connection with the second service and the true object of the transaction is the second service; or

3. A transaction that includes taxable products and nontaxable products and the purchase price or sales price of the taxable products is de minimis.

(a) "De minimi" means the seller's purchase price or sales price of the taxable products is ten percent or less of the total purchase price or sales price of the bundled products.

(b) Sellers shall use either the purchase price or the sales price of the products to determine if the price of the taxable products is de minimis. Sellers may not use a combination of the purchase price and sales price of the products to determine if the price of the taxable products is de minimis.

(c) Sellers shall use the full term of a service contract to determine if the taxable products are de minimis; or

4. The retail sale of exempt tangible personal property and taxable tangible personal property where:

(a) the single-price transaction includes food and food ingredients; drugs, durable medical equipment, mobility enhancing equipment, over-the-counter drugs, prosthetic devices or medical supplies; and

(b) where the seller's purchase price or sales price of the taxable tangible personal property is fifty percent or less of the total purchase price or sales price of the bundled tangible personal property. Sellers may not use a combination of the purchase price and sales price of the tangible personal property when making the fifty percent determination for a transaction.

Transactions meeting the conditions outlined in subsections (C)(3) and (4) above are not taxable.

D. In the case of a bundled transaction that includes telecommunication service, ancillary service, internet access, or audio or video programming service:

1. If the price is attributable to products that are taxable and products that are nontaxable, the portion of the price attributable to the nontaxable products may be subject to tax unless the provider can identify by reasonable and verifiable standards such portion from its books and records that are kept in the regular course of business for other purposes, including, but not limited to, non-tax purposes.

2. The provisions of this section shall apply unless otherwise provided by federal law.

E. The seller is the user of a product transferred to a purchaser if the product is:

1. Packaging described in subsection (A)(1);

2. A product that is promotional in nature and/or is provided free of charge, as described in subsection (A)(2); or

3. Property transferred with a service and not taxed pursuant to subsection (C)(1).

The seller pays sales or use tax when such property is acquired or removed from inventory unless another exemption applies.

F. Except as indicated in subsection (E), above, the seller is not the user of a product that qualifies as de minimis under subsection (C)(3) of this section, or of a product transferred in a single-price transaction meeting the requirements of subsection (C)(4) of this section. The seller is not required to pay a sales or use tax on such transactions.

G. If an optional computer software maintenance contract is a bundled transaction in which both taxable and nontaxable or exempt products are not separately itemized on the invoice or similar billing document, the contract shall be characterized as all taxable unless the vendor can demonstrate, using a reasonable method at the time of sale, the portion of the contract that is nontaxable or exempt products. See Reg. § 1.9701(7) - 2(C)(3) ("Prewritten Computer Software").

H. Examples:

1. A seller offers to its customers a package containing maple syrup, maple candy, and a ceramic pitcher. Each item has a retail price of $ 10, and the package is sold for a single price of $ 30. Pursuant to subsection (C)(4), the entire charge is not taxable because the value of the taxable item (the pitcher) is fifty percent or less of the total sales price and it is bundled with food items. The seller is not considered the user of the pitcher and may purchase the item tax- exempt for resale.

2. A raincoat has a retail price of $ 100 and umbrella a retail price of $ 20. A seller offers the two items to its customers for the single price of $ 120. Pursuant to subsection (C)(3), the entire charge is taxable - notwithstanding that clothing is exempt from the tax - because the products are sold for a single charge and the value of the umbrella is not de minimis because it exceeds ten percent of the total purchase price.

3. A ski resort sells a ski pass valued at $

4. Each purchaser also receives a bumper sticker valued at $ 2. The seller is required to collect the sales tax on the $ 70 ski pass, but because the bumper sticker is promotional in nature and does not qualify as a purchase for resale, see subsection (A)(2), the seller is required to pay sales or use tax on the promotional item pursuant to subsection (E)(2).

See also Reg. § 1.9701(7) ("Tangible Personal Property").

Reg.§ 1.9701(5) - 1 Retail Sale.

The term "retail sale" means a sale for any purpose other than for resale, sublease, or subrent. The term "sale" includes any transfer of title or possession or both, exchange or barter, rental, lease or license to use or consume, conditional or otherwise, in any manner or by any means whatsoever for a consideration, or any agreement therefor.

Sales to contractors, subcontractors or repair persons (other than retailers or manufacturers making an election under 32 V.S.A. § 9711) , of materials and supplies for use by them in erecting structures or otherwise improving, altering, or repairing real property are retail sales. Once the tangible personal property is incorporated into the real property, the sale of the real property is not subject to sales and use tax, regardless of whether the incorporated tangible personal property is itemized by the seller.

A sale of tangible personal property for use by the purchaser in performing a service is a retail sale and not a purchase for resale.

Reg.§ 1.9701(5) - 2 Lease or Rental.

"Lease or rental" means any transfer of possession or control of tangible personal property for a fixed or indeterminate term for consideration. A lease or rental may include future options to purchase or extend.

A purchaser of tangible personal property who purchases the property primarily for the purpose of leasing or renting the property to others is entitled to purchase such tangible personal property free of sales and use tax. The purchaser may similarly obtain repair parts for the rental or lease property free of the tax. The purchase of equipment or supplies used in conjunction with the service or care of rental property, however, is subject to tax because the materials are not considered to be purchased for resale.

A purchaser of tangible personal property not primarily intended for lease or rental must pay the sales and use tax at the time of purchase, and should not collect any tax upon the receipts from the isolated or occasional rental or lease to others. Conversely, the isolated and occasional use by the purchaser of rental or lease property is permissible without triggering payment of the sales and use tax on the purchase price of the property. For a use to qualify as "isolated and occasional," it shall not exceed four percent of total use.

A. Lease or rental does not include:

1. A transfer of possession or control of property under a security agreement or deferred payment plan that requires the transfer of title upon completion of the required payments;

2. A transfer of possession or control of property under an agreement that requires the transfer of title upon completion of required payments and payment of an option price that does not exceed the greater of one hundred dollars or one percent of the total required payments; or

3. Providing tangible personal property along with an operator for a fixed or indeterminate period of time. A condition of this exclusion is that the operator is necessary for the equipment to perform as designed. For the purpose of this subsection, an operator must do more than maintain, inspect, or set-up the tangible personal property.

B. This definition shall be used for sales and use tax purposes regardless of whether a transaction is characterized as a lease or rental under generally accepted accounting principles, the Internal Revenue Code, Title 9A of the Vermont Statutes Annotated, or other provisions of federal, state or local law.

Reg.§ 1.9701(5) - 3 Drop Shipment.

In the case of drop shipment sales, the seller (drop shipper) may claim a resale exemption based on an exemption certificate provided by its customer/reseller or any other information available to it that demonstrates to the Commissioner that the customer is purchasing for resale, regardless of whether the customer/reseller is registered to collect and remit sales and use tax in Vermont.

Reg.§ 1.9701(7) - 1 Tangible Personal Property.

"Tangible personal property" means personal property which may be seen, weighed, measured, felt, touched or in any other manner perceived by the senses. The statutory definition specifically includes electricity, water, gas, steam, and prewritten computer software, even if the software is delivered electronically. "Delivered electronically" means delivered to the purchaser by means other than tangible storage media.

For tax purposes, the following definitions apply:

1. "Computer" means an electronic device that accepts information in digital or similar form and manipulates it for a result based on a sequence of instructions.

2. "Electronic" means relating to technology having electrical, digital, magnetic, wireless, optical, electromagnetic, or similar capabilities.

3. "Computer software" means a set of coded instructions designed to cause a computer or automatic data processing equipment to perform a task.

4. "Load and leave" means delivery to the purchaser by use of a tangible storage media where the tangible storage media is not physically transferred to the purchaser.

A. Tangible personal property includes, but is not limited to:

1. raw materials, such as wood, metal, rubber and minerals;

2. manufactured items such as jewelry, furniture, machinery, clothing, lighting fixtures, appliances, and building materials;

3. artistic items such as sketches, paintings, photographs, moving picture films, tapes and DVDs, and recordings when on a tangible medium;

4. stamps and other philatelic items when purchased other than for use as postage; coins and other numismatic items when purchased other than for use as a medium of exchange;

5. precious metals such as bullion, ingots, and wafers.

B. Tangible personal property does not include:

1. real property;

2. items such as books, movies, or music delivered electronically (except prewritten software as provided by statute);

3. stamps when purchased for use as postage; coins and other numismatic items when purchased as a medium of exchange;

4. intangible personal property such as rights and credits, insurance policies, bills of exchange, stocks and bonds and similar evidences of indebtedness or ownership, unless they are sold for historical display or collection purposes.

5. charges for the right to access remotely prewritten computer software provided that the software is not downloaded.

Reg.§ 1.9701(7) - 2 Prewritten Computer Software.

A. "Prewritten computer software" means computer software, including prewritten upgrades, which is not designed and developed by the author or other creator to the specifications of a specific purchaser. The combining of two or more prewritten computer software programs or prewritten portions thereof does not cause the combination to be other than prewritten computer software. Prewritten computer software includes software designed and developed by the author or other creator to the specifications of a specific purchaser when it is sold to a person other than the specific purchaser. Where a person modifies or enhances computer software of which the person is not the author or creator, the person shall be deemed to be the author or creator only of such person's modifications or enhancements. Prewritten computer software or a prewritten portion thereof that is modified or enhanced to any degree, where such modification or enhancement is designed and developed to the specifications of a specific purchaser, remains prewritten computer software; provided, however, that where there is a reasonable, separately stated charge or an invoice or other statement of the price given to the purchaser for such modification or enhancement, such modification or enhancement shall not constitute prewritten computer software.

B. A "computer software maintenance contract" is a contract that obligates a vendor of computer software to provide a customer with future updates or upgrades to computer software, support services with respect to computer software or both.

1. A "mandatory computer software maintenance contract" is a computer software maintenance contract that the customer is obligated by contract to purchase as a condition to the retail sale of computer software, and is subject to the tax.

2. An "optional computer software maintenance contract" is a computer software maintenance contract that a customer is not obligated to purchase as a condition to the retail sale of computer software.

C. In the case of a transaction that includes an "optional computer software maintenance contract" for prewritten computer software:

1. If an optional computer software maintenance contract only obligates the vendor to provide upgrades and updates, it will be characterized as a sale of prewritten computer software, and is subject to tax.

2. If an optional computer software maintenance contract only obligates the vendor to provide support services, it will be characterized as a sale of services and is exempt.

3. If an optional computer software maintenance contract is a bundled transaction in which both taxable and nontaxable or exempt products that are not separately itemized on the invoice or similar billing document, the contract shall be characterized as all taxable unless the vendor can demonstrate, using a reasonable method as of the time of sale, the portion of the contract that is nontaxable or exempt products. See Reg. § 1.9701(4) - 3 ("Bundled Transaction").

D. The method used by the vendor shall be binding on the purchaser.

Reg.§ 1.9701(8) -! Sales Sourced to Vermont.

A sale is located "in this state" or "in the state" if it is sourced to a location in Vermont under the terms of the General Sourcing Rules, Reg. § 1.9701(8) - 3.

Reg.§ 1.9701(8) - 2 General Sourcing Definitions.

For the purpose of subsection (A) of the General Sourcing Rules, Reg. § 1.9701(8) - 3, the terms "receive" and "receipt" mean:

1. taking possession of tangible personal property, or

2. making first use of services, or

3. taking possession or making first use of digital goods, whichever comes first.

The terms "receive" and "receipt" do not include possession by a shipping company on behalf of the purchaser.

Reg.§ 1.9701(8) - 3 General Sourcing Rules.

A. The retail sale, excluding lease or rental, of a product shall be sourced as follows:

1. When the product is received by the purchaser at a business location of the seller, the sale is sourced to that business location.

2. When the product is not received by the purchaser at a business location of the seller, the sale is sourced to the location where receipt by the purchaser (or the purchaser's donee, designated as such by the purchaser) occurs, including the location indicated by instructions for delivery to the purchaser (or donee) known to the seller.

3. When subsections (A)(1) and (A)(2) do not apply, the sale is sourced to the location indicated by an address for the purchaser that is available from the business records of the seller that are maintained in the ordinary course of the seller's business when use of this address does not constitute bad faith.

4. When subsections (A)(1), (A)(2), and (A)(3) do not apply, the sale is sourced to the location indicated by an address for the purchaser obtained during the consummation of the sale, including the address of a purchaser's payment instrument, if no other address is available, when use of this address does not constitute bad faith.

5. When none of the previous subsections (A)(1), (A)(2), (A)(3), or (A)(4) apply, including the circumstance in which the seller is without sufficient information to apply the previous rules, then the location will be determined by the address from which tangible personal property was shipped, from which the digital good or the computer software delivered electronically was first available for transmission by the seller, or from which the service was provided (disregarding for these purposes any location that merely provided the digital transfer of the product sold).

B. The lease or rental of tangible personal property, other than property identified in subsection (C) or subsection (D), shall be sourced as follows:

1. For a lease or rental that requires recurring periodic payments, the first periodic payment is sourced the same as a retail sale in accordance with the provisions of subsection (A). Periodic payments made subsequent to the first payment are sourced to the primary property location for each period covered by the payment. The primary property location shall be as indicated by an address for the property provided by the lessee that is available to the lessor from its records maintained in the ordinary course of business, when use of this address does not constitute bad faith. The property location shall not be altered by intermittent use at different locations, such as use of business property that accompanies employees on business trips and service calls.

2. For a lease or rental that does not require recurring periodic payments, the payment is sourced the same as a retail sale in accordance with the provisions of subsection (A).

3. This subsection does not affect the imposition or computation of sales or use tax on leases or rentals based on a lump sum or accelerated basis, or on the acquisition of property for lease.

C. The retail sale, including lease or rental, of transportation equipment not subject to the purchase and use tax administered by the Department of Motor Vehicles shall be sourced the same as a retail sale in accordance with the provisions of subsection (A), notwithstanding the exclusion of lease or rental in subsection (A). "Transportation equipment" means any of the following:

1. Locomotives and railcars that are utilized for the carriage of persons or property in interstate commerce.

2. Trucks and truck-tractors with a Gross Vehicle Weight Rating (GVWR) of 10,001 pounds or greater, trailers, semi-trailers, or passenger buses that are:

(a) Registered through the International Registration Plan; and

(b) Operated under authority of a carrier authorized and certificated by the U.S. Department of Transportation or another federal authority to engage in the carriage of persons or property in interstate commerce.

3. Aircraft except those exempted by 32 V.S.A. § 9741(29) as aircraft sold for use in air commerce.

Containers designed for use on and component parts attached or secured on the items set forth in subsections (D)(1) through (D)(3).

Reg.§ 1.9701(8) - 4 Direct Mail Sourcing.

A. Notwithstanding the general sourcing rules stated herein, the following provisions apply to sales of "advertising and promotional direct mail":

1. A purchaser of "advertising and promotional direct mail" may provide the seller with either:

(a) A direct pay permit;

(b) An Agreement certificate of exemption claiming "direct mail"; or

(c) Information showing the jurisdictions to which the "advertising and promotional direct mail" is to be delivered to recipients.

2. If the purchaser provides the permit, certificate or statement referred to in subparagraph a or b of subsection A of this section, the seller, in the absence of bad faith, is relieved of all obligations to collect, pay, or remit any tax on any transaction involving "advertising and promotional direct mail" to which the permit, certificate or statement applies. The purchaser shall source the sale to the jurisdictions to which the "advertising and promotional direct mail" is to be delivered to the recipients and shall report and pay any applicable tax due.

3. If the purchaser provides the seller information showing the jurisdictions to which the "advertising and promotional direct mail" is to be delivered to recipients, the seller shall source the sale to the jurisdictions to which the "advertising and promotional direct mail" is to be delivered and shall collect and remit the applicable tax. In the absence of bad faith, the seller is relieved of any further obligation to collect any additional tax on the sale of "advertising and promotional direct mail" where the seller has sourced the sale according to the delivery information provided by the purchaser.

4. If the purchaser does not provide the seller with any of the items listed in subparagraphs a, b or c of paragraph 1 of subsection A of this section, the sale shall be sourced according to Reg. § 1.9701(8) - 3(A)(5). The state to which the "advertising and promotional direct mail" is delivered may disallow credit for tax paid on sales sourced under this paragraph.

B. Notwithstanding Reg. § 1.9701(8) - 3, the following provisions apply to sales of "other direct mail."

1. Except as otherwise provided in this paragraph, sales of "other direct mail" are sourced in accordance with Reg. § 1.9701(8) - 3(A)(3).

2. A purchaser of "other direct mail" may provide the seller with either:

(a) A direct pay permit; or

(b) An agreement certificate of exemption claiming "direct mail."

3. If the purchaser provides the permit, certificate or statement referred to in subparagraph a or b of paragraph 2 of subsection B of this section, the seller, in the absence of bad faith, is relieved of all obligations to collect, pay or remit any tax on any transaction involving "other direct mail" to which the permit, certificate or statement apply. Notwithstanding paragraph 1 sub section B, the sale shall be sourced to the jurisdictions to which the "other direct mail" is to be delivered to the recipients and the purchaser shall report and pay applicable tax due.

C. For purposes of this section:

1. "Advertising and promotional direct mail" means:

(a) Printed material that meets the definition of "direct mail," in 32 V.S.A. § 9701(28);

(b) The primary purpose of which is to attract public attention to a product, person, business or organization, or to attempt to sell, popularize or secure financial support for a product, person, business or organization. As used in this subsection, the word "product" means tangible personal property, a product transferred electronically or a service.

2. "Other direct mail" means any direct mail that is not "advertising and promotional direct mail" regardless of whether "advertising and promotional direct mail" is included in the same mailing. The term includes, but is not limited to:

(a) Transactional direct mail that contains personal information specific to the addressee including, but not limited to, invoices, bills, statements of account, payroll advices;

(b) Any legally required mailings including, but not limited to, privacy notices, tax reports and stockholder reports; and

(c) Other non-promotional direct mail delivered to existing or former shareholders, customers, employees, or agents including, but not limited to, newsletters and informational pieces.

Other direct mail does not include the development of billing information or the provision of any data processing service that is more than incidental.

D.

(a) This section applies to a transaction characterized under state law as the sale of services only if the service is an integral part of the production and distribution of printed material that meets the definition of "direct mail."

(b) This section does not apply to any transaction that includes the development of billing information or the provision of any data processing service that is more than incidental regardless of whether "advertising and promotional direct mail" is included in the same mailing.

2. If a transaction is a "bundled transaction" that includes "advertising and promotional direct mail," this section applies only if the primary purpose of the transaction is the sale of products or services that meet the definition of "advertising and promotional direct mail."

3. Nothing in this section shall limit any purchaser's:

(a) Obligation for sales or use tax to any state to which the direct mail is delivered,

(b) Right under local, state, federal or constitutional law, to a credit for sales or use taxes legally due and paid to other jurisdictions, or

(c) Right to a refund of sales or use taxes overpaid to any jurisdiction.

Reg.§ 1.9701(8) - 5 Telecommunication Sourcing Definitions.

For the purpose of the Telecommunication Sourcing Rule, Reg. § 1.9701(8) - 7, the following definitions apply:

A. "Air-to-Ground Radiotelephone Service" means a radio service, as that term is defined in 4 7 CFR 22.99, in which common carriers are authorized to offer and provide radio telecommunications service for hire to subscribers in aircraft.

B. "Ancillary services" means services that are associated with or incidental to the provision of telecommunications services including but not limited to detailed telecommunications billing, directory assistance, vertical service, and voice mail services. 32 V.S.A. § 9701(42).

C. "Call-by-call Basis" means any method of charging for telecommunications services where the price is measured by individual calls.

D. "Communications Channel" means a physical or virtual path of communications over which signals are transmitted between or among customer channel termination points.

E. "Customer" means the person or entity that contracts with the seller of telecommunications services. If the end user of telecommunications services is not the contracting party, the end user of the telecommunications service is the customer of the telecommunication service, but this sentence only applies for the purpose of sourcing sales of telecommunications services under Reg. § 1.9701(8) - 7. "Customer" does not include a reseller of telecommunications service or for mobile telecommunications service of a serving carrier under an agreement to serve the customer outside the home service provider's licensed service area.

F. "Customer Channel Termination Point" means the location where the customer either inputs or receives the communications.

G. "End user" means the person who utilizes the telecommunication service. In the case of an entity, "end user" means the individual who utilizes the service on behalf of the entity.

H. "Home service provider" means the same as that term is defined in the federal Mobile Telecommunications Sourcing Act, 4 U.S.C. § 124(5).

I. "Mobile telecommunications service" means the same as that term is defined in the federal Mobile Telecommunications Sourcing Act, 4 U.S.C. § 124(7).

J. "Place of primary use" means the street address representative of where the customer's use of the telecommunications service primarily occurs, which must be the residential street address or the primary business street address of the customer. In the case of mobile telecommunications services, "place of primary use" must be within the licensed service area of the home service provider.

K. "Post-paid calling service" means the telecommunications service obtained by making a payment on a call-by-call basis either through the use of a credit card or payment mechanism such as a bank card, travel card, credit card, or debit card, or by charge made to a telephone number that is not associated with the origination or termination of the telecommunications service. A post-paid calling service includes a telecommunications service, except a prepaid wireless calling service, that would be a prepaid calling service except it is not exclusively a telecommunications service.

L. "Prepaid calling service" means the right to access exclusively telecommunications services, which must be paid for in advance and which enables the origination of calls using an access number or authorization code, whether manually or electronically dialed, and that is sold in predetermined units or dollars of which the number declines with use in a known amount.

M. "Prepaid wireless calling service" means a telecommunications service that provides the right to utilize a mobile wireless service as well as other non-telecommunications services including the download of digital products delivered electronically, content, and ancillary services, which must be paid for in advance, that is sold in predetermined units of dollars of which the number declines with use in a known amount. See also Reg. § 1.9771(5) -q(A)(6).

N. "Private communication service" means a telecommunications service that entitles the customer to exclusive or priority use of a communications channel or group of channels between or among termination points, regardless of the manner in which such channel or channels are connected, and includes switching capacity, extension lines, stations, and other associated services that are provided in connection with the use of such channel or channels. 32 V.S.A. § 9701(39); see also Reg. § 1.9771(5) - 1(B)(2).

O. "Service address" means:

1. The location of the telecommunications equipment to which a customer's call is charged and from which the call originates or terminates, regardless of where the call is billed or paid.

2. If the location in subsection (L)(l) is not known, service address means the origination point of the signal of the telecommunications services first identified by either the seller's telecommunications system or in information received by the seller from its service provider, where the system used to transport such signals is not that of the seller.

3. If the locations in subsection (L)(l) and subsection (L)(2) are not known, the service address means the location of the customer's place of primary use.

See also 32 V.S.A. § 9701(19) (definition of "Telecommunications service"); 32 V.S.A. § 9701(42) (definition of "Ancillary services"); Reg. § 1.9771(5) (Imposition of tax on telecommunications service and ancillary services).

Reg.§ 1.9701(8) - 6 Telecommunication Sourcing Rule.

A. Except for the defined telecommunication services enumerated in subsection (C), the sale of telecommunication service sold on a call-by-call basis shall be sourced to (i) each level of taxing jurisdiction where the call originates and terminates in that jurisdiction, or (ii) each level of taxing jurisdiction where the call either originates or terminates and in which the service address is also located.

B. Except for the defined telecommunication services enumerated in subsection (C), a sale of telecommunications services sold on a basis other than a call-by-call basis is sourced to the customer's place of primary use.

C. The sale of the following telecommunication services shall be sourced to each level of taxing jurisdiction as follows:

1. A sale of mobile telecommunications services other than air-to-ground radiotelephone service and prepaid calling service is sourced to the customer's place of primary use as required by the Mobile Telecommunications Sourcing Act, 4 U.S.C. §§ 116-126. See 32 V.S.A. §

3. A sale of post-paid calling service is sourced to the origination point of the telecommunications signal as first identified by either (i) the seller's telecommunications system, or (ii) information received by the seller from its service provider, where the system used to transport such signals is not that of the seller.

4. A sale of prepaid calling service or a sale of a prepaid wireless calling service is sourced in accordance with Reg. § 1.9701(8) -

Provided-however, in the case of a sale of a prepaid wireless calling service, the rule provided in Reg. § 1.9701(8) - 3(A)(5) shall include as an option the location associated with the mobile telephone number.

D. The sale of internet access service is sourced to the customer's place of primary use.

E. The sale of directory assistance service (a taxable ancillary service) is sourced to the customer's place of primary use. See Reg. § 1.9771(5) - 2 (Tax not imposed on ancillary services, with the exception of directory assistance service; definitions of ancillary services).

Reg.§ 1.9701(8) - 7 Admissions to Places of Amusement Sourcing Rule.

The charges for admission to places of amusement is destination-based. The sale of admission tickets or charges is sourced to the location of the entertainment or recreation facility.

Reg.§ 1.9701(8) - 8 Access to Programming Sourcing Rule.

The charges for access to cable television systems, other programming systems, and game or gaming machines under 32 V.S.A. § 9771(4) is sourced to the customer's residential street address or primary business street address.

Reg.§ 1.9701(8) - 9 Specified Digital Products Sourcing Rule.

The charges for sales of specified digital products in 32 V.S.A. § 9771(8) are sourced to the location of the customer's residential street address or primary business street address.

Reg.§ 1.9701(19) Telecommunications Service.

See Reg. § 1.9771(5) - 1 (imposition of tax on telecommunications service, with definitions); Reg. § 1.9701(8)

• 6 (Telecommunication Sourcing Definitions); Reg. § 1.9701(8) - 7 (Telecommunication Sourcing Rule).

Reg.§ 1.9701(42) Ancillary Services.

See Reg. § 1.9771(5) - 2 (tax not imposed on ancillary services, with the exception of directory assistance service; definitions of ancillary services).

Reg.§ 1.9701(45) Transferred Electronically.

"Transferred electronically" means obtained by the purchaser by means other than tangible storage media. The term "transferred electronically" does not include "ancillary services," "computer software," and "telecommunications services." See 32 V.S.A. § 9701(42) (definition of ancillary services); 32 V.S.A. § 9701(19) (definition of telecommunications services).

Reg.§ 1.9701(47) End User.

A person that purchases products "transferred electronically" or the code for "specified digital products" for the purpose of giving away such products or code shall not be considered to have engaged in the distribution or redistribution of such products or code and shall be treated as an end user and the transaction is subject to the tax. See 32 V.S.A. § 9701(45) (definition of "transferred electronically"); 32 V.S.A. § 9701(46) (definition of "specified digital products").

Reg.§ 1.9701(51) Planting Mix.

"Planting mix" means material that:

(A) is used in the production of plants, and

(B) consists of 66% or more of compost, peat moss, or coir and other ingredients that contribute to fertility and porosity, including perlite, vermiculite, and other similar materials.

Reg.§ 1.9707 - 1 Registration of Sellers.

A. The following persons must register to collect Vermont sales or use tax:

1. Every person making sales of tangible personal property, services or specified digital products transferred electronically to an end user, the receipts from which are subject to tax in Vermont.

2. Every person maintaining a place of business in the state and making sales, whether at that place of business or elsewhere, to persons within the state of tangible personal property, services or specified digital products transferred electronically to an end user, the use of which is subject to tax.

3. Every person who solicits business in this state either by employees, independent contractors, agents or other representatives or by distribution of catalogs or other advertising matter and by. reason thereof makes sales to persons within the state of tangible personal property, services or specified digital products transferred electronically to an end user, the use of which is subject to tax.

4. The State of Vermont or any of its agencies, instrumentalities, public authorities, public corporations (including public corporations created pursuant to agreement or compact with another state or states) or political subdivision when that entity sells services or property of a kind ordinarily sold by private persons.

5. Every person purchasing tangible personal property for resale.

6. Every person receiving receipts from admission charges (including any subsidiary, service or cover charge), charges incident to, or any charges for the use of any place of recreation or amusement. See 32 V.S.A. § 9771(4); Reg. § 1.9771(4).

7. A person not otherwise required to collect Vermont tax who voluntarily collects the tax.

B. Sellers Registering Under the Streamlined Sales Tax Agreement

1. A seller registering online under the Agreement shall be registered in each of the Streamlined Sales Tax member states.

2. A model 2, model 3, or model 4 seller may elect to be registered in one or more states as a seller which anticipates making no sales into such state(s) if it has not had sales into such state (s) for the preceding 12 months. Such election does not relieve the seller of its agreement to collect taxes on all sales into such states or its liability for remitting to the proper states any taxes collected. Withdrawal or revocation of a member state shall not relieve a seller of its responsibility to remit taxes previously or subsequently collected on behalf of the state.

3. A seller is not required to pay any registration fees or other charges to register in Vermont if the seller has no legal requirement to register in this state.

4. A seller may cancel its registration under the system at any time in accordance with uniform procedures adopted by the Streamlined Sales Tax Governing Board. Cancellation does not relieve the seller of its liability for remitting to the proper states any tax collected.

C. Licenses

1. Sellers may register and obtain a sales tax license online by accessing the online registration system and completing the appropriate registration form, or may submit to the Commissioner a paper registration form. In the case of online registration, a written signature from the seller is not required. Upon registration, the Commissioner shall provide the seller with a license. Registrants under the Streamlined Sales Tax Agreement shall register using the Agreement's online Central Registration System. See Reg. § 1.9707 - 1(B), above.

2. A seller must obtain a separate license for each place of business in Vermont, and the license must be prominently displayed therein. In the case of a mobile seller that sells from one or more vehicles, each vehicle shall constitute a place of business for which a license must be obtained.

3. Where a seller has no regular place of business in Vermont, the application for license shall set forth the place to which any notice or other communication authorized by Chapter 233 of title 32 shall be mailed.

4. No license shall be assignable or transferable, but it may be used by the legal representative of a deceased, incompetent, bankrupt or insolvent registrant.

5. A seller may be registered by an agent.

C. Cancellation of a License

The original license is void and must be immediately surrendered to the Commissioner in the following situations:

1. The business is discontinued.

2. The business is transferred to new owners. A transfer includes a lease.

When the form of business ownership is changed: for example, when an unincorporated business incorporates, or a corporation dissolves and one or more members continue the business in a new form of ownership; or when an individual doing business changes to a partnership, or when a partnership changes its members.

D. Amendment of a License

In the following situations the original license will remain effective, but the license holder must notify the Department:

1. A change of business or trade name without a change in ownership.

2. A change of business location or mailing address.

In such instances the Department will provide the licensee a corrected license.

E. Amnesty for Registration

Pursuant to the following rules, amnesty is available to businesses registering under the Streamlined Sales and Use Tax Agreement (Agreement). To qualify, the business must register via the Agreement's Central Registration System in all jurisdictions that are members to the Agreement.

Subject to the limitations in this section:

1. A seller who registers to pay or to- collect and remit applicable sales or use tax on sales made to purchasers in the state in accordance with the terms of the Agreement, which seller was not so registered in the state in the twelve-month period preceding January 1, 2007, shall not be liable for uncollected sales or use tax.

2. Provided a seller registers within twelve months of January 1, 2007, the Commissioner shall not assess against the seller uncollected sales or unpaid use tax together with penalty or interest for sales made during the period the seller was not registered in the state.

3. The Commissioner shall not provide amnesty to a seller with respect to any matter or matters for which the seller received notice of the commencement of an audit and which audit is not yet finally resolved including any related administrative and judicial processes.

4. The Commissioner shall not provide amnesty for sales or use taxes already paid or remitted to the state or for taxes collected by the seller.

5. The amnesty is fully effective, absent the seller's fraud or intentional misrepresentation of a material fact, as long as the seller continues registration and continues payment or collection and remittance of applicable sales or use taxes for a period of at least thirty-six months. There is no statute of limitations for unfiled returns. See 32 V.S.A. §

7. The amnesty is applicable only to sales or use taxes due from a seller in its capacity as a seller and not to sales or use taxes due from a seller in its capacity as a buyer.

F. The Commissioner will not use registration with the Central Registration System and collection of. taxes in member states in determining whether seller has nexus with the State of Vermont for any tax at any time.

Reg.§ 1.9707 - 2 Registration of Businesses Other than Sellers.

In addition to those taxpayers required to register under Reg. § 1.9707(1) - 1, the following entities must register with the Commissioner:

A. An entity that qualifies for exempt status under 32 V.S.A. § 9743(3) even though sales, services or amusements charged by or to the organization, or used by the organization, are not subject to sales and use tax. See Reg. § 1.9743(C).

B. Taxpayers who make recurring purchases of tangible personal property or withdraw from inventory for taxable uses tangible personal property upon which no sales tax was paid. Such taxpayers shall register and report use tax liabilities on returns in accordance with the filing requirements of 32 V.S.A. § 9775.

Reg.§ 1.9707 - 3 Streamlined Sales Tax Agreement Confidentiality and Privacy Protections for Model 1 Sellers.

A. The purpose of this section is to set forth the policy for the protection of the confidentiality rights of all participants in the system and of the privacy interests of consumers who deal with Model 1 sellers, as defined in Reg. § 1.9775(E)(3).

B. As used in this section, the term "confidential taxpayer information" means all information that is protected under Vermont's laws, regulations, and privileges; the term "personally identifiable information" means information that identifies a person; and the term "anonymous data" means information that does not identify a person.

C. With very limited exceptions, a CSP shall perform its tax calculation, remittance, and reporting functions without retaining the personally identifiable information of consumers.

D. When any personally identifiable information that has been collected and retained is no longer required to ensure the validity of exemptions from taxation that are claimed by reason of a consumer's status or the intended use of the goods or services purchased and for documentation of the correct assignment of taxing jurisdictions, such information shall no longer be retained by the Commissioner.

E. When personally identifiable information regarding an individual is retained by or on behalf of the Commissioner pursuant to the Agreement, the Commissioner shall provide reasonable access by such individual to his or her own information in the state's possession and a right to correct any inaccurately recorded information.

F. If anyone seeks to discover personally identifiable information other than a member state to the Agreement or a person authorized by that state's law or the Agreement, the Commissioner shall make a reasonable and timely effort to notify the individual of such request.

Reg.§ 1.9709 - 1 Records to Be Kept; General Requirements.

A. Every person required to collect and every purchaser required to pay the sales or use tax shall maintain all records that are necessary for a determination of the correct tax liability. Such records must show the total and individual sales prices of taxable and nontaxable items.

Such records shall include, but not necessarily be limited to, the normal books of account ordinarily maintained by the average prudent business person engaged in the activity in question, together with all bills, receipts, invoices, cash register tapes, sales slips, or other documents of original entry supporting the entries in the books of account, as well as all schedules or working papers used in conjunction with the preparation of tax returns.

B. All required records must be made available on request by the Commissioner or the Commissioner's duly authorized agent or employee.

C. If a taxpayer retains records required to be retained under this regulation in both electronic and hard-copy formats, the taxpayer shall make the records available to the Commissioner in the form requested by the Commissioner.

D. Nothing in this regulation shall be construed to prohibit a taxpayer from demonstrating tax compliance with traditional hard-copy documents or reproductions thereof, in whole or in part, whether or not such taxpayer also has retained or has the capability to retain records on electronic or other storage media in accordance with this regulation. The taxpayer is not relieved of its obligation under the preceding paragraph, however, to provide electronic records when so requested by the Commissioner.

Reg.§ 1.9709 - 2 Electronic Records.

A. Electronic records used to establish tax compliance shall contain sufficient transaction-level detail information so that the details underlying the electronic records can be identified and made available to the Commissioner upon request. A taxpayer has discretion to discard duplicated records and redundant information provided its responsibilities under this regulation are met.

B. At the time of an examination, the retained records must be capable of being retrieved and converted to a standard record format.

C. Taxpayers are not required to construct electronic records other than those created in the ordinary course of business. A taxpayer who does not create the electronic equivalent of a traditional paper document in the ordinary course of business is not required to construct such a record for tax purposes.

D. Electronic records must contain a level of record detail that is equivalent to that which is contained in an acceptable paper record. For example, the retained records should contain such information as customer name, seller name, invoice number, date, product description, quantity purchased, price, amount of tax, indication of tax status, shipping detail, etc. Codes may be used to identify some or all of the data elements, provided that the taxpayer provides a method that allows the Commissioner to interpret the coded information.

E. Business Process Information

Upon the request of the Commissioner, the taxpayer shall provide a description of the business process that created the retained records. Such description shall include the relationship between the records and the tax documents prepared by the taxpayer and the measures employed to ensure the integrity of the records.

The taxpayer shall be capable of demonstrating:

1. the functions being performed as they relate to the flow of data through the system,

2. the internal controls used to ensure accurate and reliable processing; and

3. the internal controls used to prevent unauthorized addition, alteration, or deletion of retained records.

F. Access to Electronic Records

The manner in which the Commissioner is provided access to electronic records as required in this regulation may be satisfied through a variety of means that shall take into account a taxpayer's facts and circumstances through consultation with the taxpayer:

1. The taxpayer may arrange to provide the Commissioner with the hardware, software and personnel resources to access the records.

2. The taxpayer may arrange for a third party to provide the hardware, software and personnel resources necessary to access the records.

3. The taxpayer may convert the electronic records to a standard record format that is agreed to and specified by the Commissioner.

4. The taxpayer and the Commissioner may agree on other means of providing access to the records.

Reg.§ 1.9709 - 3 Alternative Storage Media.

A. For purposes of storage and retention, taxpayers may convert hard-copy documents received or produced in the normal course of business and required to be retained under this regulation to microfilm, microfiche or other storage-only imaging systems and may discard the original hard-copy documents, provided the conditions of this regulation are met. The documents must exhibit a high degree of legibility and readability. Documents that may be stored on these media include, but are not limited to general books of account, journals, voucher registers, general and subsidiary ledgers, and supporting records of details, such as sales invoices, purchase invoices, exemption certificates, and credit memoranda.

B. Upon request by the Commissioner, a taxpayer must provide facilities and equipment for reading, locating, and reproducing any documents maintained on microfilm, microfiche or other storage-only imaging system.

Reg.§ 1.9701(4) - 3 Bundled Transaction.

A bundled transaction is the retail sale of two or more products, except real property and services to real property, where (1) the products are otherwise distinct and identifiable; and (2) the products are sold for one non-itemized price. A bundled transaction does not include the sale of any products in which the sales price varies, or is negotiable, based on the selection by the purchaser of the products included in the transaction.

Except as otherwise provided by this regulation, sales tax must be collected on the selling price of a bundled transaction if any product included in the bundled transaction would be taxable if sold separately.

Reg.§ 1.9709 - 4 Records Retention-Time Period.

Records required to be retained under this regulation shall be preserved for a period of three years in accordance with 32 V.S.A. § 9709 unless the Commissioner or the Commissioner's duly authorized representative has approved in writing an earlier date of destruction. The time for retention shall begin to run from the date on which the taxpayer files the return. In light of 32 V.S.A. § 9815 which allows the Commissioner to assess tax beyond the three-year period, and 32 V.S.A. § 9813 which places the burden of proving tax exemptions on the person required to collect the tax, a prudent taxpayer may choose to retain such records for a longer period of time.

Reg.§ 1.9711 Election by Manufacturer or Retailer.

A person primarily engaged in the business of manufacturing or the business of making retail sales of tangible personal property may make an election under Section 9711 to be treated as a retailer when purchasing materials and supplies to be used in improving, altering or repairing real property. "Primarily" means more than 50 percent of the business's gross receipts in the prior calendar year were from manufacturing or retail sales, respectively.

Section 1.9741 EXEMPTIONS

Reg.§ 1.9741 In General.

Section 9741 ("Sales not covered") exempts specific otherwise-taxable sales from sales and use tax. Sections 9742 ("Transactions not covered"), 9743 ("Organizations not covered") and 9744 ("Property exempt from use tax") provide additional exemptions from the tax.

If an exemption is "entity-based;" its applicability to a sales transaction is determined by the identity of either the seller or purchaser. For example, sales of the United States flag either to or by veterans' organizations exempt under Section 501(c)(19) of the Internal Revenue Code are exempt from the tax. 32 V.S.A. § 9741(33).

If an exemption is "use-based," its applicability to a sales transaction is determined by the purchaser's actual use of the product. For example, the sale of fuels used directly and exclusively for farming purposes is exempt from the tax. 32 V.S.A. § 9741(27).

If an exemption is "product-based," it is immaterial who purchases the product or its intended use by the purchaser. For example, because the exemption for drugs intended for human consumption is a product-based exemption, aspirin is exempt even if the purchaser uses the drug to nourish his houseplants, rather than as a human medication.

Exemptions from the sales and use tax are strictly construed. The burden of proving an exemption is on the person required to collect the tax. 32 V.S.A. § 9813.

Reg.§ 1.9741(2) Medical Exemption.

Drugs intended for human use, durable medical equipment, mobility enhancing equipment, and prosthetic devices are exempt from tax. Supplies, including but not limited to blood, blood plasma, insulin and medical oxygen are exempt if they are the type commonly and primarily used in treatment, including self-treatment, intended to alleviate human suffering or to correct human physical disabilities. Such supplies must be designed primarily to cure, correct, or reduce the severity of human ailments, injuries or disabilities. Supplies that are primarily hygienic or preventative in nature are not exempt.

A. "Drugs," as defined by 32 V.S.A. § 9701(29), are exempt from tax. Both prescription and over-the-counter drugs that meet the requirements of this section are exempt.

1. "Prescription" means an order, formula or recipe issued in any form of oral, written, electronic, or other means of transmission by a duly licensed practitioner authorized by the laws of the state.

2. An "over-the-counter drug," also referred to as a non-prescription drug, is a drug that contains a label that identifies the product as a drug as required by 21 C.F.R. § 201.66. Examples of typical over-the-counter drugs that are exempt from tax include, but are not limited to: aspirin, ibuprofen and similar pain-relief medications and analgesics; analgesic salves and liniments; antacids; acne medications, antiseptics and medicated soaps used for the treatment of infection and skin diseases; medicated burn remedies; cough and cold medications such as throat lozenges, cough drops and syrups, decongestants and antihistamines; analgesic toothache preparations and dental repair kits; eye preparations for the healing or treatment of the eyes such as contact lens solutions, eye drops, ointments and washes; laxatives, cathartics and suppositories.

"Over the-counter-drugs" do not include grooming and hygiene products such as non-medicated soaps and cleaning solutions, non-medicated shampoo, toothpaste, mouthwash, antiperspirants, and suntan lotions and screens.

B. Non-prescription vitamins and dietary supplements are not exempt under 32 V.S.A. § 9741(2) but are exempt from tax as food under 32 V.S.A. § 9741(13); see also 32 V.S.A. § 9701(27) (defining dietary supplement); 32 V.S.A. § 9701(31) (defining food and food ingredients).

C. Both "durable medical equipment" and "mobility-enhancing equipment" are exempt from the tax.

1. "Durable medical equipment" means equipment, including repair and replacement parts for such equipment, which can withstand repeated use, is primarily and customarily used to serve a medical purpose, generally is not useful to a person in the absence of illness or injury, and is not worn on or in the body. 32 V.S.A. § 9701(30). "Repair and replacement parts" as used in this definition include all components or attachments used in conjunction with the durable medical equipment.

Examples of exempt durable medical equipment include bath and shower chairs, commode chairs, dialysis treatment equipment, drug infusion devices, feeding pumps, hospital beds, MRis, oxygen equipment, resuscitators, and x-ray machines. Furniture in a hospital or doctor's waiting room is not exempt because it does not serve a medical purpose and is not designed to be used in the treatment of human ailments or disabilities.

2. "Mobility-enhancing equipment" means equipment, including repair and replacement parts of such equipment, which is primarily and customarily used to provide or increase the ability to move from one place to another and which is appropriate for use either in a home or a motor vehicle, is not generally used by persons with normal mobility, and does not include any motor vehicle or equipment on a motor vehicle normally provided by a motor vehicle manufacturer. 32 V.S.A. § 9701(34).

Common examples of exempt mobility enhancing equipment include wheelchairs, stairlifts, canes, crutches, motorized carts, and walkers. No prescription is necessary for an item to be characterized as mobility enhancing equipment.

D. "Prosthetic devices" are exempt from the tax. "Prosthetic device" means a replacement, corrective, or supportive device, including repair and replacement parts for such device worn on or in the body to artificially replace a missing portion of the body, prevent or correct a physical deformity or malfunction, or support a weak or deformed portion of the body. 32 V.S. A.§ 9701(35).

Examples of prosthetic devices include artificial limbs, artificial eyes, prescription eyeglasses and contact lenses, hearing aids, dentures and dental appliances, electronic voice producing machines, cranial hair prosthesis, cervical collars, heart valves, pacemakers, orthotic devices, trusses, and fabric and elastic supports and braces.

E. Supplies used in treatment are exempt from the tax. The supply must be therapeutic in nature, not normally used by persons absent illness or injury, and in contrast to durable medical equipment, not capable of repeated usage.

Examples of supplies that are exempt include bandages and surgical dressings, hypodermic syringes and needles, disposable heating pads, and colostomy devices. Examples of supplies not exempt from the tax are body massage appliances, therapeutic foot baths, room humidifiers and air conditioners, household baby and bathroom scales, athletic supporters, medic alert bracelets, and hot tubs.

Reg.§ 1.9741(3) - 1 Agricultural Supplies Exemption.

A. The agricultural supplies exemption is generally product-based, and the supplies identified in the first clause of the exemption statute - agriculture feeds, seed, plants, baler twine, silage bags, agricultural wrap, sheets of plastic for bunker covers, liming materials, breeding and other livestock, semen breeding fees, baby chicks, turkey poults, agriculture chemicals other than pesticides, veterinary supplies, and bedding - are exempt if they are of the type of product that is typically used in agriculture. For these items, the seller is not required to obtain an exemption certificate from the purchaser. See Reg. §§ 1.9745, 1.9741(25) - 7 (discussing exemption certificates).

Agriculture means the science or act of producing agronomic and horticultural crops, farm products, and raising livestock. Livestock includes cattle, sheep, goats, equines, fallow deer, red deer, reindeer, American bison, swine, poultry (including pheasant, chukar partridge, and coturnix quail), camelids and ratites, rabbits when raised for meat, cultured fish propagated by commercial fish farms and bees.

B. Where the enumerated exempt items are not of the type ordinarily used in agriculture, they are exempt only if the intended use is agricultural. For example, grass seed is in general taxable because the planting of lawns is ordinarily not an agricultural use. However, if the seed is used for agricultural purposes, it is exempt. If the seed is used by a farmer who grows sod for resale, the seller must collect tax on the seed unless the purchaser provides an exemption certificate.

C. The exemption for fertilizers and pesticides is use-based because these products are exempt only when used and consumed directly in the production for sale of tangible personal property on farms. The seller must collect tax unless the purchaser provides an exemption certificate.

D. Agricultural supplies other than fertilizers and pesticides as discussed in subsection (C), above, and the specific products listed in subsection (A), above, are taxable unless otherwise exempted by law, even if used in agriculture: Machinery and equipment are not exempt under this section but may be exempt under the provisions of 32 V.S.A. § 9741(25) and Reg. § 1.9741(25).

Reg.§ 1.9741(3) - 2 Examples.

The following list is for illustrative purposes only:

1. Feed for feeding pets or other animals not considered livestock is not exempt because it is not agricultural feed. Pet food sold by a veterinarian is not considered a veterinary supply and is taxable.

2. Seed designed and marketed for feeding wild birds is not an agricultural seed (or feed) and is taxable.

3. The sale of agricultural chemicals designed and marketed for use on lawns or for any other non-agricultural use is taxable.

The sale of flowering plants or shrubs for use in flower gardens and landscaping is taxable. Fruit trees and vegetable plants are considered agricultural supplies and are exempt, even when not purchased for commercial use.

5. The sale of disposable loose materials, including straw, shavings, sand, sawdust, leaves, and shredded paper for use where livestock may lie, and the sale of mats made of rubber or other material specifically designed and sold for bedding farm animals, is exempt from the tax as the sale of "bedding." The sale of such materials when packaged and marketed as bedding for pets or other animals not considered livestock is taxable. "Bedding" in this context means animal bedding and not plant beds. Potting soil, rocks, sand, gravel, compost, landscape mulch or similar materials for use in plant beds are not "bedding" within the meaning of the statute and are not exempt from the tax.

Reg.§ 1.9741(4) -! Casual Sales.

A casual sale of tangible personal property is not subject to Vermont sales tax. Also, the use in Vermont of tangible personal property acquired through a casual sale is not subject to use tax. To qualify as a casual sale, each of the following conditions must apply:

1. The sale must be isolated or occasional;

2. The seller must not be regularly engaged in the business of making sales of that general type of property at retail;

3. The property must have been obtained by the person making the sale, through purchase or otherwise, for his or her own use, and

4. The property does not qualify as aircraft as defined in 5 V.S.A. § 202(6), snowmobiles, motorboats, or vessels 16 feet or more in length as defined in 23 V.S.A. §§ 3201(5), 3302(4), and 3302(11), respectively.

Reg.§ 1.9741(4) - 2 Scope of Exemption.

A person who makes what would otherwise be considered a casual sale is required to collect and remit sales tax if the sale or series of sales is sufficient in number, scope and character. The inquiry is a factual one. Factors to be considered include the frequency of sales, their dollar volume, whether the sales are advertised, how the sales are advertised, whether the seller holds sales in a permanent venue, and the sales' similarity to the seller's normal business activity or operations. As a general rule, a person engaged in sales activity more than three times per calendar year, held on a total of more than six calendar days per year, is not making casual sales.

Reg.§ 1.9741(4) - 3 Examples.

The following examples are for illustrative purposes only:

A. Casual Sales

1. Occasional sales of tangible personal property, originally acquired for the seller's own use, at a moving, garage or yard sale, or through a classified ad;

2. An insurance agent making an isolated sale of her office copying machine, or a jeweler selling a used display case;

3. Sales of tangible personal property by executors, administrators, trustees, receivers, or other fiduciaries, except when they continue the operation of a business as sellers of tangible personal property at retail;

4. Legal sales or executions pursuant to a court order;

5. Bulk sales of business assets when ownership of a business or portion of a business is transferred. See 32 V.S.A. §

B. Non-Casual Sales

The following sales are not casual sales and unless otherwise exempted by law, are taxable:

Retail sales by manufacturers or wholesalers, even though such sales are infrequent and only comprise an insignificant fraction of their total business;

2. Sales that constitute an integral part of a business, such as the sale of repossessed fixtures or other property by a finance company, even though the sale of tangible personal property is not the primary function of such business;

3. The sale by a business of its used or outdated equipment in piecemeal fashion over a period of time to either the same or different purchasers;

The sale of tangible personal property at a flea market by a seller who makes recurring sales that exceed those allowable under this regulation;

5. Sales made only on a seasonal basis, such as Christmas tree or wreath sales;

6. Sales by any individual artist or craftsperson who makes recurring, occasional sales of his or her own handmade or crafted art or craft objects;

Sales made by an agent for the seller such as those made at consignment stores, craft fairs or cooperatives, or antique malls;

8. Sales made by auctioneers, except those exempted under 32 V.S.A. § 9741(48). Sales made by auctioneers (including any buyer's premium charged by the auctioneer) are exempt if:

(a) the auctioneer is licensed under Vermont Statues title 26, chapter 89;

(b) the auction is conducted on the premises of the owner of the property and no other person's property is sold in the auction; and

(c) the property was obtained by the owner, through purchase or otherwise, for his or her own use.

Reg.§ 1.9741(12) Motor Vehicles.

The purchase and use of motor vehicles in Vermont is taxed under Chapter 219 of Title 32 and is exempt from sales and use tax. The exceptions to the motor vehicle purchase and use tax, enumerated in 32 V.S.A. § 8911, are also exempt from the sales and use tax. Power take off and other auxiliary equipment on motor vehicles, whether attached to a motor vehicle prior to or subsequent to the vehicle's registration, is not exempt from sales and use tax.

Notwithstanding 32 V.S.A. § 8911(5), the Commissioner may assess sales and use tax on construction, earthmoving, logging and other motorized equipment if the purchaser, at the time of the assessment, has failed to register the equipment with the Department of Motor Vehicles (DMV) and failed to pay the requisite motor vehicle purchase and use tax on such equipment. The Commissioner shall allow the purchaser sixty (60) days from the date of assessment in which to register with the DMV. If registered within the sixty-day period, the Commissioner shall issue the purchaser a credit, to be applied against the sales and use tax assessment, for the amount of purchase and use tax paid.

Reg.§ 1.9741(13) Food and Beverages.

Food, food stamps, purchases made with food stamps, food products and some beverages are exempt. This statutory exemption is limited to food sold for consumption off the seller's premises. Section 9741(10) of Title 32, however, provides an exemption for "taxable meals" subject to the meals and rooms tax, resulting in an exemption from the sales tax for food whether consumed on or off the seller's premises.

Food, food products and beverages means food and food ingredients and includes substances, whether in liquid, concentrated, solid, frozen, dried, or dehydrated form, that are sold for ingestion or chewing by humans and are consumed for their taste or nutritional value. Food and food products specifically include candy and dietary supplements. Food, food ingredients, and beverages do not include soft drinks, alcoholic beverages or ice which are not exempt from tax under this section. See 32 V.S.A. § 9701(23), (53) (definition of alcoholic beverages and soft drinks). Ice is not exempt under this section because it is not sold for its taste or nutritional value. Beverage container deposits required to be paid on beverages subject to sales and use tax pursuant to 10 V.S.A. § 1522 are not included within the sales price of the taxable beverage and are not taxable when separately stated and charged to the customer. See 32 V.S.A. § 9701(4); Reg. § 1.9701(4) ("Sales price"). If a single charge is made for beverage and deposit, however, the entire amount is taxable. Reg. § 1.9701(4) - 3.

Reg.§ 1.9741(14) -! Manufacturing Exemption.

Section 9741(14) exempts from sales tax the purchase of tangible personal property that becomes an ingredient or component part of or is consumed or destroyed or loses its identity in the manufacture of tangible personal property for sale; machinery and equipment for use or consumption directly and exclusively in the manufacture of tangible personal property for sale or in the manufacture of other machinery or equipment, parts or supplies for use in the manufacturing process; and devices used to monitor manufacturing machinery and equipment or the product during the manufacturing process.

Reg.§ 1.9741(14) - 2 Definitions.

A. "Machinery and Equipment" means tangible personal property, capital in nature, with a useful life of one year or more, and does not include real property or supplies.

B. "Manufacturing" means:

1. Industrial processing

2. Food processing

3. Mineral extraction

4. Information processing

C. "Industrial Processing" means an integrated series of operations, usually involving machinery and equipment, which changes the form, composition or character of tangible personal property by physical, chemical or other means.

D. "Food Processing" means an integrated series of operations, usually involving machinery, which produces a distinct product for commercial distribution. Food processing includes, but is not limited to, coffee roasting, milk pasteurization, homogenization and bottling, meat and meat bi- products processing, beverage and water bottling, canning, freezing and the production of maple products. Farm or greenhouse operations, retail operations such as restaurants, grocery stores or butcher shops are neither "food processing" nor "industrial processing."

E. "Mineral Extraction" means an integrated series of operations that extract deposits of ore, stone, sand and gravel or other naturally occurring deposits from the earth. Mineral extraction includes mine and quarry operations, water and oil wells and gravel pits. Excluded from mineral extraction are recovery operations from slag piles or grout piles or other process waste operations.

F. "Information Processing" means an integrated series of operations in which information or images are produced and sold as tangible personal property. Information processing includes the production of newspapers, pamphlets, books, computer software (such as "canned" or "off the shelf" software), motion pictures and recorded audio and video tapes, CD ROMs and photographs. Information processing does not include the preparation of reports, documents, or statements, in a transaction in which tangible personal property is not the focus of the transaction.

G. "Manufacturing Process" means:

1. For industrial and food processing, the term "manufacturing process" means an integrated series of production activities beginning with the first production process and ending with the initial packaging of the product. If the product is not packaged, the manufacturing process ends with the last step that places the product in the form in which it is sold. Not included in the term "manufacturing process" are activities prior to the first production stage (such as collecting, weighing, testing, and bulk storage of raw materials) or any activities following initial packaging (such as secondary packaging, loading, delivery or transportation of finished goods following initial packaging to storage). The first production stage generally begins at the time the raw materials that are used or consumed in the manufacturing process are removed from storage. Thus, for example, conveyors, motorized lifts, cranes, chain falls and chemical, gas and electrical distribution systems constitute machinery and equipment used in the manufacturing process and would be exempt if used exclusively in such process.

2. For the mineral extraction process the term "manufacturing process" means a series of operations beginning with the removal of the mineral or overburden from the ground and ending with initial packaging and includes road construction within the quarry as long as the construction is a part of an integrated series of events leading to the extraction of mineral deposits.

For information processing operations, the term "manufacturing process" begins with the first direct steps in creating the text, image, tape or other product, through initial packaging. Excluded from the definition are management and accounting, research and other preparatory activities.

H. "Initial Packaging" means the packaging used to reach the stage of containment most commonly received by the ultimate consumers of the product. In a case where a means of containment of a product is necessary before a continuation of the manufacturing process, initial packaging will be that stage in the process where the product is in the form in which retail consumption occurs. Initial packaging does not include freight cars, trucks, trailers or other such means of transportation even though the product has not undergone any prior packaging. Also excluded from initial packaging are pallets, shipping cartons, etc., that are used after initial packaging and cartons or other shipping materials applied to an otherwise unpackaged product at a location or time remote from the production of the product.

Reg.§ 1.9741(14) - 3 Manufacturing Supplies Exemption.

A. Tangible personal property that becomes an ingredient or component part of manufactured tangible personal property that will be sold by a manufacturer in the regular course of its business is exempt.

B. Manufacturing materials and supplies consumed or destroyed in the manufacture of tangible personal property for sale are exempt. Tangible personal property that is purchased for use in the manufacture of tangible personal property for later sale and that has a normal life expectancy of less than one year in the use to which it is applied will be considered as consumed or destroyed within the meaning of the exemption. The question of whether items are consumed or destroyed must be answered on the basis of the facts and circumstances pertaining to the use in question.

1. "Life expectancy" means physical life expectancy as a usable item, not obsolescence. An article with a physical life expectancy of well over a year might become obsolete within a few months. Nevertheless, it would not be considered as consumed or destroyed within the meaning of the statute.

2. Property with a life expectancy of more than one year may be exempt as manufacturing machinery and equipment, in which case its exemption would rest on the direct and exclusive test.

C. Equipment and supplies, including soaps and cleaning compounds, brushes, brooms, mops and similar items, used for general cleaning and maintenance of manufacturing or processing property are not exempt from taxation.

D. The phrase "in the manufacture of" shall be interpreted to exclude the periods before manufacture and after manufacture. Thus, the exemption does not extend to the procurement of raw materials except the extraction of mineral deposits and it does not extend to the storage and transportation of the finished product. Similarly, the exemption does not extend to administration, sales, advertising and other ancillary activities that are not an essential and integral part of the manufacturing process.

E. Protective clothing or protective equipment, as defined in 32 V.S.A. § 9701(36) will be considered exempt if worn to protect the integrity of the product, manufacturing process or the employee during the manufacturing operation.

Reg.§ 1.9741(14) - 4 Equipment, Machinery or Parts Used Directly and Exclusively in Manufacturing.

A. In General

The purchase of machinery and equipment is exempt from tax if such machinery and equipment is used directly and exclusively in the manufacture of tangible personal property for sale, in the manufacture of other manufacturing machinery and equipment, or in the manufacture of parts or supplies for use in the manufacturing process.

An electrical distribution system, including electrical switchgear, transformers, cables, and related equipment used to supply power to the machinery and equipment that comprise the manufacturing process will be considered to be machinery and equipment used in the manufacturing process at the point they are dedicated to such process.

Machinery and equipment employed in pre-production or post-production is not eligible for exemption. Machinery and equipment used in non-production activities such as safety, pollution or sound abatement, administration, general climate control, illumination, general wiring and waste control is not exempt.

B. Direct Use

1. In determining whether machinery and equipment is directly used, the following factors are considered together with other relevant facts and circumstances:

(a) The active causal relationship that exists between the use of the machinery and equipment in question and the production of a product;

(b) Whether the machinery and equipment in question operates with an exempt machine or piece of equipment to complete or facilitate an integrated and synchronized system;

(c) Whether the machinery and equipment in question guarantees the integrity or quality of the manufactured product;

(d) The physical proximity of the machinery and equipment in question to the production process; lack of physical proximity by itself will not establish that a use is not direct.

2. The fact that particular machinery or equipment may be considered essential to the conduct of the business of manufacturing because its use is required either by law or practical necessity does not, of itself, mean that the machinery or equipment is "used directly" in the manufacturing operation.

(a) Machinery or equipment used to test or inspect the product, or to test or inspect the machinery or equipment used in the manufacturing process, is directly used in a manufacturing operation. Similarly, machinery or equipment used to monitor an activity during the manufacturing process is directly used in a manufacturing operation.

(b) Machinery or equipment used in waste disposal is not deemed to be directly and exclusively used and is subject to tax except when the taxpayer affirmatively proves that the waste removal is both necessary to protect the quality of the product and the waste removal is integrated into the manufacturing operations. Thus, machinery and equipment used for periodic cleaning of the production area in an operation not integrated into the manufacturing operation is not directly used in manufacturing and is taxable even if manufacturing could not continue unless the waste was periodically removed from the production area. Machinery and equipment used for treating or disposing of waste or handling of waste after it has been removed from the production area is not directly used and is taxable. Machinery and equipment used to evacuate gases and minerals from the production area is exempt only when such evacuation is both necessary to guarantee the quality of the product and is integrated into the manufacturing operations.

3. Examples of exempt direct use:

(a) Industrial fans used to remove noxious gases and particulate matter that would otherwise damage the manufactured product, when the fans are used contemporaneous with production, are exempt.

(b) Loaders used within a quarry to remove and deposit waste rock into trucks for disposal are exempt.

(c) Exhaust and venting systems used during the process of roasting coffee beans to remove particulate emissions, including coffee chaff, are exempt.

4. Examples of taxable indirect use:

(a) Equipment used to control pollution or provide circulation of air in the production area is not used directly in manufacturing and is not exempt, even when required by law.

(b) Loaders used to move waste rock and overburden from slag piles outside the lip of the quarry into trucks for disposal are not exempt. In addition, trucks used to move the waste from the yard are not exempt because removal at that juncture neither guarantees the integrity of the product nor is integrated into the manufacturing operation.

(c) Whey and salt whey produced during the process of cheese making is waste, as is contaminated water produced from washing cheese vats, pipelines, milk separators, milk pasteurizers, the inside of the milk trucks, and other equipment. Machinery and equipment used for removal and disposal of such whey, salt whey, wastewater, and cleaning solutions used in a "clean in place" (CIP) system are not used directly in manufacturing and are therefore not exempt from tax.

C. Exclusive Use

The purchase or use by a manufacturer of machinery used directly and exclusively in manufacturing is exempt from tax. The following uses will not be considered to violate the exclusive use requirement:

1. Uses other than directly in manufacturing that are isolated or-occasional provided that such uses are limited to no more than four percent of the time the machinery or equipment is operated;

2. Uses other than directly in manufacturing that are continuous or regular simultaneous uses or which exceed four percent of the time the machinery is operated, provided that no more than four percent of the output of the machinery or equipment is used for purposes other than directly in manufacturing;

3. Uses that are exempt under 32 V.S.A. § 9741(24) (commercial, industrial or agricultural research or development);

4. Uses that are exempt under 32 V.S.A. § 9741(25) (agricultural machinery and equipment).

D. Not Directly and Exclusively Used

1. Generally, buildings and fixtures used to house manufacturing operations are not directly and exclusively used in manufacturing even if they are personal property. Personal property that is directly and exclusively used in the manufacturing process will not lose its exemption based on the fact that such property also houses the manufacturing process.

2. Maintenance facilities, tools, equipment and supplies predominantly used in performing maintenance work are not exempt because maintenance or repair work is not manufacturing. For example, chain hoists, tire spreaders, welding equipment, drills, sanders, wrenches, paint brushes and sprayers, oilers, absorbent compounds, dusting compounds, air blowers, wipers, and paint or other protective or decorative coatings are subject to tax. However, replacement parts that are used to replace worn parts upon exempt machinery and equipment, such as motors, belts, screws, bolts, cutting edges, air filters or gears, are exempt.

Reg.§ 1.9741(14) - 5 Managerial, Sales or Nonoperational Activities.

Tangible personal property, machinery or equipment used in managerial, sales or other nonoperational activities is not directly and exclusively used in manufacturing and is therefore subject to tax. This category includes, but is not limited to, tangible personal property, machinery and equipment used in any of the following activities:

A. Manufacturing and administration. Office furniture, supplies, and equipment, textbooks and other educational materials, books and records, and all other tangible personal property including machinery and equipment used in record keeping and other administrative and managerial work, whether on or off the production line, is subject to tax. Such property includes, but is not limited to, supplies used to record the quality and quantity of work in production or goods in storage, the flow of work, the results of inspection, or to instruct workers in routing work or other production activities.

B. Selling and Marketing. Tangible personal property, including machinery or equipment, used in advertising or marketing manufactured products for sale, transporting such products to a market or to customers, or selling such products, is not within the scope of the manufacturing exemption.

C. Safety and fire prevention. Tangible personal property, including machinery or equipment used to prevent or fight fires and supplies used for promotion of safety, accident prevention or first aid, is subject to tax even if required by law.

Reg.§ 1.9741(14) - 6 Space Heating, Cooling, Ventilation and Illumination.

Machinery and equipment used to ventilate a building, lighting for general illumination, air conditioning and other space cooling and space heating equipment, is subject to the tax. (See Reg. § 1.9741(34) for the treatment of fuel and electricity used for these purposes.)

Reg.§ 1.9741(14) - 7 Pre-production Activities.

Tangible personal property, including machinery or equipment, used to transport personnel or to collect, convey, or transport tangible personal property and storage facilities or devices used to store or "hold" tangible personal property prior to its use in the first production stage are subject to tax. (See discussion of "first production stage" in Reg. § 1.9741(14) - 2(G)(1) ).

Reg.§ 1.9741(14) - 8 Post-production Activities.

Tangible personal property, including machinery or equipment, used to transport or convey the finished product from the final manufacturing operation and storage facilities or devices used to store the product are not used directly in manufacturing and are taxable. For example, equipment that loads packaged products into cases or cartons for ease of handling in delivery is subject to tax. Machinery, equipment, supplies and other property used to convey, transport, handle or store the packaged product is also taxable.

Reg.§ 1.9741(14) - 9 Monitoring Machinery and Equipment.

Devices used to monitor manufacturing machinery and equipment or the product during the manufacturing process are exempt from tax. To be considered exempt as monitoring equipment, the device must provide data necessary to maintain the integrity of the manufacturing process and tools. Excluded from this category are devices that are used primarily (more than fifty percent) to gather statistical data, provide security or surveillance of employees or provide inventory control.

Reg.§ 1.9741(14) - 10 Purchase by Contractors.

Buildings and structural components are not exempt machinery or equipment. Contractors should pay tax on all such purchases of materials used to alter or improve real property. Upon occasion a contractor may also supply machinery and equipment to manufacturers. In that instance, the contractor may buy such equipment tax free as a purchase for resale by furnishing his or her supplier with an exemption certificate.

Reg.§ 1.9741(14) - 11 Exemption Certificate.

Purchasers claiming an exemption under the provisions of this regulation are required to provide to the seller a properly executed exemption certificate.

Reg.§ 1.9741(15) Newspaper Exemption.

A. Sales of newspapers are exempt from sales and use tax. The exemption extends to the tangible personal property that becomes an ingredient or component part of or is consumed or destroyed or loses its identity in the manufacture of newspapers.

B. There is a two-part test for determining if a publication qualifies as a newspaper:

First, the publication must be identifiable by its appearance, format and frequency as a newspaper. A newspaper is a publication that is:

(a) printed on newsprint, rather than on more durable paper;

(b) not bound;

(c) printed and distributed frequently, usually daily or weekly, as opposed to less frequent publication. A publication printed and distributed less frequently than monthly is presumed to not qualify for the exemption; and

(d) usually not limited to a single, specialized subject area.

2. Second, at least ten percent of the printed material in a publication that meets the criteria of Reg. § 1.9741(15)(B)(1) must consist of news of general or community interest, community notices, editorial comment, or articles by different authors. Advertising is not considered news, and is not included within the ten percent requirement. Note that a publication that does not meet the criteria of Reg. § 1.9741(15)(B)(1) will never qualify for the exemption even if ten percent of its content consists of news.

C. Newspapers and the materials consumed in producing newspapers are exempt whether or not the newspapers are sold or distributed without charge. In the case of a publication distributed without charge that does not qualify as a newspaper (such as a magazine), the purchase of the paper and supplies used to create the free publication is subject to sales and use tax because the materials are not purchased for resale. Where the printing process is performed by a third party, the third party collects tax on the entire cost of printing the publication, including materials and labor. If the third- party is not registered to collect the Vermont sales tax, the distributor/vendor pays use tax on the full purchase price of the publication, including the materials and labor. A third-party printer is entitled to an exemption for the materials under 32 V.S.A. § 9741(14) because the printing and production constitutes manufacturing.

Reg.§ 1.9741(16) - 1 Packaging Exemption.

Sales of packing, packaging or shipping materials to manufacturers or distributors who use such materials for the packing, packaging, or shipping of tangible personal property for sale are exempt.

Reg.§ 1.9741(16) - 2 Definition of Packing, Packaging or Shipping Materials.

"Packing, packaging or shipping materials" means the articles and devices used in packing, packaging or shipping tangible personal property such as containers, bags, labels, gummed tapes, bottles, drums, cartons, bubble wrap and sacks.

Items of returnable and reusable packaging are exempt from sales and use tax as long as the packaging has a limited life expectancy (not more than three years) and the item is used by a manufacturer or distributor to hold or contain or to pack and ship tangible personal property. Examples of exempt reusable and returnable packaging include pallets, reels and skids used for holding tangible personal property during shipment, beer kegs, and water containers. Each of these items may be returned to and reused by the manufacturer or distributor.

Reg.§ 1.9741(16) - 3 Definition of Manufacturer.

"Manufacturer" means one who performs as a business an integrated series of operations that places tangible personal property in a form, composition, or character different from that in which it was acquired.

Reg.§ 1.9741(16) - 4 Definition of Distributor.

"Distributor" means that person who purchases tangible personal property from a manufacturer and sells the same at wholesale. One who sells at retail is not a distributor.

Reg.§ 1.9741(16) - 5 Equipment.

Equipment used for transportation is not exempt as packaging. An example of nonexempt equipment is a forklift used to transport tangible personal property around the premises of the manufacturer or distributor. Items that are not shipped with the tangible personal property are not exempt even if they are similar to exempt items. For example, specialized pallets used to move a product around a distributor's or manufacturer's warehouse are not exempt, although pallets used in shipping the product are exempt.

Reg.§ 1.9741(16) - 6 Sales to Persons Rendering a Service.

Sales of packing, packaging or shipping materials to persons regularly engaged in rendering a service are taxable because such persons are neither manufacturers nor distributors.

Reg.§ 1.9741(16) - 7 Sales to Retail Stores.

Sales of packing, packaging or shipping materials to retail stores are generally taxable because retail stores are neither manufacturers nor distributors. This is the case even if the retailer places the product in the packaging before it is offered for sale at retail. For example, a retailer buys flour in bulk, and packages the flour in ten-pound bags that are displayed and offered for sale at its retail store. The flour bags are not exempt because they were not purchased by a manufacturer or distributor.

Although a manufacturer may make exempt purchases of packaging and shipping material that is used to package or ship products it manufactures, sales of packaging and shipping materials such as merchandise bags are not exempt when the manufacturer uses such materials to package items it sells directly to customers at retail.

Reg.§ 1.9741(16) - 8 Sales to Restaurants.

Sales of products such as disposable cups, plastic or styrofoam food containers or other similar packing or shipping materials to caterers, hotels, restaurants and other eating and drinking establishments where food is consumed on or off the premises are taxable because such eating and drinking establishments are not manufacturers or distributors.

Reg.§ 1.9741(16) - 9 Exemption Certificate.

Sales of packing, packaging, or shipping materials are taxable unless the purchaser provides the seller an exemption certificate.

Reg.§ 1.9741(24) - 1 Research or Development Exemption.

Tangible personal property purchased for use or consumption directly and exclusively, except for isolated or occasional uses, in commercial, industrial or agricultural research or development in the experimental or laboratory sense is exempt from sales and use tax.

Reg.§ 1.9741(24) - 2 Definitions.

For the purposes of this provision, the following definitions shall apply:

A. "Research or development" means a systematic study or search directed toward new knowledge or new understanding of a particular scientific or technical subject and the gradual transformation of this new knowledge or new understanding into an innovative product or process. Research or development must have as its ultimate goal:

1. the development of new products;

2. the improvement of existing products; or

3. the development of new uses for existing products.

"Research or development" must go beyond the state of knowledge in that field, to expand or refine its principles, and must develop new information that is applied toward development or significant improvement of a product, process, technique, or invention. It does not include the modification of a product merely to meet customer specifications unless the modification is carried out under experimental or laboratory conditions in order to improve the product generally or develop a new use for the product. Further, it does not include testing or inspection of materials or products for quality control, environmental analysis, testing of samples for chemical or other content, operations research, feasibility studies, efficiency surveys, management studies, consumer surveys, economic surveys, research in the social sciences, metaphysical studies, advertising, promotions, or research in connection with literary, historical, or similar projects. Research or development ends when assembly or production of the new or improved product or use of the changed process or technique begins.

B. "Direct use" means those activities that are an integral part of research or development activities, including all steps of these activities, but not including secondary activities such as administration, general maintenance, product marketing, and other activities collateral to the actual research process.

C. "Exclusive use" means use to the exclusion of all other uses except for other uses not exceeding four percent of total use.

D. "Experimental sense" means work that is conducted through tests, trials, tentative procedures, or policies adopted under controlled conditions to discover, confirm, or disprove something doubtful.

E. "Laboratory sense" means work that is conducted in a place equipped for experimental study in a science and providing an opportunity for experimentation, observation, or practice in a field of basic scientific or traditional physical science research.

Reg.§ 1.9741(24) - 3 Presumption of Exemption.

Tangible personal property used directly and exclusively in research or development that does not qualify for a federal credit under Section 41 of the Internal Revenue Code, 26 U.S.C. § 41 shall be presumed nonexempt under this provision.

Reg.§ 1.9741(25) - 1 Agricultural Machinery and Equipment Exemption.

Sales of agricultural machinery and equipment for use and consumption predominantly in the production for sale of tangible personal property on farms (including stock, dairy, poultry, fruit, and truck farms), orchards, nurseries, or in greenhouses or other similar structures used primarily for the raising of agricultural or horticultural commodities for sale are exempt from the sales and use tax.

Reg.§ 1.9741(25) - 2 Definitions.

For the purpose of this regulation:

A. "Agriculture" means the science or act of producing crops, farm products and raising livestock. Agriculture does not include lumbering or the growing of trees for logging purposes. The cutting of trees, except for cutting of Christmas trees, is not considered agriculture.

B. "Agricultural machinery or equipment" means machinery or equipment used in producing crops, obtaining dairy products, raising livestock, and in obtaining maple syrup for sale. It does not include supplies.

C. "Machinery" means the assemblage of parts that transmit forces, motion and energy in a predetermined manner.

D. "Equipment" means implements, capital in nature, ordinarily subject to depreciation, but not including supplies.

E. Supplies are generally items of a non-depreciable, non-capital nature that are normally consumed within a year. Supplies include, but are not limited to, items such as brooms, brushes, buckets, shovels, and office materials such as ledger books and pens.

F. Livestock includes cattle, sheep, goats, equines, fallow deer, red deer, reindeer, American bison, swine, poultry (including pheasant, chukar partridge, and coturnix quail), camelids and ratites, rabbits when raised for meat, cultured fish propagated by commercial fish farms and bees.

G. "Farm" means an enterprise using land and improvements for agricultural and horticultural production for the sale of tangible personal property. Farms include, but are not limited to, enterprises that produce turf crops, forages and sod crops, grains and feed crops, maple syrup, dairy products, poultry and apiary products, livestock, Christmas trees, fruits of all kinds including grapes, nuts and berries, vegetables, nursery, floral, ornamental and greenhouse products.

Farms do not include cooperatives and similar organizations that engage in marketing and related activities, commercial operations such as processing food or dairy products, cheese making, logging and lumbering, the operation of a stockyard or slaughter house, enterprises for the breeding or raising of dogs, cats and other pets, and birds, fish or any other animals that are intended for use in sporting or recreational activities such as hunting and fishing.

Reg.§ 1.9741(25) - 3 Predominant Use.

A. For agricultural equipment and machinery to qualify as being used "predominantly" in production for sale of tangible personal property on a farm, it must be used seventy-five percent or more of the time in the production for sale of tangible personal property on farms. It shall be rebuttably presumed that uses are not isolated or occasional if they total more than four percent of the time the machinery or equipment is operated. The exemption status is dependent upon the actual use of such machinery and equipment; the machinery and equipment is not exempt solely on the basis that it is used on a farm.

B. Tangible personal property that is incorporated into real property is not used in the production of farm products and so is not exempt. Materials used to construct barns, sheds, silos and permanent fences are not exempt as they are building materials, not machinery or equipment. Movable equipment is exempt if the item is not incorporated into real property and it is used for farm production. Examples of such equipment are: barn curtains and screens, adjustable headlocks, free- stall stations, calf gates, movable fence gates, portable or temporary calf housing, milking machines and temporary fencing systems.

Reg. § 1.9741(25) - 4 Examples of Use in Farm Production.

The following uses are considered uses in the production for sale of tangible personal property on farms. If the machinery or equipment is used at least seventy-five percent of the time for any of these uses, or a combination of these uses, the machinery and equipment is exempt from tax.

1. Machinery and equipment used to cause other property to become a constituent or component of a farm product; to cause other property to be consumed by productive animals; machinery and equipment used to till, plant, fertilize, foster plant growth or harvest; to feed and water livestock; and to administer medication to livestock, to maintain sanitary conditions or health conditions in the immediate area of agricultural production;

Machinery and equipment used to collect, convey or transport property used in production to an agricultural production site ot to transport the finished product to a storage site on the farm and machinery used to collect manure

3. Machinery and equipment used to clean farm production equipment;

4. Machinery and equipment used to test and inspect the agricultural product;

5. Machinery and equipment used in agriculture to handle and preserve agricultural products upon the premises, and to prevent or deter the destruction, injury or spoilage of agricultural products, livestock or plants. This category includes but is not limited to property such as automatic cattle oilers used to groom farm animals so as to preserve their health, manure gutter cleaners, refrigerating devices used upon the premises to cool raw milk or to preserve perishable vegetables or other agricultural products, but does not include items such as permanent fences, silos, and barns;

6. Machinery and equipment used to extract or separate an agricultural product from livestock, the soil or plants, including but not limited to harvesters, combines, binders, forage blowers, milking equipment, egg collecting equipment, pickers and feed handling equipment;

7. Replacement parts used to replace worn parts upon exempt machinery and equipment including but not limited to motors, belts, screws, bolts, cutting edges, tractor batteries, tractor tires, and air filters or gears;

Machinery and equipment used to convert animal waste or other farm byproducts into energy when that energy is used for agricultural purposes, except for isolated or occasional uses not to exceed twenty-five percent of total usage. Note, however, that machinery and equipment used to convert animal waste or other farm byproducts into energy for sale at retail may be exempt under the manufacturing exemption. See 32 V.S.A. § 9741(14); Reg. § 1.9741(14).

Reg.§ 1.9741(25) - 5 Examples of Uses of Machinery and Equipment Not in Use for Production of Tangible Property for Sale.

The following uses are not uses in the production for sale of tangible personal property on farms. If the machinery or equipment is used more than twenty-five percent for the following uses, or a combination of these uses, the machinery and equipment is subject to tax.

1. Machinery and equipment purchased or used by one engaged in agriculture for use in the construction, reconstruction, alteration, remodeling, servicing, repairing, maintenance, or improvement to real estate, even though the structure may house or otherwise contain equipment or other facilities used in agriculture;

2. Machinery and equipment purchased or used for land reclamation, land clearing, landscaping, lawnmowing, snow removal and similar activities that are intended to improve or preserve real estate;

3. Machinery and equipment used in maintaining facilities including but not limited to general cleaning and maintenance of property not used in direct farm production, such as chain hoists and welding equipment.

Property used in managerial, marketing and sales or other non-operational activities including, but not limited to office furniture, supplies and equipment, textbooks and other educational materials, books and records, and all other property used in agricultural administration and management, and machinery and equipment used in advertising agricultural products for sale;

5. Property used in the exhibition of agricultural products or agricultural operations including, but not limited to blankets, halters, prods, leads, harnesses, dressings, ribbons, clippers and similar show or grooming and display equipment;

6. Property used to prevent or fight fires and equipment and supplies used for safety, accident prevention or first aid programs, even though such equipment or property is required by law;

7. Property used for the personal comfort or convenience of a person engaged in agriculture, or his or her family, employees, or business associates, such as beds, mattresses, blankets, tableware, stoves, refrigerators, and other equipment used in conjunction with the operation of a migrant labor camp, or facilities for agricultural employees;

8. Machinery and equipment used in making butter, sausage, canned goods, jellies, flour, juices, cheeses, ice cream and other like items. Note, however, that such machinery and equipment may be exempt under the manufacturing exemption. See 32 V.S.A. § 9741(14); Reg. § 1.9741(14);

Reg.§ 1.9741(25) - 6 Nurseries.

Machinery and equipment purchased by a person engaged in commercial nursery operations for use predominantly in the direct production of tangible personal property for sale is exempt. Included is machinery and equipment used in the production process of growing ornamental trees, shrubbery, vegetable plants, flowers, Christmas trees and fruit trees.

Reg.§ 1.9741(25) - 7 Agricultural Exemption Certificate.

A. A person engaged in the production for sale of agricultural products shall provide a completed agricultural exemption certificate to his or her supplier to cover purchases of exempt agricultural machinery and equipment.

B. Sales that are not supported by a properly executed exemption certificate shall be deemed taxable retail sales.

C. A blanket agricultural exemption certificate may be furnished to the seller to cover additional purchases of the same general type of agricultural machinery and equipment.

D. Each sales slip or purchase invoice based on a blanket exemption certificate must show the name, address and federal identification number of the purchaser.

Reg.§ 1.9741(26) - 1 Residential Fuel Exemption.

Sales of fuel used in a residence for domestic use are exempt. "Fuels" shall include electricity, oil, kerosene,, natural gas, propane, wood, coal, and any similar product.

Reg.§ 1.9741(26) - 2 Definition of Residence.

"Residence" shall mean any dwelling, apartment, mobile home or other place that is normally used as a living place and may be either a primary or secondary residence. "Residence" shall not include motels, hotels, inns, time shares, vacation clubs, nursing homes as defined in 33 V. S.A. § 7102, tourist homes, or similar housing arrangements.

Reg.§ 1.9741(26) - 3 Definition of Domestic Use.

"Domestic use" includes heating of space or water, lighting, air conditioning, and the operation of appliances in a residence.

Reg.§ 1.9741(26) - 4 Collection of Tax.

It shall be the responsibility of the seller of fuel to determine whether any sale is taxable or exempt, and to collect the sales tax on all taxable sales. All sales of fuel shall be taxable unless determined to be exempt in whole or in part in accordance with this regulation.

Reg. § 1.9741(26) - 5 Presumption of Exemption.

In making the determination required by this regulation, a seller shall be entitled to presume that sales of all fuels are exempt where all electricity or gas used at the property to which such fuel is delivered is billed at a residential rate under applicable regulations or tariffs established or approved by the Public Service Board.

Reg.§ 1.9741(26) - 6 Multiple Use.

When a property is used for both exempt and nonexempt purposes and the fuel for such property is not separately metered, measured or purchased, the purchaser shall certify to the seller, at the seller's request, the portion of fuel purchased for domestic purposes and thus entitled to exemption. Such certification may be an estimate, based upon any reasonable method of estimation.

Reg.§ 1.9741(26) - 7 Area Lighting.

Charges for "area lighting" which include a charge for the use of equipment as well as for the fuel used to operate such equipment shall be exempt from tax if used at a property used exclusively as a residence.

Reg.§ 1.9741(27) - 1 Exemption for Fuels Used Directly and Exclusively for Farming Purposes.

Sales of fuel used directly and exclusively for farming purposes shall be exempt from sales tax. "Fuels" shall include electricity, oil, kerosene, natural gas, propane, wood, coal, and any similar product.

Reg.§ 1.9741(27) - 2 Definition of Farm.

"Farm" means an enterprise using land and improvements for agricultural and horticultural production for the sale of tangible personal property. Farms include, but are not limited to such enterprises producing turf crops, forages and sod crops, grains and feed crops, maple syrup, dairy products, poultry and apiary products, livestock, fruits of all kinds including grapes, nuts and berries, vegetables, nursery, floral, ornamental and greenhouse products. Livestock includes cattle, sheep, goats, equines, fallow deer, red deer, reindeer, American bison, swine, poultry (including pheasant, chukar partridge, and coturnix quail), camelids and ratites, rabbits when raised for meat, cultured fish propagated by commercial fish farms and bees.

Farms do not include cooperatives and similar organizations that engage in marketing and related activities, commercial operations such as processing food or dairy products, cheese making, logging and lumbering, the operation of a stockyard or slaughter house, enterprises for the breeding or raising of dogs, cats and other pets, and birds, fish or any other animals that are intended for use in sporting or recreational activities such as hunting and fishing.

Reg.§ 1.9741(27) - 3 Scope.

Directly and exclusively used for farming purposes includes the operation of any equipment exempt under 32 V.S.A. § 9741(25). It also includes lighting in farm buildings or area lighting of farm property, heating of farm buildings, and operation of equipment incidental to the operation of the farm. Heating and lighting of farmstands on the premises of the farm is exempt if the farmstand sells primarily or exclusively products grown on the farm.

Reg. § 1.9741(27) - 4 Collection of Tax.

It shall be the responsibility of the seller of fuel to determine whether any sale is taxable or exempt, and to collect the sales tax on all taxable sales. All sales of fuel shall be taxable unless determined to be exempt in whole or in part in accordance with this regulation.

Reg. § 1.9741(27) - 5 Certificate of Exemption.

Purchasers claiming an exemption under the provisions of this regulation are required to provide to the seller a properly executed exemption certificate.

Reg.§ 1.9741(27) - 6 Multiple Use.

When a property is used for both exempt and nonexempt purposes, the purchaser of fuel for such property, when the fuel is used for both exempt and nonexempt uses and is not separately metered, measured or purchased, shall certify to the seller, at the seller's request, the portion of fuel purchased for domestic purposes and thus entitled to exemption. Such certification may be an estimate, based upon any reasonable method of estimation.

Reg.§ 1.9741(34) - 1 Exemption for Fuel Used Directly or Indirectly in Manufacturing.

Fuels used directly or indirectly in manufacturing tangible personal property for sale are exempt from sales and use tax. "Fuels" shall include electricity, oil, kerosene, natural gas, propane, wood, coal, and any similar product.

Reg.§ 1.9741(34) - 2 Definitions.

Fuel is used directly in manufacturing if used for activities that qualify as direct manufacturing defined under 32 V.S.A. § 9741(14).

Fuel is used indirectly in manufacturing if used for the following purposes:

1. operation of machinery and equipment directly associated with production, such as pollution abatement equipment, equipment required by VOSHA/OSHA regulations, lighting or cranes for quarries or gravel pits, and other similar machinery and equipment;

2. receiving and storing raw materials;

3. testing quality control of products;

4. storing finished products at the production area up to initial shipping;

5. heating, cooling and lighting of the production area, of areas used for purposes 1 through 4 above, and of corridors, restrooms, and other spaces which are integral to the manufacturing area.

Reg.§ 1.9741(34) - 3 Nonexempt Activities.

Fuel used in the following activities is not used directly or indirectly in manufacturing, and therefore not exempt under this provision:

1. administration;

2. sales or marketing;

3. retail operations, including storage at a retail outlet;

4. distribution operations;

5. ancillary activities such as meeting, dining, child care, automobile parking;

6. research and development. Note, however, that fuel used directly for research and development is exempt under 32 V.S.A. § 9741(24).

Reg.§ 1.9741(34) - 4 Determination of the Exempt Portion of Purchases.

When there are both exempt and nonexempt uses of fuel, the taxpayer must accurately determine the amount of fuel that is exempt from sales and use tax. Acceptable means of such determination include the use of separate meters or fuel storage tanks. Taxpayers may also determine the percentage of floor space used primarily for qualified purposes and allocate usage according to the resulting percentage, provided floor space accurately reflects fuel usage. Taxpayers should maintain spec sheets, assets lists, detailed floor plans and any other necessary documentation to substantiate the exempt use of fuel, which information is subject to the Department's review upon request. If the means described herein do not address a particular taxpayer's fuel usage, such Taxpayer may petition the Department for an alternate methodology that is acceptable to the Department.

Reg.§ 1.9741(34) - 5 Certificate of Exemption.

A seller that has accepted from the purchaser a properly executed exemption certificate as set forth in 32 V.S.A. § 9745 and Reg. § 1.9745 shall not be required to collect tax on the items claimed as exempt. The certificate shall specify either that all purchasers are exempt or the percentage of the purchases that are taxable and the percentage that are exempt. A purchaser that submits an exemption certificate to a seller must have made a determination as required under Reg. § 1.97 41 (34)-4, and must maintain supporting information, which information shall be reviewed and updated, if necessary, every three years. As stated under Reg. § 1.9741(34) - 4, this information is subject to review by the Department, and if deemed incomplete or inaccurate, any exemption certificate submitted by the taxpayer will be considered invalid, and the taxpayer will be liable for any unpaid tax, plus penalty and interest, as provided under 32 V.S.A. § 9777.

Reg.§ 1.9741(34) - 6 Example.

XYZ corporation uses electricity to operate machinery that produces a product for sale, to operate office equipment and to provide lighting throughout its site. The site contains administrative offices, a warehouse for finished goods awaiting sale, and a production area.

The electricity purchased for use at the warehouse and in the production area, both for running the production equipment and for providing lighting, is exempt. Electricity purchased for use in the administrative offices is not exempt.

To determine the percentage of exempt and nonexempt electricity, XYZ corporation observes the electricity used in similarly sized and equipped offices and determines that only 15 percent of its electricity is used in portions of the site not primarily used for manufacturing. XYZ corporation gives its supplier an exemption certificate claiming an exemption for 85 percent of the electricity.

Reg.§ 1.9741(51) Specified Forestry Equipment and Parts.

The following specified forestry equipment and repair parts for these pieces of equipment, used in timber cutting, timber removal and the processing of timber and solid wood forest products intended to be sold at retail are exempt from tax: skidders with grapple and cable, feller bunchers, cut-to-length processors, forwarders, delimbers, loader slashers, log loaders, whole-tree chippers, stationary screening systems, and firewood processors, elevators, and screens.

Other machinery and equipment not listed here not exempt from tax even if used for the forestry purposes listed in 32 V.S.A. § 9741(51).

Section 1.9743 Organizations Not Covered

A. Sales to Exempt Organizations

1. Any sale to the federal government, any of its agencies and instrumentalities or to the State of Vermont or any of its agencies, instrumentalities, public authorities, public corporations (including a public corporation created pursuant to agreement or compact with another state or states) or its political subdivisions such as counties, cities and towns, is exempt from the sales tax. To qualify for the exemption, payment must be received directly from the governmental agency, instrumentality, public authority, public corporation or political subdivision. Sales to states other than Vermont or to their agencies, instrumentalities, public authorities, public corporations, or political subdivisions are not exempt.

2. Any sale to an entity that qualifies for exempt status under the provisions of section 501(c) (3) of the United States Internal Revenue Code and any sale to agricultural organizations qualified for exempt status under section 501(c)(5) when presenting agricultural fairs, field days or festivals, are exempt. Such organizations shall obtain an exemption certificate from the Commissioner. Sales to other 501(c) entities (such as social and recreational clubs, chambers of commerce, and fraternal organizations) are subject to tax.

3. Sales of alcoholic beverages to the State of Vermont or any of its agencies, instrumentalities, public authorities, public corporations (including a public corporation created pursuant to agreement or compact with another state or states) or its political subdivisions such as counties, cities and towns, are not exempt from the sales tax. 32 V.S.A. § 9743(1).

4. Sales of building materials and supplies are exempt only if they meet the requirements set forth in 32 V.S.A. § 9743(4). Sales of items that are not consumed, employed, or expended in projects described by 32 V.S.A. § 9743(4) are subject to tax, as these items are not, by definition, building materials or supplies. Blueprints are not considered "supplies" for the purposes of this exemption.

B. Sales by Exempt Organizations.

1. Any sale by a federal or state entity referenced in subsection (A)(1) above, except charges for admission to a place of amusement (see subsection C, below), is not taxable except when the entity makes sales of tangible personal property, services or specified digital products transferred electronically to an end user that are in competition with other persons making similar retail sales. In that event, the sales are subject to tax.

Any sale by a 501(c)(3) organization that qualifies under subsection (A)(2) above, except charges for admission to a place of amusement (see subsection C, below), is exempt if the total sales of property or services which would otherwise be subject to sales tax if not sold by an exempt entity did not exceed $ 20,000 in the prior year. The $ 20,000 threshold shall include only those sales of items or services taxed under Chapter 233 of Title 32 and not covered by another tax exemption. Charges for admissions to places of amusement are not included in calculating the $ 20,000 threshold. The term "prior year" means the exempt organization's financial reporting year, which may be a fiscal year or calendar year. The organization shall maintain records and shall, upon request, provide certification to the Department of the prior year's sales to determine whether the sales account should be activated. The organization will not be required to collect sales tax in the first year of its operation.

Examples:

Sales of textbooks by a school or college that is a 501(c)(3) organization are exempt from the tax only if the school's gross sales of tangible personal property and services that would otherwise be subject to tax did not exceed $ 20,000 in the previous year.

Sales of textbooks by state schools and colleges are taxable regardless of the $ 20,000 threshold because the state must collect tax on sales of tangible personal property and services that are in competition with other persons making similar retail sales.

3. Sales of alcoholic beverages by the State of Vermont or any of its agencies, instrumentalities, public authorities, public corporations (including a public corporation created pursuant to agreement or compact with another state or states) or its political subdivisions such as counties, cities and towns, are not exempt from the sales tax. 32 V.S.A. § 9743(1).

C. Charges on Receipts From Admission to Places of Amusement

Some charges made by or to a 501(c)(3) organization or by or to a Vermont or federal government entity for admission to places of amusement are exempt. A "place of amusement" is broadly defined to mean any place where any facilities for entertainment, recreation, amusement or sports are provided. 32 V.S.A. § 9701(11); see also Reg. § 1.9771(4) - 1.

For the admission charge to be exempt from sales tax, the 501(c)(3) organization or Vermont or federal government must sustain the full financial loss or gain of the amusement. An organization or entity may not claim the exemption when the amusement is jointly produced or presented with a non-qualifying individual or entity. That is because the tax exemption does not extend to the non- qualifying individual or entity.

The charge is exempt only if each of the following criteria is met:

1. the organization bears the entire risk of loss of the production;

2. no other person shares in the profits from the production;

3. no other person is party to the contracts with performers of the production;

4. the organization is solely responsible for collection of all receipts for the production; and

5. the organization is solely responsible for payment of all expenses associated with the production and accounts for receipts and expenses in its books and records.

This exemption is not available for entertainment charges for admission to a live performance by an organization whose gross sales of entertainment charges by or on behalf of an organization for admission to live performances in the prior calendar year exceeded $ 100,000.00.

Section 1 Certificate of Exemption

A. All receipts are presumed to be subject to tax until the contrary is established, and the burden of proving that any receipt or amusement charge is not taxable shall be on the vendor. In the case of use-based exemptions, entity-based exemptions, and exempt sales for resale (see Reg. § 1.9741; Reg. § 1.9743; and Reg. 1.9701(5)-1), the following apply:

1. The seller shall obtain identifying information of the purchaser and the reason for claiming a tax exemption at the time of the purchase.

2. A purchaser is not required to provide a signature to claim an exemption from tax unless a paper exemption certificate is used.

3. The seller shall use the standard form for claiming an exemption electronically as adopted by the Streamlined Sales Tax Project (SSTP) governing board.

4. The seller shall obtain the same information for proof of a claimed exemption regardless of the medium in which the transaction occurred.

5. The seller shall maintain proper records of exempt transactions and provide them to the Commissioner upon request. See Reg. § 1.9709.

6. In the case of drop shipments, a third party vendor (e.g. drop shipper) may claim a resale exemption based on an exemption certificate provided by its customer/reseller or any other acceptable information available to the third party vendor evidencing qualification for a resale exemption, regardless of whether the customer/reseller is registered to collect sales and use tax in the state where the sale is sourced.

B. The Commissioner shall relieve sellers that follow the requirements of this section from the tax otherwise applicable if it is determined that the purchaser improperly claimed an exemption and hold the purchaser liable for the nonpayment of tax.

If the vendor fails to collect tax, it is responsible for the payment of tax for sales improperly exempted unless it accepted an exemption certificate from the purchase taken in good faith. An exemption certificate is taken in good faith when the seller obtains a certificate that claims an exemption that:

1. Was statutorily available in the State on the date of the transaction;

2. Could be applicable to the item being purchased; and

3. Is reasonable for the purchaser's type of business.

C. Sales tax is improperly exempted and, therefore, relief from liability does not apply to a seller who fraudulently fails to collect tax; to a seller who solicits purchasers to participate in the unlawful claim of an exemption; to a seller who accepts an exemption certificate when the purchaser claims an entity-based exemption when (1) the subject of the transaction sought to be covered by the exemption certificate is actually received by the purchaser at a location operated by the seller and (2) the state in which that location resides provides an exemption certificate that clearly and affirmatively indicates (graying out exemption reason types on the uniform form and posting it on the State's website is an indicator) that the claimed exemption is not available in the state.

D. The Commissioner shall relieve a seller of the tax otherwise applicable if the seller obtains a fully completed exemption certificate or captures the relevant data elements required under the Streamlined Sales Tax Agreement (Agreement) within 90 days subsequent to the date of sale.

1. If the seller has not obtained an exemption certificate or all relevant data elements as provided in this regulation, the seller may, within 120 days subsequent to a request for substantiation by the Commissioner, either prove that the transaction was not subject to tax by other means or obtain a fully completed exemption certificate from the purchaser, taken in good faith, as previously described.

2. A purchaser shall update exemption certificate information at any time such information has changed and is no longer accurate. In addition, the Commissioner may require purchasers to update exemption certificate information or reapply for exemption from tax.

3. The Commissioner shall relieve a seller of the tax otherwise applicable if it obtains a blanket exemption certificate for a purchaser with which the seller has a recurring business relationship. Notwithstanding section (D)(2) above, the Commissioner shall not request from the seller renewal of blanket certificates or updates of exemption certificate information or data elements when there is a recurring business relationship between the buyer and seller. For purposes of this section a recurring business relationship exists when a period of no more than twelve months elapses between sales transactions.

Section 2 Direct Payment Permit

"Direct payment permit" (or "direct pay permit") means a permit issued by the Commissioner that allows a holder of such permit to accrue and pay sales and use taxes directly to the department.

A. Applicants for a direct payment permit must apply in writing to the Commissioner. The application shall be on a form, whether electronic or paper, furnished by the Commissioner that shall contain the applicant's name, address, the location of the place or places of business for which the applicant intends to make direct payment of tax, and the applicant's business registration number. In the case of a new registration, the Commissioner shall issue an identifying registration number.

B. Qualification Process and Requirements

1. Applicants for a direct payment permit shall demonstrate their ability to comply with sales and use tax laws and reporting and payment requirements. Applicants must provide a description of the accounting system or systems that they will use, and demonstrate that such system or systems will reflect the proper amount of tax due.

2. Applicants must establish a business purpose for seeking a direct payment permit and must demonstrate how direct payment will benefit tax compliance. For example, the utilization of direct payment authority should accomplish one or more of the following:

(a) Reduce the administrative work of determining taxability; collecting, verifying, calculating and/or remitting the tax;

(b) Provide for improved compliance with Vermont tax law;

(c) Provide for accurate compliance in circumstances where determination of taxability of the item is difficult or impractical at the time of purchase;

(d) Provide for more accurate calculation of the tax where new or electronic business processes such as electronic data interchange, evaluated receipts settlement, or procurement cards are utilized;

(e) Provide for more accurate determination and calculation of tax where significant automation and/or centralization of purchasing and/or accounting processes have occurred and the applicant must comply with the laws and regulations of multiple state and local jurisdictions.

3. The Commissioner or the Commissioner's designee shall review all permit applications. The review of applications shall be conducted in a timely manner so that applicants receive notification of authorization or denial within ninety (90) days of the date the Commissioner or designee receives the application; however, if additional documentation or discussion is required the Commissioner shall notify the taxpayer prior to the end of the ninety-day period.

C. Each holder of a valid direct payment permit shall accrue, report and pay directly to the Commissioner the taxes due for all transactions subject to tax for which a direct payment permit applies. See 32 V.S.A. § 9775 ("Returns"). Taxes for which the direct payment permit is used shall be considered due and payable on the sales and use- tax return next due following the date on which a determination of taxability is, or in the exercise of reasonable care should be, made for a given transaction, unless otherwise provided by written agreement between the taxpayer and the Commissioner.

D. Certain Transactions Not Permitted.

1. A holder of a direct payment permit shall not use such permit in connection with purchases that are not subject to the sales and use tax, including, but not limited to:

(a) purchases of taxable meals or beverages;

(b) purchases of taxable lodging or services related thereto; and

(c) purchases of motor vehicles, whether or not the motor vehicles are subject to the motor vehicle purchase and use tax.

2. A holder of a direct payment permit shall not use such permit in connection with the following transactions that are typically subject to the sales and use tax:

(a) purchases of admissions to places of amusement, entertainment or athletic events, or the privilege of use of amusement devices;

(b) purchases of telecommunication services, and

(c) other taxable purchases as may be agreed to between the holder of the direct payment permit and the Commissioner.

E. The holder of a direct payment permit shall furnish a copy of the direct payment permit or may provide a blanket certificate of exemption to a seller who sells taxable items to the permit holder. In certain circumstances, it may be necessary for the permit holder to pay tax directly to the seller. Where tax is paid directly to the seller and the Commissioner and permit holder agree, the holder may maintain accounting records in sufficient detail to show in summary, and in respect to each transaction, the amount of sales or use taxes paid to sellers in each reporting period.

F. Either the direct payment permit or blanket exemption certificate shall cover all future sales of taxable items to the permit holder and relieve the seller of the obligation of collecting sales tax from the permit holder on qualifying transactions. Sellers who make sales upon which the tax is not collected by reason of the provisions of this section shall maintain records in such manner that the amount involved and identity of the purchaser may be ascertained.

G. A direct payment permit is not transferable, and its use may not be assigned to a third party. Direct payment permits may be revoked by the Commissioner at any time whenever the Commissioner determines that the person holding the permit has not complied with the provisions of this regulation or that the revocation would be in the best interests of the state. Such revocation shall be in accordance with 32 V.S.A. § 9816.

Section 1.9771 IMPOSITION, RATE AND PAYMENT

Reg.§ 1.9771(3) - 1 Tax on Fabrication.

Section 9771(3) imposes the sales tax on the charge for producing, fabricating, printing or imprinting of tangible personal property for consideration for consumers who furnish either directly or indirectly the materials used in the producing, fabricating, printing or imprinting.

Reg.§ 1.9771(3) - 2 Activity That Constitutes Fabrication.

A. Fabrication is similar to manufacturing because in most instances a new part or shape is produced or manufactured, material is added or taken away, or appearance or makeup of the item is altered.

B. Custom manufacturing is not fabrication unless the customer directly or indirectly supplies the materials used. A separate charge for the labor of producing the product sold is part of the sales price. See Reg. § 1.9701(4).

C. Examples:

1. John contracts with Jim to make draperies. Jim charges John $ 50 for the material used and $ 100 for the labor. This does not constitute fabrication because John did not provide the material directly or indirectly. Jim collects tax on the $ 150 sales price.

2. John purchases materials for draperies from Jim for $ 50 and contracts with Joan to create the draperies from the material for $ 100. Jim collects tax from John on the $ 50 sales price of the material, and Joan collects tax from John on the $ 100 fabrication charge.

3. John purchases material for draperies from Jim for $ 50, then separately contracts with Jim to create the draperies from the material for $ 100. It is not necessary to determine whether there were two separate transactions; Jim collects tax on the full $ 150 (tax on the sales price of the material, and tax on the fabrication charge).

4. John brings Jim material he received as a gift and contracts with Jim to create draperies from the material for $ 100. Jim collects tax on the $ 100 fabrication charge.

Reg.§ 1.9771(3) - 3 Test of Taxability.

A. If labor is expended in producing a new or different item, the tax applies to the labor charge.

B. If labor is expended in repairing or altering existing property belonging to another to restore that item to its original condition or usefulness without producing new parts, the tax does not apply to the labor charge.

C. "New item" means new insofar as the ultimate purchaser (first retail sale) is concerned. Work may be performed at various stages before the item is ready for use by the ultimate purchaser. Similarly, the cost of repairing, remodeling or reconditioning an item is subject to tax if a new or different item from the original is produced by such services.

D. The exemptions available for sales of tangible personal property are also available for fabrication charges. For example, a charge for fabrication of an article of clothing is not taxable.

Reg.§ 1.9771(3) - 4 Examples.

Fabrication subject to the tax includes, but is not limited to:

job printing, engraving (jewelers included), lettering memorials and monuments, silk screen printing (with the exception of printing on items not subject to sales tax, such as clothing), custom drapery, taxidermy, sign making (with the exception of sign making on property not subject to sales tax, such as real estate or motor vehicles), remaking bearings (enlarging the diameter of the bearing to accommodate a larger size shaft or turning down the shaft to a smaller diameter) and machine work to make new parts or to change existing parts into new items.

Reg.§ 1.9771(4) - 1 Receipts From Admissions to Places of Amusement.

A tax is imposed on the receipts from charges for admission to places of amusement, access to cable television systems or other audio or video programming systems that operate by wire, coaxial cable, lightwave, microwave, satellite transmission or by other similar means, and charges for access to any gaming or amusement machine, apparatus or device, excluding video game, pinball, musical, vocal or visual entertainment machines that are operated by coin, token or bills. 32 V.S.A. § 9771(4). For the purpose of this regulation, "amusement charge", means the charge for an admission to a place of amusement or for a service taxed under this subsection.

A. "Place of amusement" is broadly defined to mean any place where any facilities for entertainment, recreation, amusement or sports are provided. 32 V.S.A. § 9701(11).

Examples include, but are not limited to:

(1) places where athletic events, exhibitions, dramatic and musical performances are held, or where motion pictures are shown;

(2) athletic facilities or gyms, golf courses and ski areas, and

(3) places where gaming or amusement machines, apparatus or devices are available.

B. The tax is imposed on the right to admission or to the service. There is no deduction for lack of use or non-attendance unless the seller issues a refund to the customer in cash or a credit.

C. Service charges, cover charges or other subsidiary charges are considered part of the amusement charge and are taxable. Charges for membership, including dues, initiation fees and other charges made by organizations or clubs are considered amusement charges if the primary purpose of the membership is access to a place of amusement.

D. Taxable amusement charges include, but are not limited to:

Charges to attend athletic and sporting events including baseball, football, basketball and hockey games, boxing and wrestling events, races, motor sport events, rodeos and derbies;

Charges for the use of health clubs and athletic facilities including gymnasiums, tennis or handball courts, swimming pools, saunas, hot tubs and steam baths, skating rinks, shooting ranges, golf courses, driving ranges and practice greens, batting cages, bowling alleys, billiard halls, campgrounds, and ski areas;

3. Charges in the form of dues, fees or season tickets that entitle a person to club or organization membership privileges where the principal or sole privilege of such membership is the right to admission to particular performances or to a particular place for entertainment, recreation or amusement;

4. Charges for admission to observatories, zoos, and museums (admission charges to nonprofit museums, however, are exempt under 32 V.S.A. § 9741(2));

5. Charges for admission to tent shows, circuses, carnivals, celebrations, festivals, dances and balls, bingo halls, craft fairs, flea markets, collector shows (for example, gun, antique, car);

6. Charges for sleigh or buggy rides, airplane, helicopter, boat, and glider rides where the purpose is amusement rather than transportation;

7. Charges for pleasure rides of all kinds commonly conducted at amusement parks; fairs, circuses, carnivals and street festivals, as well as charges, for the use of devices and games for testing skill or strength such as shooting galleries, striking machines and other similar machines most commonly found at fairs, circuses or carnivals;

8. Charges for tours of manufacturing or other facilities;

9. Cover charges for restaurants or cabarets providing entertainment;

10. Charges for the use of riding trails, tracks or similar facilities for skiing, horseback riding, bicycling, snowboarding, skating, canoeing, kayaking, or for using ATVs, snowmobiles, motorcycles, or other recreational equipment. (Where the seller makes a separate charge for use of the equipment, that charge is taxable as a rental of tangible personal property, rather than as an amusement charge.)

E. The following non-exclusive list is illustrative of charges that are not taxable as amusement charges:

1. Charges for classes or instruction in athletics or recreation, or in the use of athletic or recreational equipment, that may allow access to a recreational facility solely for the purpose of the instruction. If the class includes access to the recreational facility beyond the scope of that required for the class or instruction, however - for example, continued access to a ski area or golf course for the remainder of the day after completion, of the class or instruction -the charge must be allocated between the non-taxable instruction and the taxable charge for use of the facility. If charges for admission to a place of amusement include optional access to classes or instruction, the full charge is taxable. For example, a gym membership charge is fully taxable even though a member may choose to take aerobics or other instruction at no additional cost to the member. If the gym offers classes or instruction for an optional cost above the charge for membership, and such cost is separately stated and charged, the additional fee is not taxable;

2. Charges that constitute dues paid to fraternal, civic or service organizations even though the price paid for dues entitles the member to use whatever facilities for recreation or amusement that may be available. (If the organization makes a separate charge in addition to the dues for the use of such facilities, the charge is subject to tax);

Charges for the use of video games, pinball, musical, vocal or visual entertainment machines operated by coin, token or bill. The exemption applies only to the money or token that actually operates the machines. (A cover charge or other payment required, for the use of the machines is an amusement charge and is taxable.)

F. The following amusement charges are exempt pursuant to other statutory provisions:

1. Fees and charges paid for admission to or use of federal, state or municipal recreation areas and facilities, including swimming pools. 32 V.S.A. § 9741(18);

2. Charges for admission to non-profit museums. 32 V.S.A. § 9741(20);

3. Amusement charges charged by or paid to organizations expressly excluded from the tax under 32 V.S.A. § 9743 ("Organizations not covered"); see also Reg. § 1.9743.

Reg.§ 1.9771(4) - 2 Multiple Location Admissions.

In those instances where tickets, passes, vouchers or any other right entitle purchasers to choose an admission location or multiple admission locations from two or more places of amusement, the charge for each individual admission is considered a separate and distinct charge that is received at the place of amusement where the ticket, pass, voucher, or right is redeemed.

The seller may collect the tax only on the portion of the charge attributable to the right to access to the Vermont facility as follows:

A. The seller shall initially determine the charge attributable to the Vermont facility or facilities by allocating the proportion of the total charge that is reasonably anticipated to be used in Vermont, as compared to the reasonably anticipated use of all facilities for which the charge provides access. The seller shall base the estimate of reasonably anticipated use on past experience, adjusted for changes in marketing or facilities that can be expected to result in a different proportion for the current year.

B. The seller may make the charge on a "tax included" basis if the Commissioner grants such approval pursuant to 32 V.S.A. § 9708(b). Alternatively, the sales tax may be separately stated on the charge for the Vermont facilities.

C. The seller shall perform a reconciliation after close of its fiscal year. The reconciliation shall determine the charge attributable to the Vermont facilities by comparing the actual use of the Vermont facilities to the actual use of all facilities during the year as a proportion of the total charges.

D. The difference between the Vermont taxable sales as determined by the reconciliation and the amount previously reported in the initial allocation shall be reported as sales for the period including the second month after the close of the seller's fiscal year.

Reg.§ 1.9771(5) - 1 Telecommunications Service.

Vermont sales and use tax is imposed on all telecommunications service, as defined in 32 V.S.

A. § 9701(19), except for paging service, private communications service, value-added non-voice data service, and coin-operated telephone service. Vermont sales tax is not imposed on ancillary services, as defined in 32 V.S.A. § 9701(42), except for directory assistance service.

See also Reg. § 1.9701(8) - 6 ("Telecommunications Sourcing Definitions"); 32 V.S.A. § 9701(43) (definition of "Telecommunication nonrecurring charges").

A. Taxable Telecommunications Services

Taxable telecommunications services include the following defined services:

1. "800 service" means a telecommunications service that allows a caller to dial a toll-free number without incurring a charge for the call. The service is typically marketed under the name "800", "855", "866", "877", and "888" toll-free calling, and any subsequent numbers designated by the Federal Communications Commission.

2. "900 service" means all inbound toll telecommunications service purchased by a subscriber that allows the subscriber's customers to call in to the subscriber's prerecorded announcement or live service. "900 service" does not include the charge for: collection services provided by the seller of the telecommunications services to the subscriber, or services or product sold by the subscriber to the subscriber's customer. The service is typically marketed under the name "900" service, and any subsequent numbers designated by the Federal Communications Commission.

3. "Fixed wireless service" means a telecommunications service that provides radio communication between fixed points.

4. "Mobile wireless service" means a telecommunications service that is transmitted, conveyed or routed regardless of the technology used, where the origin and/or termination points of the transmission, conveyance or routing are not fixed, including, by way of example only, telecommunications services that are provided by a commercial mobile radio service provider.

5. "Prepaid calling service" means the right to access exclusively telecommunications services which must be paid for in advance and which enables the origination of calls using an access number or authorization code, whether manually or electronically dialed, and that is sold in predetermined units or dollars of which the number declines with use in a known amount.

6. "Prepaid wireless calling service" means a telecommunications service that provides the right to utilize a mobile wireless service as well as other non-telecommunications services including the download of digital products delivered electronically, content, and ancillary services, which must be paid for in advance that is sold in predetermined units of dollars of which the number declines with use in a known amount.

B. Non-taxable Telecommunications Services

The following telecommunications services are not subject to the tax:

1. "Paging service" means a telecommunications service that provides transmission of coded radio signals for the purpose of activating specific pagers; such transmission may include messages and/or sounds. 32 V.S.A. § 9701(38).

2. "Private communications service" means a telecommunications service that entitles the customer to exclusive or priority use of a communications channel or group of channels between or among termination points, regardless of the manner in which such channel or channels are connected, and includes switching capacity, extension lines, stations, and other associated services that are provided in connection with the use of such channel or channels. 32 V.S.A. § 9701(39).

3. "Value-added non-voice data service" means a service that otherwise meets the definition of telecommunication services in which computer processing applications are used to act on. the form, content, code, or protocol of the information or data primarily for a purpose other than transmission, conveyance or routing. 32 V.S.A. § 9701(40).

4. "Coin-operated telephone service" means-a telecommunications service paid for by inserting money into a telephone accepting direct deposits of money to operate. 32 V.S.A. § 9701(41).

Reg.§ 1.9771(5) - 2 Ancillary Services.

Vermont sales and use tax is not imposed on ancillary services, as defined in 32 V.S.A. § 9701(42), except for directory assistance service.

A. Taxable Ancillary Service

1. "Directory assistance" means an ancillary service of providing telephone number information, address information, or both. See 32 V.S.A. § 9701(44).

B. Non-taxable Ancillary Services

Non-taxable ancillary services include the following:

1. "Conference bridging service" means an ancillary service that links two or more participants of an audio or video conference call and may include the provision of a telephone number. Conference bridging service does not include the "telecommunications services" used to reach the conference bridge.

"Detailed telecommunications billing service" means an ancillary service of separately stating information pertaining to individual calls on a customer's billing statement.

3. "Vertical service" means an ancillary service that is offered in connection with one or more "telecommunications services," which offers advanced calling features that allow customers to identify callers and to manage multiple calls and call connections, including "conference bridging services."

4. "Voice mail service" means an ancillary service that enables the customer to store, send or receive recorded messages. Voice mail service does not include any "vertical services" that the customer may be required to have in order to utilize the voice mail service.

Reg.§ 1.9771(8) Specified Digital Products Transferred Electronically.

Specified digital products transferred electronically to an end user are subject to the sales tax.

The retail sale of "digital code" is subject to the tax. "Digital code" means a code which provides a purchaser with a right to obtain one or more "specified digital products" or products "transferred electronically" to which the digital code relates. A "digital code" may be obtained by any means, including email or by tangible means regardless of its designation as "song code," "video code" or "book code."

See 32 V.S.A. § 9701(45) (definition of "transferred electronically"); 32 V.S.A. § 9701(46) (definition of "specified digital products"); 32 V.S.A. § 9701(47) (definition of "end user"); Reg. §§ 1.9701(45); 1.9701(47).

Section 1.9772 Amount of Tax to be Collected

Effective Date of Rate Changes for Streamlined Sales Tax Registrants and Sellers That Bill Charges Subsequent to the Time of Sale:

A. In the event of an increase in the sales and use tax rate, the new rate shall apply to the first billing period starting on or after the effective date of the rate change.

B. In the event of a decrease in the sales and use tax rate, the new rate shall apply to bills rendered on or after the effective date of the rate change.

Section 1.9773 Imposition of Compensating Use Tax

A. The use tax is imposed on the user of tangible personal property and specified digital products transferred electronically to an end user that have not been or will not be subject to the sales tax, or are not otherwise exempted by law, as provided under this Chapter.

B. Items manufactured, processed or assembled by the user are subject to the use tax if items of the same kind of tangible personal property are offered for sale by him or her in the regular course of business.

No use tax liability is incurred if the use of such items does not exceed the mere storage or retention until the item is sold, or the withdrawal from storage of such items for "demonstrational or instructional purposes."

"Demonstrational or instructional purposes" shall not include:

1. The use of such items in the day-to-day operations of the business;

2. The personal use of such items by employees or others; and

3. The use of such items where the user lists the items as assets on his or her books and records, whether or not the listed items are expensed or capitalized, even if the capitalization is recaptured should the items be subsequently sold.

Section 1.9775 Returns

A. Sellers shall file a single return for Vermont and all local option tax jurisdictions for each taxing period on a form prescribed by the Commissioner.

B. Whether or not registered under the Agreement, sellers may file a simplified return electronically.

C. Streamlined Sales Tax Agreement Definitions

1. "Certified Service Provider" ("CSP") means an agent certified under the Agreement to perform all the seller's sales and use tax functions, other than the seller's obligation to remit tax on its own purchases.

"Certified Automated System" ("CAS") means software certified under the Agreement to calculate the tax imposed by each jurisdiction on a transaction, determine the amount of tax to remit to the appropriate state, and maintain a record of the transaction.

"Model 1 Seller" means a seller registered under the Agreement that has selected a CSP as its agent to perform all the seller's sales and use tax functions, other than the seller's obligation to remit tax on its own purchases.

4. "Model 2 Seller" means a seller registered under the Agreement that has selected a CAS to perform part of its sales and use tax functions, but retains responsibility for remitting the tax.

5. "Model 3 Seller" means a seller registered under the Agreement that has sales in at least five Agreement member states, has total annual sales revenue of at least five hundred million dollars ($ 500,000,000), has a proprietary system-that calculates the amount of tax due each jurisdiction, and has entered into a performance agreement with the member states that establishes a tax performance standard for the seller. As used in this definition, a seller includes an affiliated group of sellers using the same proprietary system.

6. "Model 4 Seller" means a seller registered under the Agreement that is not a Model 1 Seller, a Model 2 Seller or a Model 3 Seller.

D. Certified Service Providers must file in this state a simplified return electronically on behalf of Model 1 Sellers on a monthly basis.

E. Model 2 and Model 3 Sellers must file a simplified return electronically in this state monthly unless they have indicated that they anticipate making no sales in the state.

Section 1.9776 Payment of Tax

A. Sellers shall remit payment with the filing of each return. Payment may be made electronically by the use of ACH Credit and ACH Debit. In the event an electronic fund transfer by either of these methods fails, a same day payment may be made using Fed Wire.

B. Sellers and CSPs shall not be held liable for having charged and collected the incorrect amount of sales or use tax resulting from the seller or CSP relying on erroneous data provided by the Vermont Department of Taxes in its published taxability matrix or rates and boundaries database.

Section 1.9778 Collection of Compensating Use Tax

Every seller of tangible personal property, services or specified digital products transferred electronically to an end user who holds a license and who makes sales of property, services or specified digital products transferred electronically to an end user, the use of which is subject to tax, shall at the time of making the sales, collect the compensating use tax from the purchaser. The use tax required to be collected by the seller constitutes a debt owed by the seller to the state and shall be paid at the same time and in the same manner as the sales tax. The provisions of 32 V.S.A. § 9708 with respect to unlawful advertising shall apply to use taxes to be collected by such sellers. Sellers not holding licenses shall not collect the use tax.

Section 1.9780 Bad Debt

A. Where the seller or person required to collect tax is unable to collect accounts receivable in connection with which he or she has already remitted the tax to the Commissioner, that person or seller may apply to the Commissioner for a refund or credit. Bad debt shall be defined as in Section 166 of the Internal Revenue Code. 26 U.S.C. § 166.

B. The amount recoverable for bad debt shall not include financing charges or interest, sales or use taxes charged on the purchase price, uncollectable amounts on property that remain in the possession of the seller until the full purchase price is paid, expenses incurred in attempting to collect any debt, and repossessed property.

C. A claimant seeking recovery for bad debt shall deduct the debt on the return for the period during which the bad debt is written off as uncollectable in that claimant's books and records and is eligible to be deducted for federal income tax purposes. If the claimant is not required to file federal income tax returns, the claimant may deduct a bad debt on a return filed for the period in which the bad debt is written off as uncollectable in the claimant's books and records and would be eligible for a bad debt deduction for federal income tax purposes if required to file a federal income tax return.

D. If a claimant takes a deduction for bad debt, and the debt is subsequently collected in whole or in part, the tax on the amount so collected must be paid and reported on the return filed for the period in which the collection is made.

E. If the amount of bad debt exceeds the amount of taxable sales for the period during which the bad debt is written off, the claimant may file a refund claim with the Commissioner in accordance with 32 V.S.A. § 5884. The three-year limitations period shall be measured from the due date of the return on which the bad debt could first be claimed.

F. A CSP (Certified Service Provider) as defined at Reg. § 1.9775(0)(1) which has assumed filing responsibilities on behalf of the vendor may claim, on the seller's behalf, any bad debt allowance provided in this regulation. The CSP must credit or refund the full amount of any bad debt allowance or refund received to the seller.

G. For the purposes of reporting a payment received on a previously claimed bad debt, any payments made on a debt or account are applied first proportionally to the taxable price of the property or service and the sales tax thereon, and secondly to interest, service charges, and any other charges. If the claimant's books and records support an allocation of bad debts among several states, the Commissioner shall allow the allocation.

Section 1.9781 Refunds

Upon written request by the taxpayer, the Commissioner shall refund or credit any tax, penalty or interest erroneously, illegally or unconstitutionally collected by or paid to the Commissioner, within three years from the date the return was required to be filed, subject to the limitations, listed below. Any request for refund must contain supporting documentation, whether in the form of invoices, canceled checks or other information sufficient to determine the refund amount. Refund requests containing inadequate or inaccurate information will be denied in full.

A. A seller required to collect the tax, who has actually collected and paid over the tax to the Commissioner, may request a refund of any tax, penalty or interest erroneously, illegally or unconstitutionally collected by or paid to the Commissioner, provided that the request is made within three years of the date the tax was paid to the seller by the customer. The Commissioner shall not refund to the seller the amount requested unless the seller conclusively establishes that the amount has been repaid by the seller to the customer who incurred the tax.

B. A purchaser of goods or services subject to sales tax may, within three years from the date the return was required to be filed, request a refund of any tax, penalty or interest erroneously, illegally or unconstitutionally paid. A purchaser who first seeks a refund directly from the seller retains the right to petition for a refund directly from the Department. See 32 V. S.A. § 9703(d). A purchaser shall not be entitled to a refund from the Department where the seller has refunded the tax to the purchaser. In the case where a refund request to the seller is pending, a purchaser may preserve his or her right to a refund from the Department by filing a refund request with the Department within the limitations period, containing such information necessary to determine the validity of the request, and expressly disclosing that a request for refund has been made to the seller.

C. No refund or credit shall be allowed to any person of any tax, interest or penalty that has been determined to be due pursuant to the provisions of 32 V.S.A. § 9777 where the person has had a hearing or has had an opportunity for a hearing and failed to avail himself or herself of the remedies of the law, unless it is found that such determination was erroneous, illegal, unconstitutional or otherwise improper.

D. Any taxpayer aggrieved by the denial of his or her application for refund by the Commissioner may within thirty days of the mailing of notice of denial of the application for refund appeal to the superior court by filing a petition as prescribed by 32 V.S.A. § 9817.

Section 1.138(a)(2) Local Option Sales Tax

A. Except as provided in Reg. § 1.138(a)(2)(B) below, local option sales tax rate changes shall take effect on the first day of a calendar quarter after sixty (60) days have passed following notification to sellers or certified service providers (CSPs) of the rate changes.

B. Local option sales tax rate changes shall apply to purchases from printed catalogs on the first day of a calendar quarter after 120 days have passed following notification to sellers or CSPs of the rate changes.

C. Local jurisdiction boundary changes shall take effect on the first day of a calendar quarter after sixty (60) days have passed following notification to sellers or CSPs of the boundary changes.

D. Sellers or CSPs may apply the lowest combined state and local option tax rate in a nine-digit zip code if the area includes more than one tax rate. If a seller or CSP is unable to determine the applicable rate and jurisdiction using an address-based database record after exercising due diligence, the seller or CSP may apply the nine digit zip code designation applicable to a purchase. If a nine digit zip code designation is not available for a street address or if a seller or CSP is unable to determine the nine digit zip code designation applicable to a purchase after exercising due diligence to determine the designation, the seller or CSP may apply the rate for the five digit zip code area. For the purposes of this section, there is a rebuttable presumption that a seller or CSP has exercised due diligence if the seller or CSP has attempted to determine the tax rate and jurisdiction by utilizing software approved by the SSTP governing board that makes this assignment from the street address and zip code information applicable to the purchase.

E. Sellers and CSPs will be relieved of liability to the state or local jurisdiction for collecting an incorrect amount of tax as a result of relying upon erroneous data provided by the State of Vermont in the rates and boundaries database accessible through the Agreement central registration website or the Department's website.

F. Local option sales tax is collected on a destination sales basis.

A vendor of tangible personal property located within the borders of a local option sales tax town, and any other registered vendor that delivers or sends items to a local option sales tax town must collect local option sales tax (1 %) on sales that are subject to sales tax.

2. For admissions to places of amusement, the admission charge is destination-based. If the venue is in a local-option town, local option sales tax must also be collected regardless of the location of the ticket seller.

History

• EFFECTIVE DATE:
• May 1969
• AMENDED:
• August 1971; June 21, 1973; September 1973; August 1974; September 15, 1974; July 1977; March 1980 Secretary of State Rule Log #80-20; September 14, 1995 Secretary of State Rule Log #95-60; March 30, 1998 Secretary of State Rule Log #98-9; January 1, 2007 Secretary of State Rule Log#06-039; November 1, 2010 Secretary of State Rule Log #10-036; January 1, 2019 Secretary of State Rule Log #18-045
• STATUTORY AUTHORITY: 32 V.S.A. §§ 3201, 9702

Chapter 034 SMALL BUSINESS CORPORATION TAX

10-034 Code Vt. R. 10-060-034-X SMALL BUSINESS CORPORATION TAX

THE FOLLOWING REGULATIONS ARE PROMULGATED BY THE VERMONT COMMISSIONER OF TAXES AS PROVIDED BY 32 V.S.A. § 6105 FOR THE PURPOSE OF CLARIFYING AND ADMINISTRATING THE SMALL BUSINESS CORPORATION TAX LAW AND SO AS TO CONFORM AS CLOSELY AS POSSIBLE TO THE OPERATION OF SUB-CHAPTER S OF CHAPTER ONE. SUBTITLE A OF THE INTERNAL REVENUE CODE OF THE UNITED STATES OF AMERICA AS IT RELATES TO FEDERAL TAXATION.

Section 1.61011 Domestic Corporation

Domestic corporation means a corporation organized under the laws of the State of Vermont and does not include corporations organized under the laws of the United States or any other state or territory. Further, the term does not include an unincorporated business entity.

Section 1.61021 Election

A Vermont domestic corporation which is qualified may elect to be taxed as a small business corporation if all persons who are shareholders in the corporation consent to such election on:

(1) the first day of the first taxable year for which such election is effective, if such election is made on or before such first day or.

(2) the day on which such election is made, if election is made after such first day.

In this connection election may be made during the last month preceding the taxable year for which the election will be effective or during the first month of such taxable year.

For the year 1962 election may be made during the first 90 days or on or before March 31, 1962. Election may be made by corporations operating on a fiscal year basis within the first 90 days of 1962 to prorate that portion of their fiscal year operations which falls in 1962 as a small business corporation under Provisions of Chapter 157. In instances where fiscal year corporations elect to be taxed as a small business corporation on 1962 earnings, only a single corporate franchise tax return (Form # 104) need be filed. However, a schedule setting forth the 1962 proration should be attached.

Example # 1 - X corporation has four shareholders owning equally and devoting equal time and attention to the business. Operations are on a fiscal year basis, ending April 30th of each year. An election has been made to tax that portion of its 1962 earnings as a small business corporation. Fiscal 1962 earnings total $ 12,000.00. On or before September 15, 1962 the corporation is required to file a franchise tax return (Form # 104) reflecting its entire net income of the fiscal year ending April 30, 1962. A separate schedule prorating 1962 earnings should be attached and the franchise tax computed as follows:

| $ 12,000.00 net income | / 12 = $ 1,000.00 per month | | --- | --- | | $ 1,000.00 | x 8 = $ 8,000.00 1961 income | | $ 1,000.00 | x 4 = $ 4,000.00 1962 income |

Franchise tax for fiscal year ending April 30, 1963 based on operations of fiscal year ending April 30, 1962 (income attributed to small business corporation operations omitted):

| $ 8,000.00 | x 5% = $ 400.00 franchise tax | | --- | --- |

Small business corporation income distribution -

| $ $ 4,000.00 | / 4 = $ 1,000.00 1962 distributable | | --- | --- | | to each share-holder. | |

Example # 2 - Facts same as # 1 except loss of $ 12,000.00 is sustained. Return (Form # 104) is filed September 15,1962 and minimum tax of $ 25.00 is paid. Small business corporation loss distribution:

| $ 12,000.00 | / 12 = $ 1,000.00 per month | | --- | --- | | $ 1,000.00 | x 8 = $ 8,000.00 1961 loss | | $ 1,000.00 | x 4 = $ 4,000.00 1962 loss | | $ 4,000.00 | / 4 = $ 1,000.00 1962 loss | | to each shareholder. | |

No extension will be allowed for election by corporations operating on either a fiscal or calendar year basis beyond the aforementioned 90 day period.

Section 1.61022 Electing Small Business Corporations

If a small business corporation as defined in 1.6101-1 has made an election under 1.6102-1 and such election is in effect for the taxable year in question, then the corporation is an electing small business corporation for such taxable year. The corporation is not an electing small business corporation as to a particular tax year if it was ineligible to make the election or failed to make the election within the prescribed time.

Section 1.61023

(a) Effect on the Corporation -- The effect on a Vermont domestic corporation of a valid election is to exempt the corporation from franchise taxes measured at the rate of 5% of net income attributable to Vermont with respect to taxable years for which the election is made, with the exception of the minimum franchise tax in the amount of $ 25.00.

Example # 3 - Facts same as in # 1 except that period involved is fiscal year ending April 30, 1963 or any fiscal year thereafter with election having been made. Small business corporation return (Form # 106) is filed September 15, 1963. Minimum tax of $ 25.00 is payable representing franchise tax for fiscal year ending April 30, 1964. Small business corporation income distribution:

$ 12,000.00 net earnings / 4 = $ 3,000.00 income taxable to each shareholder - prorated to calendar basis by dividing by 12 and multiplying by number of months in each calendar year involved; in instant case.

| $ 3,000.00 | / 12 = $ 250.00 per month | | --- | --- | | $ 250.00 | x 8 = $ 2,000.00 1962 income, | | each shareholder. | | | $ 250.00 | x 4 = $ 1,000.00 1963 income, | | each shareholder. | |

Example # 4 - Assume facts in # 2 except fiscal year ends April 30, 1963 and each fiscal year thereafter.

Form # 106 filed on or before September 30, 1963 and minimum tax of $ 25.00 paid.

Small business corporation loss distribution-

| $ 12,000.00 | / 4 = $ 3,000.00 distributed | | --- | --- | | to each shareholder. | | | $ 3,000.00 | / 12 = $ 250.00 per month | | $ 250.00 | x 8 = $ 2,000.00 1962. loss | | to each. | | | $ 250.00 | x 4 = $ 1,000.00 1963. loss | | to each. | |

(b) Effect on the Shareholders -- The effect of a valid election by a corporation on shareholders is to subject the shareholders to taxation on their proportionate share of corporation profits as though such portions were partnership earnings. It is to be noted that while the Internal Revenue Code of the United States provides that such distributions shall be treated as if they had been distributed as dividends, the Vermont law specifies that the distributive shares shall be considered as partnership earnings; therefore, constituting ordinary income or loss.

Example # 5 - X corporation elects to be taxed as a small busines corporation. It realizes $ 40,000.00 net profit and has eight (8) shareholders. The shareholders received compensation in the amount of $ 10,000.00 each. For Vermont income purposes each shareholder would be required to report as gross income the sum of $ 15,000.00 ($ 10,000.00 salary plus $ 5,000.00 distributive share of the small business corporation).

Example # 6 - Y corporation elected to be taxed as a small business corporation. It sustained a loss of $ 36,000.00 and had six (6) shareholder who contributed equally in time and effort to the corporate activities and each realized personal compensation of $ 8,000.00. For Vermont income tax purposes each shareholder would be required to report as adjusted gross income the sum of $ 2,000.00 ($ 8,000.00 salary less $ 6,000.00 distributive loss of the small business corporation).

Example # 7 - Z corporation elects to be taxed as a small business corporation and realizes net profit of $ 30,000.00. It has five (5) shareholders, two of whom are non-residents and perform their services for the corporation entirely outside the state. Each shareholder contributes equally in time and effort to the corporate activities and each receives wage of $ 6,000.00. The three shareholders who are residents of Vermont would report as gross income a total of $ 11,000.00 ($ 6,000.00 salary and $ 5,000.00 each, distributive income of the small business corporation). The two non-resident shareholders would report as gross income $ 5,000.00 each representing their distributive income of the small business corporation Their salaries would be excluded in the determination of their Vermont income tax.

Section 1.61024 Consent of Shareholders

Consent of shareholders to an election by a Vermont small business corporation shall be in the form of a signed statement in which such shareholders consent to the election of the corporation. The consent is binding and may not be withdrawn after a valid election has been made by the corporation. The statement of consent shall set forth:

(1) the name and address of the corporation and of the shareholder.

(2) the number of shares of stock owned by the shareholder.

(3) the date (or dates) on which such stock was acquired.

Consents of all shareholders may be incorporated in a single statement. However, it is necessary that consents of all persons who are shareholders at the time the election is made be attached to the election filed by the corporation.

Section 1.61031 Duration of Qualification and Election

The election of a small business corporation once made remains in full force and effect thereafter but shall terminate at the end of the taxable year in which:

(1) the corporation ceases to be qualified or terminates its election under the Internal Revenue Code or under Chapter 157, V.S.A..

(2) one or more of such corporation shareholders, whether resident or non-resident, fails to file a Vermont income return.

(3) one or more of the corporation shareholders, whether resident or non-resident, fails to include his share of the corporation's net income or net loss in his Vermont taxable income;

(4) one or more of the corporation shareholders, fails to pay any Vermont income tax due on his Vermont taxable income or.

(5) one or more of the corporation shareholders whether resident or non-resident, fails to file, and remit payment on, a Declaration of Estimated Tax, if one is due.

Section 1.61032

(a) Distributions as Ordinary Income or Loss

• All distributions whether actually made or not shall be considered as partnership earnings or losses and each shareholder shall take into account his distributive share of income, gain or loss for the purpose of determining Vermont net taxable income. No distribution, or portion thereof, shall be considered as a capital gain or loss but rather as ordinary business income or loss and shall be taxed as such.

(b) Loss Carryback and Forward - Business losses so distributable may be carried back by the shareholder for a period of three years and if not entirely used to offset income in such years, may then be carried forward for a period of five years.

Section 1.61041 Exemption from Corporate Tax

Corporations qualified and elected to be taxed as small business corporations are exempt from Vermont corporate franchise taxes with the exception of the minimum tax prescribed by Statute in the amount of $ 25.00. In other words, all corporations subject to the franchise tax law even though electing to be taxed as a small business corporation must remit a franchise tax in at least the amount of $ 25.00.

Example # 8 - ABC corporation elects to be taxed as a small business corporation and during the year 1962 realizes net profits of $ 40,000.00 which are distributed to shareholders. On or before May 15, 1963 the corporation is required to file a small business corporation tax from # 106 and remit payment therewith of the minimum tax prescribed by Statute in the amount of $ 25.00. Such amount represents payment of the franchise tax for the privilege of doing business during 1963.

Section 1.61042 Minimum Tax

Corporations subject to the franchise tax and not electing to be taxed as a small business corporation are subject to a franchise tax measured at the rate of 5% of net income attributable to Vermont or a minimum of $ 25.00 whichever is greater.

Section 1.61051 Internal Revenue Regulations

The treasury regulations promulgated by the Commissioner of Internal Revenue pertaining to Sub-chapter S of Chapter One. Sub-title A of the Internal Revenue Code of the United States of America shall apply in the interpretation of the Vermont Small Business Tax Act. unless contrary to rules and regulations promulgated by the Vermont Commissioner of Taxes or unless the Commissioner determines that said regulations are illegal or unauthorized or are in conflict with the laws of the State of Vermont. Statutory Authority: 32 V.S.A. § 6105

History

• Adopted: January 18, 1962
• Effective Date: February 1962

Chapter 035 WITHHOLDING OF VERMONT INCOME TAX ON TIPS

10-035 Code Vt. R. 10-060-035-X WITHHOLDING OF VERMONT INCOME TAX ON TIPS

Section 58412 WITHHOLDING OF VERMONT INCOME TAX ON TIPS

Under both Federal law (Internal Revenue Code § 3401(f) and Vermont law, ( 32 V.S.A. § 5841) , employers must withhold income taxes from substantially all types of remuneration paid to employees.

Supplementary remuneration, including cash tips and "gratuities" or "service charges" added to a patron's bill and distributed by the employer to the employees, constitutes "wages" subject to Vermont withholding.

In addition the employee is required to report to the employer by the 10th of the following month the amount of all other tips and supplementing remuneration received, if the total exceeds $ 20.00. The employer is responsible for Vermont withholding on the amount reported to him by the employee.

The Federal Internal Revenue Service has issued a pocket-sized booklet containing forms which are convenient for the employee to use in keeping a daily record of tips. (Form 4070A), and for reporting to the employer. (Form 4070). These forms provide all the information required for Vermont withholding liability.

Federal law provides that where tax has been previously withheld from regular wages, and supplemental wages or tips are paid at a later date, the employer may withhold at a flat 14% rate from the supplemental wages without allowances for exemptions and without reference to regular wage payments.

In the interest of simplification, employers may compute the Vermont withholding on the same supplementary wages, when received, at 3 1/2%of such wages or 25% of the amount of Federal tax withheld, whichever is more convenient. The employer includes this tax withheld from the supplementary remuneration in his next quarterly or monthly report to the Vermont Department of Taxes. Statutory Authority: 32 V.S.A. § 5841

History

• Adopted, April 20, 1967
• Effective Date: May 1967

Chapter 037 PROPERTY TAX REBATE REGULATION

10-037 Code Vt. R. 10-060-037-X PROPERTY TAX REBATE REGULATION

1.5961(7)-1 (Effective 11/20/95) Rent constituting property taxes

(a) Purpose: The purpose of this regulation is to clarify how landlords are to allocate property taxes to rental units and how renters may dispute an allocation made by a landlord.

(b) Relevant statute:

32 V.S.A. § 5961(7) provides in relevant part:

"Rent constituting property taxes" means for any homestead and for any taxable year, that portion of the gross rent actually paid during the taxable year by the individual or other members of the household solely for the right of occupancy of the homestead during the taxable year, which equals the property tax allocable to the claimant's rental unit for the period rented by the claimant.

(c) Amount certified The amount certified by landlords shall be the lesser of property tax allocable to the rental unit and the rent paid solely for the right of occupancy. In instances where the property tax allocable to the unit exceeds the rent paid for right of occupancy, such as may be the case with subsidized housing or rents significantly below market or when the rent has not been paid, special rules apply. See paragraph, (i) below.

(d) Property tax allocable to the claimant's rental unit for the period rented by the claimant To determine the property tax allocable to a rental unit, except nursing homes, community care facilities and like facilities and boarding houses, any of the following allocation methods may- be used by the landlord. The same method of allocation must be used for every unit in the rental building and the landlord shall indicate on the certificate the method used to allocate property tax to rent.

(e) Allocation methods Property tax must be allocated to rental units using one of the following methods:

(1) Divide the total property tax assessed on the rental property by the number of rooms available for residential use in the rental building and multiply that result by the number of rooms occupied by the claimant and multiply by the percentage of the year that the claimant occupied the rooms as a homestead and paid rent;

(2) Determine the percentage of square footage each unit in the rental building occupies and multiply that percentage by the total property tax assessed on the rental building and multiply that result by the percentage of the year that the claimant occupied the unit as a homestead and paid rent;

(3) Determine the percentage of rent charged for the claimant's unit relative to the total rental value of the rental building for a twelve month period and multiply that result by the total tax assessed on the rental building and multiply that by the percentage of the year that the claimant occupied the unit as a homestead and paid rent;

(4) If a separate appraisal of the rental unit has been done by the town in which the rental unit is located, multiply the separate value of the unit occupied by the claimant by the tax rate multiplied by the percentage of the year that the claimant occupied the unit as a homestead and paid rent.

(f) Nursing homes. community care facilities and like facilities and boarding houses Rent allocable to property tax in the case of nursing homes, community care and like facilities and with respect to boarding houses shall be determined by dividing the entire property tax on the structure or structures and two acres (but excluding facilities such as swimming pools) by the number of bedrooms in the structure or structures. If the claimant occupies a shared room the result shall be divided by the number of persons sharing the room.

(g) Condominiums and other cluster housing In determining property tax allocable to condominiums and other cluster housing, whether detached or having common walls, the total acres commonly owned shall be divided by the number of housing units. This result up to two acres shall be considered part of each housing unit.

(h) Mobile home lots The property tax allocable to a mobile home lot may be determined in the following ways:

(1) tax on the total acreage of the entire mobile home park property necessary for use as a mobile home park may be divided by the number of lots available for occupancy;

(2) the ratio of square footage of the lot to the total square footage of the park property may be multiplied by the total taxes due on the park property; or

(3) the ratio of the rent paid for the lot to the rent chargeable on all of the lots may be multiplied by the taxes due on the park property.

(i) Solely for the right of occupancy In instances where it is necessary to determine the rent paid solely for the right of occupancy, the cost of certain items included in the rental price, such as heat, electricity, furnishings, personal care or other services, must be excluded. One method of determining the amount to be excluded is to add the actual cost of such items for the rental building and divide by the number of units. The allocation method described above in (e)(1) o (e)(2) may also be used. Operators of nursing homes and community care homes who cannot determine specific excludable charges must exclude 75% of the total charge. Operators of boarding houses who cannot determine specific excludable charges must exclude, 50% of the total charge.

(j) Appeals

If a claimant disagrees with the allocation made by his or her landlord and files a claim based on a different allocation of property tax to the rental unit, and the Department reduces the claim based on the landlord's allocation, the claimant may appeal the reduction in the same manner as provided in 32 V.S.A. § 5883 and § 5885 with respect to notices of deficiency or assessment of penalty.

In a hearing before the commissioner, the burden shall be on the claimant to show that the allocation used by his or her landlord is not one of the methods prescribed in paragraph (e). If any of the methods described in this regulation is used by the landlord, it will be accepted. If the commissioner determines that the landlord did not use one of the prescribed allocation methods, then the claimants, allocation and the allocation of all the tenants in the building shall be changed to reflect one of those methods.

(k) Examples

(1) A claimant occupies a three room apartment in a three unit apartment building. He pays $ 325 a month for rent. One of the other apartments has five rooms; the third apartment is a two room efficiency. The claimant's apartment occupies 30% of the square footage of the building. The apartment is unfurnished and claimant pays his own utilities. The property tax on the building is $ 2,400 a year. The landlord may determine rent constituting property tax as follows:

(A) $ 2,400

10 (no. of rooms in bldg.) = $ 240 x 3 = $ 720

-or-

(B) $ 2,400 x 30% = $ 800

-or-

(C) $ 1,025 (total monthly rent for bldgc.)

$ 325 (claimant's monthly rent) = 32% x $ 2,400 = $ 768

(2) The same facts as (a) except the claimant has only occupied the apartment since July 1. After calculating "rent constituting property tax" by one of the above methods, the landlord multiplies the result by 50%, the percentage of the year the claimant has occupied the apartment.

(3) The same facts as (a) except that the claimant's rent included heat. Heat for the building costs $ 900 a year. The landlord would calculate "rent constituting property tax'' using any of the above methods because even with the cost of heat excluded, it is apparent that the rent claimant pays exceeds the property tax allocable to the apartment.

(4) The claimant's four room subsidized apartment occupies 25% of the square footage of her apartment building. Her portion of the rent, $ 150, includes heat and electricity. The property taxes on the house are $ 6000 a year. The annual heating and electricity costs for the entire house are $ 2000. Because in these circumstances the claimant's rent paid solely for the right of occupancy may be less than the property tax on her unit, the landlord must exclude the value of the heat and electricity from the claimant's rent payment. The landlord can do this based on the number of rooms in the apartment in relation to the number of rooms in the entire house or the square footage of the apartment in relation to the total square footage of the house.

Allocating 25% of the cost of the heat and electricity to claimant's apartment leaves $ 1,300 as rent paid solely for the right of occupancy (gross rent of $ 1,800 less $ 500, the value of her heat and electricity). The rent less heat and electricity is less than "rent constituting property taxes" determined under the methods above ($ 6000 x 25% = $ 1,500):

| rent per year | $ 1,800 | property tax on bldg. | $ 6,000 | | --- | --- | --- | --- | | value of heat | claimant's portion of | | | | and electricity | 500 | tax based on area | 25% | | rent solely for | property tax allocated | | | | rt. of occupancy | $ 1,300 | to unit | $ 1,500 |

Therefore, "rent constituting property tax' is limited to the lesser of these, or $ 1,300.

(l) A landlord's failure to certify an amount of rent constituting property taxes will not disqualify a claimant from the rebate program. If unable to obtain a certificate from a landlord, a claimant should mail the following items to the Department by the filing deadline: a landlord certificate (Form 103-LC) completed through line 1; a Homeowner or Renter Rebate Claim (Form 103-PR) completed through line I of the calculation; receipts or cancelled checks to substantiate rent paid; and a note explaining that a certificate was not received from the landlord and giving the landlord's name, address and telephone number.

History

• EFFECTIVE DATE:
• November 20, 1995 (Secretary of State Rule Log #95-75)
• Statutory Authority 32 V.S.A. § 5961(7)

Chapter 038 HOMESTEAD

10-038 Code Vt. R. 10-060-038-X HOMESTEAD

Section 1. 5401(7) [Effective 8/7/04] Homestead

(a) Introduction

A statewide education tax is imposed on all homestead and nonresidential property. 32 V.S.A. § 5402(a). However, the tax is imposed at different rates on those two categories of property. Therefore, all property on the education grand list will be classified as either homestead or nonresidential. The basis for this classification is the homestead declaration. Any property that is not homestead property, is nonresidential property.

In order for a property to be classified as homestead property for any tax year, the department of taxes must receive a homestead declaration on or before April 15 n1. On this form, a resident is required to declare his or her homestead as of April 1. 32 V.S.A. § 5410. In the absence of a declaration, the education tax will be billed by municipalities at the nonresidential rate. If a Homestead Declaration is filed late but prior to December 1, the property tax bill will be adjusted but the filer will be subject to a penalty. Declaring a nonresidential property as a homestead will also subject the filer to a penalty.

n1 If April 15 falls on a Saturday, Sunday or holiday, the due date is the next business day. An extension to file the income tax return does not extend the time to file the declaration.

This rule addresses the eligibility requirements for declaring a homestead and issues with respect to what constitutes a homestead. It is authorized by 32 V.S.A. § 5410(e) which provides specific rule-making authority to the commissioner of taxes with respect to homestead declarations; by 32 V.S.A. § 3411(3) which provides that the division of property valuation and review adopt rules for the uniform administration of the property tax; and by 32 V.S.A. § 3201(a)(1) which gives the commissioner general rule-making authority with respect to tax administration.

(b) Homestead Declaration

Annually, on or before April 15, an individual must declare a homestead if the individual is:

(1) domiciled in Vermont; and

(2) owns and occupies a dwelling in Vermont as his or her principal dwelling on April 1.

The declaration must be in the form prescribed by the commissioner of taxes. 32 V.S.A. § 5410. The requirements of "domicile" are addressed in Reg. 5811(11)(A)(i).

(c) Definition of Homestead

"Homestead" is defined in 32 V.S.A. § 5401(7) as follows:

(7) "Homestead":

(A) "Homestead" means the principal dwelling and parcel of land surrounding the dwelling, owned and occupied by a resident individual as the individual's domicile.

(B) The parcel of land surrounding the dwelling shall be determined without regard to any road which intersects the land. If the parcel of land surrounding the dwelling is owned by a cooperative housing corporation incorporated under 11 V.S.A. chapter 14, or owned by a nonprofit land conservation corporation or community land trust with exempt status under Section 501(c)(3), the homestead includes a pro rata part of the land upon which the dwelling is built, as determined by the cooperative corporation, nonprofit corporation, or land trust.

(C) A homestead may consist of a part of a multi-dwelling or multi-purpose building, including cooperative property occupied as a permanent residence by a member of a cooperative housing corporation incorporated under 11 V.S.A. chapter 14. A mobile home may constitute a principal dwelling for purposes of this chapter.

(D) A dwelling owned by a trust may qualify as a homestead if it meets the requirements of subsection 6062(e) of this title.

(E) A homestead also includes a dwelling on the homestead parcel owned by a farmer as defined under section 3752 of this title, and occupied as the permanent residence by a parent, sibling, child, grandchild of the farmer or shareholder, partner, or member of a farmer-owner, provided that the shareholder, partner, or member owns more than 50 percent of the farmer-owner, including attribution of ownership of a parent, sibling, child, or grandchild.

(F) A homestead also includes any other improvement or structure on the homestead parcel which is not used for business purposes. A homestead does not include that portion of a principal dwelling used for business purposes if the portion used for business purposes includes more than 25 percent of the floor space of the building.

(d) Principal Dwelling

An individual can only have one homestead. 32 V.S.A. § 5410(a). A mobile home may be a homestead. Second homes and camps are not homesteads and should be listed as nonresidential property on the grand list. A camp may be an exception to this statement if it is in fact the taxpayer's principal dwelling. If it could not be occupied year-round under typical conditions, it does not qualify as a homestead.

A home that is temporarily impossible or impractical to occupy because of major renovation or damage due to natural disaster may still be a taxpayer's principal dwelling as long as no other residence is claimed as the homestead. A dwelling that is being built cannot be claimed as a homestead until it is occupied as the principal dwelling of the owner. New construction does not constitute a dwelling that is temporarily uninhabitable -- rather, it has never been inhabited.

On the other hand, a house that could be occupied year-round is not a homestead simply because the owner spends a considerable amount of time there. Ownership and occupation of a house are not sufficient to make it a homestead. The owner must be domiciled in Vermont and the house must be occupied "as the principal residence" of the individual. See Reg. 5811(11)(A)(i) Domicile.

(e) Ownership of the Homestead

(1) Joint Ownership

Spouses and civil union partners who own and occupy a residence together should only file one declaration. With respect to other joint owners who occupy the dwelling as their principal residence, it is only necessary for one owner to file a declaration. If only one of two or more joint owners occupies the dwelling as a principal residence, only that owner should file a homestead declaration. The dwelling will be taxed at the homestead education tax rate.

(2) Life Estates

The owner of a life estate interest who occupies the dwelling as his or her principal residence must declare a homestead. The legal instrument granting the life estate is not required to be filed with the declaration, but should be available upon request of the department.

(3) Revocable Trusts

A dwelling held in trust and occupied by the beneficiary of the trust as the principal dwelling should be declared as the homestead of the beneficiary only if:

(1) the declarant is the sole beneficiary of the trust,

(2) the declarant or the declarant's spouse or civil union partner was also the grantor of the trust, and

(3) the trust is revocable or became irrevocable solely by reason of grantor's death. The requirement that the trust beneficiary be the "sole" beneficiary is satisfied if a husband and wife or civil union partners together are the only beneficiaries of the trust. The trust instrument is not required to be filed with the Homestead Declaration, but should be available upon request of the department.

(4) Title in Other Entities

When title is held by an entity such as an S corporation, partnership or limited liability company, none of the attributes of ownership are retained by an individual and therefore the property cannot be an individual's homestead. This is true regardless of whether a shareholder, partner or member uses the property as his or her homestead, except in the case of the entities addressed below when they earn more than half of their income from the business of farming.

(5) Farmers

If a dwelling is owned by a farmer and occupied as the permanent residence by a parent, sibling, child or grandchild of the farmer, it is the homestead of the related person and that person must file a Homestead Declaration.

If title to the homestead is held by a corporation, partnership or limited liability company that qualifies as a farmer, and the occupant of the homestead owns more than 50 percent of the corporation, partnership or limited liability company, it is the homestead of the occupant and that person must file a homestead declaration. In determining whether the occupant owns more than fifty percent of the farmer-owner, the ownership interest held by a parent, sibling, child or grandchild of the occupant shall be attributed to the occupant.

To qualify as a farmer, a person must earn at least one-half of his annual gross income from the "business of farming" as that term is defined in Regulation 1.175-3 issued under the Internal Revenue Code of 1986. That regulation provides that:

"The business of farming" means cultivating, operating, or managing a farm for gain or profit, either as owner or tenant. A person who receives a rental (either in cash or kind) which is based upon farm production is engaged in the business of farming. However, a person who receives a fixed rental (without reference to the production) is engaged in the business of farming only if he participates to a material extent in the operation or management of the farm. Forestry or the growing of timber is not the business of farming. Cultivating or operating of a farm for recreation or pleasure rather than a profit is not the business of farming. "Farm is meant in its ordinary, accepted sense and includes stock, dairy, poultry, fish, fruit, and truck farms, and also plantation, ranches, ranges, and orchards. A fish farm is an area where fish are grown or raised, e.g., fed, protected, cared for, as opposed to merely caught or harvested.

Example 1: Elliot owns a farm consisting of 180 acres with two houses, a barn and an equipment-storage shed. He derives 90 percent of his income from operating the farm. Elliot occupies one house as his principal dwelling. His son occupies the other house as his principal dwelling. Both dwellings and the land are homestead property and a homestead declaration must be filed. The barn and storage shed are not homestead property and will be taxed at the nonresidential rate. However, if the farm buildings are enrolled in the Use Value Appraisal Program, classifying the barn and shed as nonresidential would have no impact on the owner's taxes because the taxable value of enrolled farm buildings is zero.

Example 2: Fairfield Corporation owns a dwelling on a 100-acre parcel. The entire income of Fairfield is derived from operating a dairy farm on the parcel. Smith owns 75 percent of Fairfield's stock. He occupies the dwelling as his principal dwelling. Smith must file a Homestead Declaration; the 100 acres will be taxed at the homestead rate. Although Fairfield Corporation, not Smith, is the owner of the property, the law recognizes that many farmers operate in a corporate form and makes an exception from the ownership requirement in cases where the occupant and certain related persons own more than 50 percent of the corporation. Structures and buildings on the parcel that are used in the farm business are not homestead property and will be taxed at the nonresidential rate unless it is enrolled in the Use Value Appraisal Program (see note in Example 1 above).

Example 3: Same as above except Smith owns 30 percent of Fairfield's stock. Smith's daughter owns 25 percent. Since together Smith and his daughter own more than 50 percent of the stock of Fairfield, Smith qualifies as a farmer. Smith must file a Homestead Declaration.

(f) Occupation of the Homestead

A homestead must be owned "and occupied" by the resident. The law does not specify any requisite number of days that the resident must occupy the dwelling in order for it to qualify as a homestead. An individual's employment may require him or her to spend a majority of days away from the dwelling, but if the individual is domiciled in Vermont, and the dwelling is his or her permanent dwelling, and if no other homestead has been claimed, it constitutes the homestead.

While the law does not specify a requisite number of days the dwelling must be occupied, it requires a declaration of homestead "as of, or expected to be as of, April 1 of the year in which the declaration is made." The fact the owner is temporarily away from the dwelling on April 1 for employment, vacation or a similar reason, does not disqualify the dwelling as a homestead. However, if the property is rented on April 1 so that the owner does not have the right to occupy the dwelling on that date, it cannot be declared as the owner's homestead.

Example 1: Jackson is domiciled in Vermont and owns his principal dwelling in Vermont. On April 1, he is overseas on a temporary assignment for his employer; the assignment lasts from February 1 until the end of the year. He should declare the dwelling as his homestead because he owns it on April 1 and has the right to occupy it on April 1.

Example 2: Smith is domiciled in Vermont. He leaves for Florida on January 2, renting his Vermont dwelling until May 15. He cannot claim it as his homestead because he did not occupy the dwelling on April 1 and he had no right to occupy it.

(g) Parcel

A homestead includes "the parcel of land surrounding the dwelling, determined without regard to any road which intersects the land".

Parcel is defined in 32 V.S.A. § 4152(a)(3) as "all contiguous land in the same ownership, together with all improvements thereon". There is no acreage limitation on a homestead. n2 Accordingly, even if there are buildings or improvements on land contiguous to the homestead that are not homestead property (see section (j) below), the land is part of the homestead and will be taxed at the homestead tax rate.

n2 In this way, a homestead differs from the "housesite" which is relevant to determining an education tax payment or rebate under Chapter 154, Title 32. A housesite is "that portion of a homestead...which includes as much of the land owned by the claimant surrounding the dwelling as is reasonable necessary for use of the dwelling as a home, but in no event more than two acres per dwelling unit; and in the case of multiple dwelling units, no more than two acres per dwelling unit up to a maximum of 10 acres per parcel". 32 V.S.A. § 6061(11).

If a homestead crosses town lines, the property owner must file a Homestead Declaration for each town in which the homestead lies. SPAN numbers are town-specific so each Homestead Declaration will require a different SPAN.

If part of the homestead is enrolled in the Use Value Appraisal Program (Title 32, Chapter 124), the owner should declare the entire property as his or her homestead. The entire parcel is taxed at the homestead rate.

Example 1: Smith is domiciled in Vermont. His principal dwelling is on three acres that are improved by a swimming pool, a detached garage, and a storage shed. All of Smith's property is homestead property.

Example 2: Blackburn's homestead is on a 60-acre parcel. His business, an auto body repair shop with an adjacent paved parking lot, is also located on the parcel. The dwelling and 60 acres are taxed at the homestead rate. The repair shop and parking lot improvement are taxed at the nonresidential rate. Blackburn should indicate business use on his Homestead Declaration.

Example 3: Johnson operates a commercial racetrack on five acres across the road from his principal dwelling. He owns ten acres on the dwelling side. The track is paved and lined with stands for viewing. This is an improvement that is separately valued and taxed at the nonresidential tax rate. The dwelling, the ten acres on which it sits and five unimproved acres across the road are all homestead property.

Example 4: Jackson's principal dwelling is located on a 12-acre parcel that crosses a town line. The house and 5 acres are in one town; the other 7 acres are located in the adjacent town. Jackson should file two homestead declarations, each identifying one town and the SPAN assigned by that town. The house and entire twelve acres are taxed at the homestead rate.

(h) Multiple Homes on a Parcel

An individual can only own and "occupy" one principal dwelling. If an individual owns a parcel with two dwellings, only one can be claimed as the homestead on the individual's homestead declaration. However, the entire parcel is included in the homestead n3. If the second dwelling is neither rented nor used for a commercial purpose, it is taxed at the homestead rate.

n3 This rule anticipates a law change that will delete the provision: "If two or more homestead dwellings are located on a single parcel, the value of the parcel allocated to each homestead shall be the total value of the parcel divided by the number of principal dwellings, unless otherwise determined by ownership of record of the land."

If there are two dwellings on jointly owned property and each dwelling is occupied by a co-owner, only one owner needs to file a homestead declaration since it is all one parcel. The entire parcel will be taxed at the homestead rate.

Example 1: Jackson and Corrigan hold joint title to a 120-acre parcel with two dwellings. Each occupies one of the dwellings as his principal residence. A Homestead Declaration must be filed for the parcel. This will result in all of the land and the two dwellings being taxed at the homestead rate. Either owner may file the declaration.

Example 2: Same as above except Jackson lives out-of-state and the co-owners rent the second dwelling to a third party. Corrigan must file a Homestead Declaration. Her dwelling together with the land is homestead property. The second house is not homestead and is taxed at the nonresidential rate.

Example 3: Same as example 2 except instead of renting the second dwelling, Jackson uses it as a vacation house. Corrigan must file a Homestead Declaration. Her dwelling together with the land is homestead property. The second house is a building detached from the home but it is not used for business purposes; therefore it is classified as homestead property and taxed at the homestead rate.

(i) Multi-dwellings and Multi-purpose Buildings

"A homestead may consist of a part of a multi-dwelling or multi-purpose building, including cooperative property occupied as a permanent residence by a member of a cooperative housing corporation incorporated under 11 V.S.A. chapter 14."

(1) Cooperative Property. Although a cooperative interest is personal property, the law specifically waives the ownership requirement and provides that if such a property is occupied as a permanent residence by a member of a cooperative housing corporation incorporated under the Cooperative Housing Ownership Act it is homestead property.

Example: Elliot belongs to a cooperative that owns 16 units of attached housing on five acres of land. He occupies one of the units as his principal dwelling. He should file a homestead declaration. His unit and one sixteenth of the five acres is his homestead property.

(2) Condominium and Common Interest Property. A condominium unit occupied by the owner as his or her principal dwelling is a homestead. In addition, the owner's interest in the common elements, such as contiguous land, outbuildings and structures, is also homestead property. See 27 V.S.A. § 1306 (Condominium Ownership Act); 27A V.S.A. § 1-105(a) (Uniform Common Interest Ownership Act).

However, any portion of the common elements in which the developer has reserved any development right is a separate parcel that is separately assessed and taxed to the developer and is not homestead property. See 27A V.S.A. § 1-105(b).

Example 1: Goddard owns and occupies as her principal dwelling a condominium located on a 38-acre parcel of common land with a swimming pool and three tennis courts. There are twenty condominiums in the development. The pool and tennis courts are for the use of condominium owners and their guests. The town assesses Goddard for her unit and a one-twentieth interest in the land and improvements because the declaration establishing the condominium community provides that the common elements are owned equally by the unit owners. Goddard should file a homestead declaration. The entire assessed value of Goddard's property is taxed at the homestead rate.

Example 2: Townsend owns and occupies as his principal dwelling one unit in a 200-unit development formed under the Uniform Common Interest Ownership Act. The development includes 100 acres of common property, with an additional 50 acres reserved by the developer. Townsend's homestead is his unit and 1/200 of the 100 acres of common property. The 50 acres reserved by the developer is nonresidential property.

(3) Multi-purpose Buildings. The portion of a mixed-use building that is owned and occupied as a principal dwelling is homestead property. This could be an apartment building in which the owner occupies one unit as her principal dwelling. It could be an apartment in a building that contains the owner's business. The owner must file a Homestead Declaration for the property that identifies the percentage of the building that is used for commercial or rental purposes. (Also see section (j) below.)

Example: Garrett owns a downtown building on one-quarter of an acre. The building has retail space on the first floor. Garrett occupies the entire second floor, which is 40 percent of the building's floor space, as his principal residence. The listers must determine the contributory value of the homestead portion of the building and the contributory value of the nonresidential portion of the building. They may allocate the building's value based on square footage - in this case, 40 percent as homestead property and 60 percent as nonresidential property. This is not the only method for allocating value. There may be circumstances that make another allocation method equally or more reasonable. The land value should be listed as homestead property.

(j) Detached Buildings and Improvements

A homestead does not include buildings or improvements detached from the home and used for business purposes. Conversely, a detached building or improvement, such as a shed, garage, or swimming pool, that is located on the parcel and not leased or used commercially is homestead property. Whether an improvement qualifies as part of a homestead depends upon how the improvement is used as opposed to what the improvement is. A barn that is used to park the dwelling owner's car may be homestead property, whereas a barn that is used as a gift shop is not. A swimming pool outside the owner's principal residence is homestead property while a swimming pool outside a hotel and used by guests is not homestead property even though the owner lives at the hotel. A declarant should indicate on the Homestead Declaration whether there are commercial buildings or improvements on the parcel.

Example 1: In addition to his dwelling, Jackson has a garage and a barn on the property in which he stores his antique automobiles. The dwelling, garage and barn, as well as the land, qualify as homestead property.

Example 2: Newlon owns a house, which he occupies as his principal dwelling, and commercial garage on 25 acres. He should file a homestead declaration and indicate business use of a structure on the declaration. The garage structure should be valued separately by the listers and it should be taxed at the nonresidential rate. The dwelling and land are taxed at the homestead tax rate.

Example 3: McLean owns a house, which she occupies as her principal dwelling, a horse barn and a riding ring on 60 acres. The barn and ring are used to house and exercise her own horses. All of the property is homestead property.

Example 4: Same as above except, McLean boards horses in the barn as a business. The house and land are homestead property. The barn is not and will be taxed at the nonresidential rate. If the riding ring constitutes an improvement because significant value has been added, e.g., fixtures or surface improvements, it should be listed separately and taxed as nonresidential property. If it is unimproved land, it need not be separately assessed and is taxed at the homestead tax rate.

Example 5: Johnson operates a dairy farm on 100 acres. There are 4 structures on the land -- a barn, a shed for storing farm equipment, Johnson's dwelling and a dwelling Johnson provides to his farmhand. Johnson's dwelling and the 100 acres are homestead property. The barn, shed and farmhand dwelling are nonresidential property since they are used for the business purpose of operating a farm.

Example 6: Elwood owns and occupies a dwelling on 130 acres. There is also a caretaker's house on the property which he provides to his caretaker as part of their employment arrangement. Elwood should declare his dwelling and the 130 acres as his homestead. The second dwelling is not part of his homestead even though it is not used for a business purpose by Elwood. Elwood gave up the right to "occupy" the dwelling in return for the caretaker services. This is true whether rent is actually paid for the dwelling or deemed to be paid as part of the terms of employment.

(k) Business Use of Dwelling

A homestead "does not include that portion of a principal dwelling used for business purposes if the portion used for business purposes includes more than 25 percent of the floor space of the building". A home office, a business workshop, a bed and breakfast operation are examples of business uses of a dwelling. If the portion of the dwelling used for business purposes does not exceed 25 percent of the floor space, there is no requirement to indicate business use on the homestead declaration. If the portion so used exceeds 25 percent, the actual percentage must be reported on the homestead declaration and the entire value attributable to business use is taxed at the nonresidential tax rate.

This diminimus does not apply to either separate structures used for business purposes or to leased portions of the dwelling. This is because the separate structure or leased space is not "occupied" by the owner as a dwelling. In those cases, the entire value attributable to the leased portion of the dwelling or to the separate structure is taxed at the nonresidential rate.

Example 1: Jacksons own a large house, which they operate as a bed and breakfast. They also occupy this house as their principal dwelling. Three of the five bedrooms are leased to guests and guests also use the living room and dining room. The kitchen is used to prepare breakfast for guests, but is not otherwise for guests' use. The Jacksons should file a homestead declaration that indicates the percentage of the house that is used as part of their business. This is the percentage of floor space that the three bedrooms, the living room, the dining room and the kitchen bear to the total floor space of the house. The owners are required to file a federal Schedule C to report their net profit from the business. The percentage reported on the homestead declaration should be the same percentage used to report business use of the home on the federal schedule.

Example 2: Shaughnessey leases an apartment in the house he owns and occupies as his principal dwelling. The apartment takes up 20 percent of the floor space of the house. He should file a declaration and indicate this percentage of rental use. Eighty percent of the dwelling is homestead property; 20 percent is nonresidential property.

Example 3: Smith works out of his home. His home office occupies 20 percent of the floor space of the house. He does not need to indicate any business use on his homestead declaration because his office does not exceed 25 percent of the floor space of his principal dwelling.

Example 4: Garrett uses the barn attached to her house as a workshop and retail space for her furniture business. In most cases, the listers will have a separate value on the barn. If this is true, the entire value of the barn would be allocated as nonresidential. If there isn't a separate barn value, then the percentage allocation reported by the taxpayer on the homestead declaration could be used to determine the business allocation. If the taxpayer fails to provide an allocation percentage for business use or the lister disagrees with the taxpayer's percentage, then the listers could choose to do an allocation based on square footage of the entire structure. The property owner may appeal that valuation decision to the listers pursuant to 32 V.S.A. § 4111(g).

(l) Failure to File a Timely Declaration

Failure to file a timely declaration has several consequences. Tax will be imposed on the property at the nonresidential rate. This can be corrected if a declaration is filed before December 1. Regardless of whether the tax bill is corrected to the homestead rate, a penalty is imposed. If the tax was underpaid as a result of late filing, additional tax, interest and a late payment commission may also be due.

(1) Penalty. A homestead owner who fails to file a homestead declaration by April 15 is subject to a penalty equal to one percent of the education tax on the property. However, if the commissioner determines that the failure to file a timely homestead declaration was with fraudulent intent, the penalty equals 100 percent of the education tax on the property. The penalty shall be assessed and collected by the municipality in the same way it collects property tax under Chapter 133 of Title 32. The municipality may retain the penalty.

A taxpayer may appeal assessment of the one percent penalty to the listers within 14 days after the date of mailing of notice of the penalty, and from the listers to the board of civil authority and then in the same manner as an appraisal appeal under Chapter 131. A taxpayer who wishes to appeal assessment of the 100 percent fraud penalty must appeal to the commissioner of taxes in the same manner as an appeal under chapter 151 of title 32. n4

n4 Similarly, a taxpayer who wishes to appeal a determination of domicile must appeal to the commissioner of taxes in the manner for appeals under chapter 151 of title 32.

(2) Tax Rate. Declarations filed after the April 15 due date will be accepted by the department and the department will notify the municipality of the late-filed declaration. If the homestead declaration information is filed prior to December 1, the municipality will issue the owner a new tax bill reflecting the correct tax rate. If the tax has been paid and the corrected bill results in a lowered tax, the municipality will refund the overpayment to the taxpayer. Municipalities are not required to make refunds due to late declarations until May 15. Any refund due to the taxpayer from the municipality shall be net of the one percent penalty.

A corrected bill does not extend the date on which the original billed amount is due. Therefore, if the corrected rate resulted in additional tax and the payment date has passed, the municipality may assess interest and a commission under 32 V.S.A. § 1674(2) with the additional tax.

If a declaration is not filed prior to December 1, the municipality is not required to reduce the homestead owner's education tax to reflect a lower homestead tax rate. The owner is liable for the one percent penalty and also for any underpaid tax and interest. Any additional tax and interest due will constitute a penalty to be assessed and collected by the municipality in the same manner as property tax under Chapter 133 of Title 32.

Any increase or decrease in education tax assessed against a property owner that is the result of a declaration filed prior to December 1 will be reflected in the net amount of education tax due to or from a municipality pursuant to 32 V.S.A. § 5402 and 16 V.S.A. § 4028.

(m) Non-residential Property Declared as Homestead

If the property identified in a Homestead Declaration is not the taxpayer's homestead, the taxpayer is subject to a penalty equal to one percent of the education tax on the property. If the commissioner determines that the declaration was made with fraudulent intent, the penalty shall be in an amount equal to 100 percent of the education tax on the property. The penalty is imposed and collected by the municipality in the same manner as property tax under Chapter 133 of Title 32.

The taxpayer is also liable for the difference between the education tax calculated at the homestead rate and at the nonresidential rate if the latter is higher together with any interest and a commission under 32 V.S.A. § 1674(2).

(n) Abatement of Penalties

The legislative body of a municipality may abate all or a portion of the one percent penalty in cases of hardship. Hardship means:

(1) an owner's inability to pay as certified by the commissioner of taxes in his or her discretion; or

(2) failure to file a homestead declaration by April 15 or the filing of a homestead declaration with respect to nonresidential property was due to:

(a) full-time active military duty of the declarant outside the state;

(b) serious illness or disability of the declarant;

(c) serious illness, disability or death of an immediate family member of the declarant 32 V.S.A. §§ 3201(a) (1), 5401(7), 5410(e)

History

• EFFECTIVE DATE: August 7, 2004 Secretary of State Rule Log # 04-28

Chapter 039 DOMICILE

10-039 Code Vt. R. 10-060-039-X DOMICILE

Reg.§

1. 5811(11), § 1.5401(7), (14) § 1.6066(c) DOMICILE (Effective 8/7/04)

Section 1 Introduction

Domicile is a legal concept that has implications for Vermont income tax, the statewide education tax and property tax adjustments.

With regard to income tax, resident individuals are taxed on more of their taxable income than nonresidents. An individual qualifies for residency for the portion of the year in which the individual is domiciled in the state. 32 V.S.A. § 5811(11).

The statewide education tax is affected because the tax is imposed at different rates on homestead property and nonresidential property. A homestead is the principal dwelling owned and occupied by a resident individual as the individual's domicile. 32 V.S.A. § 5401(7). Domicile is defined with respect to the statewide education tax at 32 V.S.A. § 5401(14).

Finally, to be eligible for a property tax adjustment under Chapter 154 of Title 32, a claimant must be domiciled in the state. 32 V.S.A. § 6066(c).

This rule provides guidelines that are consistent with the definition in 32 V.S.A. § 5401(14) for determining domicile. It further clarifies that domicile has the same definition for purposes of income tax, statewide property tax and property tax adjustments.

Section 2 Definition of Domicile

(a) Domicile means the place where an individual has a true, fixed permanent home, and to which place, whenever the person is absent, he or she has the intention of returning. An individual may have several places of abode in a year, but at no time can he or she have more than one domicile. Domicile is not limited to a specific structure, but refers rather to a place or an area to which the individual expects to return.

(b) Domicile is established by birth, operation of law, or choice.

(c) Once established, domicile is never lost, changed or destroyed unless there is an actual change in the residence, together with steps manifesting an intention to abandon the former residence and acquire a new one. A mere intent or desire to make a change in domicile is not sufficient to effectuate a change; voluntary and positive steps must be taken.

(d) Domicile does not change if an individual leaves his or her place of domicile:

1. for a period of rest or vacation;

2. to complete a particular transaction, perform a particular contract, or fulfill a particular engagement, but intends to return to the state whether or not the transaction, contract or engagement is completed; or

3. to accomplish a particular purpose, but does not intend to remain in the new place once the purpose is accomplished.

(e) An individual who is in transit between old and new domiciles is domiciled in the old domicile until the new one is established.

Section 3 Relevant Factors

The factors which are deemed of primary relevance to a fair determination of an individual's domicile are the facts and circumstances that are not readily changeable by the taxpayer in order to alter their domicile for tax reasons. The following factors, in no particular order, shall be considered in determining an individual's domicile.

(a) Home. The Department will consider what residences are owned or rented (for the taxpayer's use) by the taxpayer; where they are located; how they are used; and the sizes, values and uses of each residence.

(b) Time. The Department will consider where and how the individual spends time during the tax year; whether the taxpayer is retired or actively involved in a business or profession; how much the individual travels; the nature of the travel; where the individual spends time when not required to be at a location for employment reasons, and the overall pattern of residence of the individual.

(c) Items Near and Dear. The Department will consider where items or possessions that the individual considers "near and dear" to his or her heart are located, e.g. items of significant sentimental value, family heirlooms, collections of valuables or possessions that enhance the quality of the individual's life.

(d) Active Business Involvement. The Department will consider how the individual earns a living; where the individual's place of employment is; whether the individual is actively involved in any business ownership or professions, and if so, the degree; where the business or professional office is located and the proportion of in-state to out-of-state business activities. "Actively involved" means the individual participates in the day-to-day operation, or in a policy-making position, of a business.

(e) Family Connections. The Department will consider where members of the individual's immediate family reside; where minor children attend school, and the type of school facility. "Immediate family" means the spouse, civil union partner, child, or parent of an individual.

Other factors which may be considered include home address and legal residence listed on federal tax returns, place where the individual is registered to vote, place of vehicle registration, state of driver's or professional license, place of club and organization memberships, place where mail is received. There may be other similar factors. However, because these factors may be altered without a true commitment to such location they will generally not carry as much weight as factors (a) through (e) above.

Charitable contributions shall not be considered in determining domicile. "Charitable contribution" means the donation of property, money, or uncompensated time to an organization that qualifies for a federal deduction.

Section 4 Intent to Change Domicile

(a) Intent is a decisive factor in the determination of whether a place which a person occupies is his or her domicile. Since a domicile continues until superseded by another, a change of residence without the intention of creating a new domicile leaves the last established domicile unaffected. Change of domicile may be made on a whim or fancy, for business, health, or pleasure, to secure a change of climate, or for any other reason, provided there is an absolute and fixed intention to abandon one domicile and acquire another, and the acts of the individual confirm this intention. The fact that a person is motivated by self-interest does not prevent a change of domicile. Nearly everyone who changes domicile does so because they believe it to be to their advantage in one way or another. Therefore, the fact that a change of domicile was motivated primarily by a desire to gain a tax advantage is immaterial if the intention of the individual to acquire a new domicile is absolute and fixed and the actions of the individual confirm that intention.

(b) In addition to the factors addressed in Section 3 above, the following factors will be considered with respect to a claimed change of domicile.

1. location of domicile for prior years;

2. registration as voter;

3. voting by absentee ballot;

4. place of filing of federal income tax returns;

filing and payment of state income taxes;

6. declaration of place of residence in will;

7. recitals in deeds and legal documents;

8. written and oral declarations generally;

situs of bank accounts and securities;

10. membership in churches, clubs, lodges, societies;

11. automobile registration and license;

claiming or filing homestead exemptions;

13. school attended by minor children.

None of these factors will be conclusive. They will be weighed in view of all the facts and circumstances known to the Department. A declaration of intent to abandon domicile is insufficient alone to abrogate Vermont domicile. Physical presence elsewhere is also insufficient by itself to abrogate Vermont domicile.

Section 5 Burden of Proof

(a) The party claiming domicile, or a change of domicile, shall carry the burden of proof.

(b) The evidence required to establish both a change of residence and the intention to effect a change of domicile must be clear and convincing. The intent to change a domicile must be manifested by unequivocal acts.

(c) A person's course of conduct is accorded more weight than self-serving declarations of domicile.

(d) An individual trying to establish Vermont as his or her domicile shall be subject to the same burden of proof as an individual claiming to have abandoned Vermont as his or her domicile.

Section 6 Married Individuals

It is presumed that the domiciles of a husband and wife or civil union partners are the same, unless there is affirmative evidence to the contrary. However, spouses who are separated may acquire separate domiciles, even though no judgment or decree of separation has been rendered provided the requisite move and intent are present.

Section 7 Minor Children

The domicile of the custodial parent is the domicile of an unmarried minor, and cannot be changed by the minor's own act. The domicile of a child for whom a guardian has been appointed is not necessarily determined by the domicile of the guardian. Rather, the same factors which establish an adult individual's domicile, the domicile of the guardian and the domicile of the parents will all be considered.

Section 8 Students

A student who moves to another state to attend college but who does not intend to remain in that state after graduation has not changed domicile. Moreover, a student who is being supported by a parent or parents does not establish a domicile separate from the parent(s) simply by attending school in another state regardless of whether the student takes such steps as acquiring a driver's license or registering to vote in the state in which he or she attends school.

Section 9 Armed Forces Personnel

(a) An individual in military service retains as his or her domicile the state from which he or she entered service until a change in domicile is affected. Therefore, if an individual was a Vermont resident on the date he or she entered military service, the individual is presumed to be a Vermont domiciliary during his or her entire military career unless positive action is taken to change his or her domicile to another state (see the Soldiers' and Sailors' Civil Relief Act, 50 U.S.C. App. 574).

(b) To change domicile, the individual must not only be present in the new location but must establish that the move was made with the intention of remaining domiciled in the new location indefinitely and not simply until the employer assigns the individual to a new base or location. A person does not acquire a domicile by his or her presence in a place under legal compulsion because ordinarily he or she has not signified an intent to acquire a domicile.

(c) The domicile of a civilian spouse or civil union partner of a member of the military is established under general domicile rules. If the spouse or civil union partner moves to a military base or location with the intent of staying there only as long as the military member's assignment lasts, there has not been a change in domicile and the spouse's or civil union partner's last established domicile continues to be his or her domicile whether that was the state from which the military spouse or civil union partner entered service or some other state.

Section 10 Aliens & Persons Living in Foreign Countries

(a) Domicile is not dependent on citizenship. An alien can retain his or her foreign nationality and citizenship if he or she establishes a domicile in Vermont. For example, an immigrant who has permanently established his or her home in Vermont is domiciled here regardless of whether such individual has become a United States citizen.

(b) The presumption is that a person who leaves this state to accept a job assignment in a foreign nation has not lost his or her Vermont domicile. To effect a change of domicile, it must be clearly shown that such individual intends to remain there permanently. 32 V.S.A. § 5811(11)

History

• EFFECTIVE DATE: August 7, 2004 Secretary of State Rule Log # 04-29

Chapter 040 UNITARY COMBINED REPORTING (REG. Section 1.5862(D))

10-040 Code Vt. R. 10-060-040-X UNITARY COMBINED REPORTING (REG. Section 1.5862(D))

Section 1 Effective Date

These regulations shall be effective for tax years beginning on and after January 1, 2006.

Section 2 Authorization and Purpose

(a) This rule is authorized by 32 V.S.A. § 3201(a)(1).

(b) The purpose of this rule is to establish standards for determining Vermont income tax of unitary businesses and for filing the group return required under 32 V.S.A. § 5862(d) and related schedules.

Section 3 Vermont Net Income

The Vermont corporate tax is imposed on that portion of a corporation's Vermont net income that is allocated or apportioned to Vermont under 32 V.S.A. § 5833 and Reg. § 1.5833. The Vermont net income (income prior to state allocation or apportionment) of a taxable corporation that is a member of an affiliated group and that is engaged in a unitary business with one or more members of the affiliated group includes its allocable share of the combined net unitary business income of the group. A taxable corporation's Vermont net income also includes its non-business income, its income from any non-unitary business, and its apportioned share of net business income from any other unitary business conducted with affiliates.

Section 4 Composition of the Affiliated Group

(a) Definition. An affiliated group is a group of two or more corporations in which more than 50 percent of the voting stock of each member corporation is directly or indirectly owned by a common owner or owners, either corporate or noncorporate, or by one or more of the member corporations. An owner is any person as defined in 32 V.S.A. § 5811(20).

(b) Excluded corporations. An affiliated group shall exclude:

(1) overseas business organizations; and

(2) corporations taxable under section 6014 of title 8 of the Vermont Statutes Annotated; and captive insurance corporations domiciled outside Vermont whose activities do not exceed those permitted under chapter 141 of title 8; and

(3) S corporations;

(4) Corporations that arc not taxable under the Internal Revenue Code.

Except as enumerated above, a corporation that is not subject to Vermont corporate income tax is not excluded from the affiliated group. For example, banks, insurance companies, telephone companies electing to pay gross receipts tax, railroad companies, are part of the affiliated group notwithstanding that the income allocated to them is not subject to Vermont income tax.

Pass-through entities, including partnerships, limited liability companies taxed as partnerships under federal law, and S corporations are not themselves members of the affiliated group. However, a pro rata share of such entity's income and sales, payroll and property is assigned to the unitary group member that holds an ownership interest in such pass-through entity.

(c) Fifty percent test. The fifty percent ownership test is satisfied in the following circumstances:

(1) A parent corporation and one or more corporations or chains of corporations which are connected through voting stock ownership with the parent, whether such ownership is direct or indirect, but only if --

(A) the parent owns more than 50 percent of the outstanding voting stock of at least one corporation, and, if applicable,

(B) more than 50 percent of the outstanding voting stock of each of the corporations, other than the parent, is owned by the parent, one or more corporations owned by the parent as described in subparagraph (A) above, or one or more corporations that satisfy the conditions of this subparagraph.

(2) Any two or more corporations, if over 50 percent of the outstanding voting stock of each of the corporations is owned, or indirectly owned, by the same person.

(3) Any two or more corporations, over 50 percent of whose voting stock is cumulatively owned (without regard to the indirect ownership rules described below in paragraph (d)(1)) by, or for the benefit of, members of the same family. Members of the same family are limited to an individual, his or her spouse, parents, brothers or sisters, grandparents, children and grandchildren, and their respective spouses.

(d) Except as otherwise provided, voting stock is "owned" when title to the stock is directly held or if the voting stock is indirectly owned.

(1) An individual indirectly owns voting stock that is owned by any of the following:

(A) his or her spouse (other than a spouse who is legally separated from the individual);

(B) his or her children, grandchildren, and parents;

(C) an estate or trust, of which the individual is an executor, trustee, or grantor, to the extent that the estate or trust is for the benefit of that individual's spouse, children, grandchildren or parents.

(2) voting stock owned by a partnership, other than a limited partnership, is indirectly owned by a partner in proportion to the partner's capital interest in the partnership. For this purpose, a partnership other than a limited partnership is treated as owning proportionately the stock owned by any other partnership or limited partnership in which it has a tiered interest. Voting stock owned by a limited partnership is indirectly owned by the general partner who has authority to determine how the stock is voted.

(3) voting stock owned by a corporation, or a member of a controlled group of which the corporation is the parent corporation, is indirectly owned by any shareholder owning over 50 percent of the voting stock of the corporation.

(e) In determining ownership, effective control over election of the board of directors will be considered. For example, a group of shareholders acting in concert who collectively own over 50 percent of the voting stock of each of two or more corporations will be considered to be common owners of more than 50 percent of the voting stock of each of those corporations. "Voting stock" refers only to those shares of voting stock having the power to elect the corporation's board of directors. If the power otherwise held in corporate stock to vote the membership of the board is transferred to another, other than a transfer of proxy only, the holder of that power will be considered to be the owner of that stock to the exclusion of the transferor of such power.

(f) In addition to the tests in paragraph(c), the commissioner may consider any other circumstance that tends to demonstrate that the 50 percent direct or indirect common ownership test was met or was not met.

(g) Membership in an affiliated group shall be treated as terminated in any year, or fraction thereof, in which the conditions of paragraph (c) arc not met, except as follows:

(1) when stock of a corporation is sold, exchanged, or otherwise disposed of, the membership of a corporation in an affiliated group shall not be terminated if the requirements of paragraph (c) arc again met immediately after the sale, exchange, or disposition.

(2) the Commissioner may treat the affiliated group as remaining in place if the conditions of paragraph (c) are again met within a period not to exceed two years.

Section 5 Overseas Business Organizations

(a) Definition. An overseas business organization is a business entity that ordinarily has 80% or more of its payroll and property located outside the United States. This definition of affiliated group adopts what is commonly referred to as a "water's edge" group as opposed to a "worldwide combined" group. If a corporation meets the ownership test and is not excluded as an overseas business organization, an S corporation or a captive insurance company, as described in Reg. § 1.5862(d) - 4(b), it is part of the affiliated group.

(b) Calculation. The amount of property and payroll is determined in accordance with Reg. § 1.5833 (allocation and apportionment). To qualify as an overseas business organization, the entity must meet the following tests:

(1) in two out of the three most recent tax years, including the current tax year, at least 80 percent of the average of the payroll and property was located outside of the fifty United States and the District of Columbia (referred to herein as "US"), calculated for each year as follows:

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(2) at least 70 percent of the payroll and property in the current tax year is located outside the US, calculated as above.

If the organization has been in existence for less than three years, the average of two years of payroll and property will determine whether it qualifies as an overseas business organization. If the organization has been in business for less than two years, it is not an overseas business organization unless more than 80 percent of its payroll and property for the year was located outside the US.

Section 6 Unitary Business

(a) Definition. Unitary business means one or more related business organizations doing business both within and without the State where there is a unity of ownership, operation and use. It can also exist where there is interdependence in their functions. A determination under this regulation of whether an entity forms part of a unitary business with another is determined based on the facts and circumstances of each case. To the extent compatible with Vermont law, any legal or factual determination relevant to the existence or nonexistence of a unitary business will favor consistency with legal and factual determinations of other unitary states.

(b) Interdependence of functions test. One or more related business organizations engaged in business activity both within and without the state are unitary if there exists interdependence in their functions. This test adopts the decisional law of the United States Supreme Court with respect to the constitutional prerequisites for requiring unitary combination. The Court has variously expressed the constitutional test, holding that a finding of unitary relationship requires "contribution or dependency" between businesses; "substantial mutual interdependency" or "flow of value"; functional integration, centralized management and economy of scale. See, e.g., Edson California Stores, Container Corporation of America v. Franchise Tax Board, 463 U.S. 159(1983), Mobil Oil Corp. v. Commissioner of Taxes, 445 U.S. 425(1980). These concepts collectively express the Court's view of the constitutional parameters of required combination. Vermont's "interdependence of functions test" extends as far as, but no further than, the constitutional limits found by the Court.

(c) The following circumstances, together with those identified below in subdivision (d), indicate that an interdependence of functions exists:

(1) Same Line of Business. The principal activities of the entities are in the same general line of business. Examples of the same line of business are manufacturing, wholesaling, and retailing of tangible personal property; insurance; transportation or finance.

(A) In determining whether two entities are in the same general line of business, consideration shall be given to the nature and character of the basic operations of each entity, including, but not limited to, sources of supply, goods or services produced or sold labor force and market.

(B) Two entities are in the same general line of business when their operations are sufficiently similar to reasonably conclude that the entities are likely to depend upon or contribute to one another.

(2) Vertically Structured Business. The principal activities of the entities arc different steps of a vertically structured business. Illustrations of such different steps are exploration, mining and drilling, production, refining, marketing, and transportation of natural resources.

(3) Strong Centralized Management. Centralized management may be evidenced by executive level policy made by a central person, board or committee and not by each entity in areas such as, but not limited to, purchasing, accounting, finance, tax compliance, legal services, human resources, health and retirement plans, product lines, capital investment and marketing.

(4) Newly Acquired Corporations. When a corporation acquires another corporation, a presumption exists against a finding of a unitary relationship during the first reporting period. Any party may rebut such presumption by proving that the corporations were unitary. If such presumption is rebutted, then the corporations shall be considered unitary as of the date of acquisition, unless the evidence shows that unity was established as of another date.

(5) Newly-Formed Corporations. When a corporation forms another corporation, a presumption exists in favor of finding unity between the two corporations as of the date of formation. Any party may rebut such presumption by proving that the corporations are not unitary or became unitary at a later date.

(6) Non-Arm's-Length Prices. Goods or services or both are supplied at non-arm's length prices between or among entities. Existence of arm's-length pricing between entities, however, does not indicate lack of unity.

(7) Existence of Benefits from Joint, Shared or Common Activity. A discount, cost-saving or other benefit can be shown to result from joint purchases, leaseholds, or other forms of joint, shared or common activities between or among entities.

(8) Relationship of Joint, Shared or Common Activity to Income-Producing Operations. In determining whether or not the fact that there exists a joint, shared, or common activity is indicative of a unitary relationship, consideration shall be given to the nature and character of the basic operations of each entity. Such consideration shall include, but not be limited to, the entity's sources of supply, its goods or services produced or sold, its labor force and market to determine whether the joint, shared or common activity is directly beneficial to, related to or reasonably necessary to the income-producing activities of the unitary business.

(9) Exercise of Control. The exercise of control by one entity over another entity.

(d) The "three unities test". This test adopts the state law test for unity followed in Butler Brothers.

(1) Unity of ownership. "Unity of ownership" exists with respect to corporations when the fifty percent ownership test is met. Refer to Reg. § 5862(d) - 4(c).

(2) Unity of operations and unity of use. These unities exist if each entity that is to be included in the unitary business benefits or receives goods, services, support, guidance or direction arising from the actions of common staff resources or common executive resources, personnel, third-party providers, or operations under the direction of such common resources. The tests arc overlapping and the indicators of each test also indicate the existence of interdependence of functions. The existence or non-existence of the following factors will assist in the determination of whether unity of operations and use exist with respect to an affiliated group. The existence or non-existence of any one factor, by itself, is normally not determinative of whether there is a unity of operations and use. Nor is this list a limitation on the factors that may be considered in determining this:

(1) Common purchasing;

(2) Common advertising;

(3) Common employees, including sales force;

(4) Common accounting;

(5) Common legal support;

(6) Common retirement plan;

(7) Common insurance coverage;

(8) Common marketing;

(9) Common cash management;

(10) Common research and development;

(11) Common offices;

(12) Common manufacturing facilities;

(13) Common warehousing facilities;

(14) Common transportation facilities;

(15) Common computer systems and support;

(16) Financing support;

(17) Common management, meaning that one or more officers or directors of the parent are also officers or directors of the subsidiary;

(18) Control of major policies, for example, the parent's board of directors requires that it approve any acquisition by either the parent or subsidiary of any interest in any other company, or the parent's board of directors requires that it approve any lending in excess of a minimum set amount to any one or more of either the parent or subsidiary's suppliers;

(19) Inter-entity transactions, for example, the subsidiary has licensed to parent the use of personal property developed by the subsidiary. The parent uses the property for its production;

(20) Common policy or training manuals, for example, the parent's employee handbook has been expanded to apply to all of a subsidiary's employees, or the subsidiary's employees are required to attend parent's employee training courses, or disciplinary procedures are the same for both the parent and subsidiary's employees, even if the appeal is only through their respective entities;

(21) Required budgetary approval, for example, the parent's board of directors requires that it approve the budget and expenditure plans of the subsidiary on an annual basis; and

(22) Required capital asset purchases approval, for example, the parent's board of directors requires that it approve any capital expenditures by the subsidiary in excess of a minimum set amount.

(e) Holding Companies. The test for a unitary business established by this rule applies in determining whether a holding company is included or excluded from a unitary business. If a holding company is organizationally between two unitary entities, such holding company does not negate unity of ownership.

Section 7 Combined Net Income of the Group

(a) Definition. In this regulation, "group" refers to the collective members of an affilliated group that arc engaged in a unitary business and are doing business in Vermont.

(b) Determination of taxable income or low of the group using a group return. The use of a group return does not disregard the separate identities of the taxpayer members of the group. Each taxpayer member is responsible for tax based on its taxable income or loss apportioned to this stale, which shall include, among other items of income, the taxpayer member's apportioned share of business income of the combined group, where business income of the combined group is determined by subtracting all but business income, expense and loss from the total income of the combined group, as provided below.

(c) Components of income subject to tax in this state. Each taxpayer member is responsible for tax based on its taxable income or loss apportioned or allocated to this state, which shall include:

(1) its share of any business income apportionable to this state of each of the combined groups of which it is a member;

(2) its share of any business income apportionable to this state of distinct business activity conducted within and without the state wholly owned by the taxpayer member;

(3) its income from a business conducted wholly by the taxpayer member entirely within this state;

(4) its income sourced to this state from the sale or exchange of capital or assets, and from voluntary conversions;

(5) its nonbusiness income or loss allocable to this state; and

(6) its income or loss allocated or apportioned in an earlier taxable year, required to be taken into account as state source income during the taxable year, other than a net operating loss.

(d) Determination of taxpayer's share of the business income of a combined group apportionable to this state. The taxpayer's share of the business income apportionable to Vermont of each combined group of which it is a member shall be the product of:

(1) the business income of the combined group, determined under this regulation, and

(2) the taxpayer member's apportionment percentage, determined under Reg. § 1.5833. including in the numerator the taxpayer's property, payroll and sales associated with the combined group's unitary business in Vermont, and including in the denominator the property, payroll and sale of all members of the combined group, including the taxpayer, which property, payroll and sales are associated with the combined group's unitary business wherever located. The property, payroll and sales of a partnership shall be included in the determination of the partner's apportionment percentage in proportion to a ratio the numerator of which is the amount of the partner's distributive share of the partnership's unitary income included in the income of the combined group in accordance with (e)(3).

(e) Determination of the business income of the combined group. The business income of a combined group is determined as follows:

(1) From the total income of the combined group, subtract any income, and add any expense or loss, other than the business income, expense or loss of the combined group.

(2) Except as otherwise provided, the total income of the combined group is the sum of the incomes, separately determined, of each member of the combined group. The income of each member of the combined group shall be determined as follows:

(A) For any member incorporated in the United States, or included in a consolidated federal corporate income tax return, the income to be included in the total income of the combined group shall be the taxable income for the corporation after making appropriate adjustments under 32 V.S.A. § 5811(18).

(B)

(i) For any member not incorporated in the United States, or included in a consolidated federal corporate income tax return, the income to be included in the total income of the combined group shall be determined from a profit and loss statement prepared for each foreign branch or corporation in the currency in which its books of account are regularly maintained, adjustment to conform it to accounting principles generally accepted in the United States. The profit and loss statement of each member of the combined group, and the apportionment factors related thereto, whether United States or foreign, shall be translated into the currency in which the parent company maintains its books and records. Income apportioned to Vermont shall be expressed in United States dollars.

(ii) In lieu of the procedures set forth in (B)(i) above, and subject to the determination of the commissioner that it reasonably approximates income as determined under Title 32, any member not included in subsection (e)(2)(A) may determine its income on the basis of the consolidated profit and loss statement which includes the member and which is prepared for filing with the Security and Exchange Commission by related corporations. If the member is not required to file with the Security and Exchange Commission, the commissioner may allow the use of the consolidated profit and loss statement prepared for reporting to shareholders and subject to review by an independent auditor. If the above statements do not reasonably approximate income as determined under Title 32, the commissioner may accept those statements with appropriate adjustments to approximate that income.

(3) If the unitary business includes income from a partnership, the income to be included in the total income of the combined group shall be the member of the combined group's direct and indirect distributive share of the partnership's unitary business income.

(4) All dividends paid by one to another of the members of the combined group shall, to the extent those dividends arc paid out of the earnings and profits of the unitary business included in the combined report, in the current or an earlier year, be eliminated from the income of the recipient. This provision shall not apply to dividends received from members of the unitary business which are not a part of the combined group.

(5) Income from an inter-company transaction between members of the same combined group shall be deferred in a manner similar to 26 R 1.1502-13. Upon the occurrence of any of the following events, deferred income resulting from an inter-company transaction between members of a combined group shall be restored to the income of the seller, and shall be apportioned as business income earned immediately before the event:

(A) the object of a deferred inter-company transaction is

(i) re-sold by the buyer to an entity that is not a member of the combined group,

(ii) re-sold by the buyer to an entity that is a member of the combined group for use outside the unitary business in which the buyer and seller are engaged, or

(iii) converted by the buyer to a use outside the unitary business in which the buyer and seller are engaged, or

(B) the buyer and seller are no longer members of the same combined group, regardless of whether the members remain unitary.

(6) A charitable expense incurred by a member of a combined group shall, to the extent allowable as a deduction under the Internal Revenue Code Section 170, be subtracted first from the business income of the combined group (subject to the income limitations of that section applied to the entire business income of the group), and any remaining amount shall then be treated as a nonbusiness expense allocable to the member that incurred the expense (subject to the income limitations of that section applied to the nonbusiness income of that specific member). Any charitable deduction disallowed under the foregoing rule, but allowed as a carryover deduction in a subsequent year, shall be treated as originally incurred in the subsequent year by the same member, and the rules of this section shall apply in the subsequent year in determining the allowable deduction in that year.

(7) Gain or loss from the sale or exchange of a capital asset, property described by Internal Revenue Code Section 1231, and property subject to an involuntary conversion, shall be removed from the total separate net income of each member of a combined group and shall be apportioned and allocated as follows:

(A) For each class of gain or loss (short term capital, long term capital, Internal Revenue Code Section 1231, and involuntary conversions) all members' business gain and loss for the class shall be combined (without netting between such classes), and each class of net business gain or loss separately apportioned to each member using the member's apportionment percentage determined under (d) above.

(B) Each taxpayer member shall then net its apportioned business gain or loss for all classes, including any such apportioned business gain and loss from other combined groups, against the taxpayer member's nonbusiness gain and loss for all classes allocated to Vermont, using the rules of the Internal Revenue Code Sections 1231 and 1222, without regard to any of the taxpayer member's gains or losses from the sale or exchange of capital assets, Section 1231 property, and involuntary conversions which are nonbusiness items allocated to another state.

(C) Any resulting state source income (or loss if the loss is not subject to the limitations of Internal Revenue Code Section 1211) of a taxpayer member produced by the application of the preceding subsections shall then be applied to all other state source income or loss of that member.

(D) Any resulting state source loss of a member that is subject to the limitations of Section 1211 shall be carried forward or carried back by that member, and shall be treated as state source short-term capital loss incurred by that member for the year for which the carryover or carryback applies.

(8) Any expense of one member of the unitary group which is directly or indirectly attributable to the nonbusiness or exempt income of another member of the unitary group shall be allocated to that other member as corresponding nonbusiness or exempt expense, as appropriate.

(f) Dividends. The combined net income of the affiliated group does not include dividends received from corporations that are included in the affiliated group that is operating as a unitary business. Dividends received from overseas business organizations are included in combined net income to the extent that the dividends are included as income of the recipient under the Internal Revenue Code. Income required to be reported by the parent by I.R.C. §§ 951-964 (Subpart F) is included in the Vermont net income of the group to the extent that Subpart F income is included as income of the recipient under the Internal Revenue Code.

(g) Taxable year of the affiliated group.

(1) The group's taxable year is determined as follows:

(1) if two or more members of a group file a federal consolidated return, the group's taxable year is the taxable year of the federal consolidated group;

(2) in all other cases, the taxable year is the taxable year of the principal Vermont corporation. See § 1.5862(d) - 10(a) below for the definition of "principal Vermont corporation".

(2) Members with different accounting periods. If the taxable year of a member differs from the taxable year of the group, the principal Vermont corporation may elect to determine the portion of that member's income to be included in one of the following ways:

(A) a separate income statement prepared from the books and records for the months included in the group's taxable year; or

(B) including all of the income for the year that ends during the group's taxable year.

The same method must be used for each member with a different accounting period. Once an election is made under this section, it is the only method that may be used with respect to members of the group except upon prior approval by the commissioner.

Section 8 Apportionment

(a) General rule. The combined income of the group, excluding the dividends from affiliated overseas business organizations is apportioned in accordance with Reg. § 1.5833. Factors of corporations not doing business in Vermont and factors of a corporation subject to Vermont tax other than corporate income tax are not included in the Vermont numerator. For example, sales shipped into Vermont by members of the group that are not taxable in Vermont are included in the denominator (everywhere sales), but not in the numerator (Vermont sales) of the sales factor. Sales from Vermont into a state in which the corporation is not taxable arc included in the Vermont numerator pursuant to Reg. § 1.5833 - 1(d)(2)

• the "throwback rule"- notwithstanding that another corporation that is a member of the group is doing business in that other state.

Example: Corporations X and Y are members of an affiliated group that conducts a unitary business. Corporation X is taxable in Vermont but not in New Hampshire. Corporation Y is taxable in New Hampshire but not in Vermont. A sale of tangible personal property shipped by Y from outside of Vermont to a customer in Vermont is not included in the Vermont sales factor (numerator). A sale of tangible personal property by X shipped from Vermont to a customer in New Hampshire is included in the Vermont sales factor under the throwback rule.

(b) Apportionment of foreign dividends. Dividends that are received from an affiliated overseas business organization and included in the combined net income of the group are apportioned using a modified apportionment factor. The intent of modification is the recognition of the property, payroll and sales of the business operations that generated the income. The modified factor is computed with respect to each overseas business organization by adding to the sales, payroll and property of the affiliated group a portion of the sales, payroll and property of the dividend-paying corporation. The modified factor is computed as follows:

Step 1 - The dividend paid is divided by each payer's taxable income determined under the Internal Revenue Code;

Step 2 - The sales, payroll and property of each payer are multiplied by the ratio determined in Step 1; and

Step 3 - the portion of each payer's sales, payroll and property determined in Step 2 is added to the sales, payroll and property of the affiliated group.

The total dividends from all affiliated overseas business organizations arc combined and apportioned using the modified factor. The modification is only used to apportion dividend income. Other income of the group from the unitary business is apportioned using the standard apportionment factors.

In cases in which the additional factor relief may be appropriate, the taxpayer may request such relief under the provisions of Reg. § 1.5862(d) - 12. For example, where a foreign subsidiary is paying dividends that have been received from its subsidiaries, inclusion of the factors of the second level subsidiary may be necessary to fairly reflect generation of the included income.

Section 9 Attributes of Separate Corporations

(a) Net operating loss carryforwards and carrybacks. If the taxable income computed pursuant to Reg. § 1.5862(d) - 3 results in a loss for a taxable corporation that is a member of the group, that corporation has a Vermont net operating loss, subject to the net operating loss limitations of the Internal Revenue Code and the carryback and carryforward provisions of 32 V.S.A. § 5888(4)(B). Vermont law does not allow refunds from the operation of a net operating loss carryback. Such net operating loss is applied as a deduction in a subsequent year only if the loss was not absorbed as a net operating loss carryback on a federal return and that corporation has Vermont source positive net income. However, if some or all of the members elect to file a consolidated return, the net operating losses of these members that are part of a federal consolidated group may be used to offset the income of the affiliates entitled to file consolidated.

(b) Credits. Any credit allowed by Vermont shall apply against the corporate income tax liability of the individual member of the group, as calculated in Reg. § 1.5862(d) - 12 below.

Section 10 Principal Vermont Corporation

(a) Definition. "Principal Vermont corporation" means a corporation that is the parent corporation unless the parent corporation is not subject to tax in Vermont in Vermont, or is not part of the unitary business or there is no parent, in which case it means the corporation that:

(1) is included within the group;

(2) is subject to Vermont's taxing jurisdiction; and

(3) has the greatest Vermont business activity during the first year that a combined return is required to be filed, as measured by the total of the Vermont factors, payroll, sales and property, for that year.

(b) Change in principal Vermont corporation. The principal Vermont corporation shall change only when the corporation is no longer subject to Vermont's jurisdiction to tax at which time the combined group shall designate another corporation that qualifies as its principal Vermont entity and notify the commissioner of the designation.

(c) Responsibilities of principal Vermont corporation.

(1) Access to records. In addition to the information required to be included in the group return, upon request of the commissioner, the principal Vermont corporation shall provide access to (1) the tax and financial records of members of the group that are part of the unitary group but do not have Vermont nexus, and

(2) non-financial records of the group.

(2) Filing. The principal Vermont corporation shall file a group return on behalf of the group together with all returns and schedules required by the commissioner.

(3) Payment. The principal Vermont corporation shall timely remit to the department the Vermont corporate tax imposed on the combined Vermont net income of the group.

(d) Notices. Notices mailed to the principal Vermont corporation shall be deemed to have been mailed to each of the taxable corporations in the affiliated group.

Section 11 The Group Return

(a) The "group return" as referenced in this rule refers to a schedule that shows the individual liability as calculated under this rule of each affiliated group member.

(b) The group return shall include the following information:

(1) the principal Vermont corporation;

(2) all members of the affiliated group;

(3) all members of the affiliated group with Vermont nexus;

(4) any change in the status or composition of the group since the previous taxable period;

(5) whether, in any other state requiring or allowing a combined report, any member of the Vermont affiliated group was:

(i) included in a combined report filed in the same tax year or

(ii) excluded from a combined report that included other members of the Vermont group;

(6) whether any member of the affiliated group filed a separate Vermont return or was included in another group return in Vermont in a prior year;

(7) with respect to members that have separate attributes (see Reg. § 1.5862(d) - 9), the allocation of the combined income to such member;

(c) The group return shall report all income required to be included in the Vermont net income of such corporations pursuant to Reg. § 1.5862(d) - 3.

Section 12 Tax Liability

The Vermont corporate tax is applied to the separate income of each taxable member of the group.

Section 13 Alternative Rule

(a) If combination under these rules leads to distortion of income or avoidance of tax, the commission may allow or require the use of other rules to the extent necessary to prevent such distortion or avoidance.

(b) A group that wishes to modify the application of these rules shall petition the commissioner for approval prior to employing any other method of reporting. The petition must be submitted separately by the principal Vermont corporation and not attached to a tax return and must include:

(1) The full names, addresses, federal and Vermont identifying numbers, if any, of all interested parties;

(2) a full and precise statement of the necessity for the modification;

(3) a detailed description of the business activity which necessitates the modification;

(4) evidence supporting the petition including any court decisions on the matter; any contracts, deeds, agreements, instruments or other documents which evidence the necessity of the modification; reference to statutes relating to the subject of the petition; a description of the modification requested; and a statement as to whether a similar or identical modification has been requested in any prior petition.

(c) Any petition received by the commissioner shall be submitted to the director of taxpayer services for review. The director shall review the available facts and evidence and determine if the requested modification results in a more accurate measure of the Vermont income of the unitary group than the provisions of the regulation. The director shall forward a recommendation regarding the request for modification to the petitioner and the commissioner.

(d) The petitioner may appeal the director's recommendation to the commissioner and request a hearing in the manner provided in 32 V.S.A. § 5883 within 60 days of the mailing of the recommendation.

(e) The fact that separate accounting produces a different tax liability does not prove the need for or the acceptability of modified of the regulation.

(f) The use of modified combined reporting without prior written approval or determination of the commissioner or court decision approving the same shall constitute a failure to file as required by 32 V.S.A. § 5862.

Section 14 Exclusion from Consolidated Return

A corporation that is required to be included in a group return may be included in a consolidated return elected under 32 V.S.A. § 5832 provided that the consolidated members have the same fiscal year.

History

• STATUTORY AUTHORITY: 32 V.S.A. §§ 3201, 5862
• EFFECTIVE DATE: May 11, 2006 Secretary of State Rule Log #06-014

Chapter 041 CAPITAL GAINS EXCLUSION (REG. section 1.5811(21)(B)(II)

10-041 Code Vt. R. 10-060-041-X CAPITAL GAINS EXCLUSION (REG. section 1.5811(21)(B)(II)

Section 1 Statutory Framework

Vermont individual income tax is imposed on the taxable income earned or received in the tax year by every individual, estate, and trust, subject to income taxation under the laws of the United States. Taxable income is defined in 32 V.S.A. § 5811(21) as federal taxable income with certain additions and subtractions. Federal taxable income is decreased by the following capital gain income to arrive at Vermont taxable income:

(1) The first $ 5000 of adjusted net capital gain income or

(2) 40 percent of adjusted net capital gain income from the sale of assets held by the taxpayer for more than 3 years except from the sale of the following:

(a) Any real estate or portion of real estate used by the taxpayer as a primary or non - primary residence,

(b) Depreciable personal property other than farm property and standing timber, and

(c) Stocks and bonds publicly traded or traded on an exchange or any other financial instruments.

The total amount of decrease due to capital gains exclusions cannot exceed 40 percent of federal taxable income.

A taxpayer may choose the exclusion that results in the greater tax reduction, but may not take both the $ 5000 and 40 percent exclusion in one tax year. The $ 5000 exclusion may be applied against all types of adjusted net capital gain income. In no case may the exclusion exceed the taxpayer's adjusted net capital gain. The 40 percent exclusion is limited both as to the type of asset generating the gain and the length of time the asset was held.

Section 2 Exclusion Limited to Adjusted Net Capital Gain Income

Only capital gain income that is adjusted net capital gain income as that term is defined in Section 1(h) of the Internal Revenue Code is eligible for the Vermont exclusion. Adjusted net capital gain does not include income short term gain but includes most long term capital gain.

Adjusted net capital gain income does not include section 1250 gain or 28 percent gain. IRC § 1(h)(3).

Section 1250 gain is realized on the sale of depreciable real estate and is taxed at a 25 percent maximum federal capital gains rate (or less in some cases). Unrecaptured 1250 gains are only realized when there is a net Section 1231 gain that is not subject to recapture as ordinary income.

The 28 percent gain is the sum of collectibles gain and Section 1202 gain (gain on the sale of small business stock) [l]over the sum of collectibles loss, the net short-term capital loss and the amount of the long-term loss carried to the succeeding tax year under Section 1212(b)(1)(B).

In addition to the limitations of the Section l(h) definition, qualified dividends are not treated as adjusted net capital gain income for purposes of applying the 40 percent exclusion. 32 V.S.A. § 5811(21)(B).

Section 3 Real Estate Exclusion

(A) The 40 percent exclusion extends to all real estate that is owned more than 3 years except primary or non-primary residences. Examples of real estate the gain from the sale of which qualifies for the 40 percent exclusion include the following:

(1) Real estate in which a business is operated, such as a retail store, office, factory or warehouse and the parcel [2 ]of land on which the structure is located,

(2) Real estate held for investment purposes, such as an apartment building or raw land,

(3) Real estate used for farming, whether or not the owner is a farmer, including farm buildings,

(4) Real estate that is logged.

(B) Examples of real estate the gain from the sale of which does not qualify the 40 percent exclusion include the following:

(1) A taxpayer's primary residence, second home, camp, cottage, ski condominium or vacation property unless, under federal law, the property is not considered to be used as a home,

(2) A taxpayer's timeshare in a ski condominium,

(3) Land that was part of a residential parcel at the time of sale even if it was subdivided prior to sale.

(C) Part-time Rental Gain from a sale of a primary or non-primary residence does not qualify for the 40 percent exclusion even if the property is rented for a significant portion of the year. Under the Internal Revenue Code a person is considered to use a dwelling unit as a home if the person uses it for personal purposes during the tax year for more than the greater of: 14 days or 10 percent of the total days it is rented to others at a fair rental price. However, if the property is a second home that is rented at fair market rent for all but 14 days each year and is otherwise treated as an investment property (e.g., it is depreciated, expenses are deducted and the rental income is reported), it is not considered residential. Likewise, a seasonal camp may be used by the owner for 14 days before it is considered residential.

A day of personal use of a dwelling unit is any day that it is used by:

(1) You or any other person who has an interest in it, unless you rent your interest to another owner as his or her main house under a shared equity financing agreement;

(2) A member of your family or of a family of any other person who has an interest in it, unless the family member uses it as his or her main house and pays a fair rental price;

(3) Anyone under an agreement that lets you use some other dwelling unit; or

(4) Anyone at less than a fair rental price.

(D) Allocation of Gain If a parcel includes both qualifying real estate and residential real estate, the gain must be allocated between the two classes of real estate. For example, if a farm consisting of 200 acres, a farmhouse (the seller's residence or, if the farm is owned by an entity, the residence of an owner of the entity) and a barn is sold and the seller realizes a gain, the adjusted net capital gain should be allocated in the same way as the property value is allocated to the qualifying and non-qualifying real estate. Thus, if 30 percent of the assessed value is on the housesite, 30 percent of the gain should be allocated to the housesite. The remaining 70 percent of the gain is eligible for the 40 percent exclusion. If the taxpayer takes the 40 percent exclusion on the eligible gain, the $ 5,000 exclusion is not available for any part of the adjusted net capital gain.

(E) Home Office or Business Gain Gain may also be allocated when a taxpayer has a home office or business in the residence. The burden of demonstrating that a portion of the property is not residential is on the taxpayer. Relevant facts may include how the property is treated on the taxpayer's federal income tax returns, including form 8829, and any property tax adjustment claims filed with respect to the property.

(F) Conversion A residential property that is converted to a nonresidential use prior to sale may qualify for the exclusion depending upon the facts and circumstances surrounding the conversion. If the property is converted to nonresidential use within 3 years of the sale it is presumed that the asset is residential, but the presumption may be rebutted by the taxpayer. Relevant facts include how long the residence was rented and to whom (e.g. whether the lease is arms' length), when efforts to sell the residence commenced, treatment of the rental income for state and federal purposes and how the real estate is classified on the grand list. A taxpayer claiming the 40 percent exclusion with respect to real estate that was a residence has the burden of demonstrating that he property was actually converted to nonresidential use.

(G) Installment sales Whether the requirement that the asset be held 3 years is satisfied in an installment sale depends upon when title to the asset passes to the buyer. Thus, property purchased in 2010 and sold in 2012 under an installment contract would not be eligible for the 40 percent exclusion even if payments were received in 2013 and after.

Section 4 Depreciable Personal Property

(A) Adjusted net capital gain income from the sale of depreciable personal property does not qualify for the 40 percent exclusion unless the property sold is farm property. Standing timber also qualifies for the 40 percent exclusion.

(B) Farm property includes any tangible personal property used to generate income from an agricultural activity. For example, a baler used to bale hay for sale qualifies, but a baler used to bale hay to feed a pet horse does not. A tractor used to mow down vegetation between Christmas trees grown for sale qualifies, but tractor used by a landscaping business does not. Livestock used in a business for draft, breeding or dairy purposes qualifies for the 40 percent exclusion.

(C) Adjusted net capital gain on the sale of most depreciable personal property is not eligible for the 40 percent exclusion. Examples of depreciable personal property the gain on which does not qualify for the 40 percent exclusion include the following:

(1) Trade fixtures or business equipment such as restaurant equipment or office furniture;

(2) Equipment used for construction, road building and logging;

(3) Boats, airplanes and motorized vehicles.

(D) Property is "depreciable" if it is a type of property that can be depreciated under the Internal Revenue Code for federal tax purposes. It is irrelevant that such property has not yet been placed in service or that no depreciation expense has yet been taken.

Section 5 Stocks or Bonds Publicly Traded on an Exchange and Financial Instruments

(A) Adjusted net capital gain on the sale of stocks and bonds that are publicly traded does not qualify for the 40 percent exclusion. Other financial instruments that are publicly traded, such as futures, options, swaps and other derivative instruments also do not qualify.

(B) The sale of stock of a closely held corporation that is not publicly traded qualifies for the 40 percent exclusion. Similarly, adjusted net capital gain from the sale of a membership interest in an LLC or partnership interest in a partnership - provided those entities are not publicly traded - is eligible for the exclusion.

(C) Examples:

(1) Taxpayer sells IBM stock and realizes adjusted net capital gain. This gain is not eligible for the 40 percent exclusion.

(2) Taxpayer sells his stock in a closely-held S-corporation that owns real property, machinery and equipment and good will. The stock is not traded on a public exchange. The adjusted net capital gain realized on the sale is eligible for the 40 percent exclusion even though the machinery and equipment would not be eligible if sold separately as assets.

Section 6 Business Asset Sales

(A) If the sale of a business is structured as an asset sale rather than sale of an ownership interest in the entity, the availability of the exclusion will depend upon the nature of the asset. This is also the case where the membership or ownership interest in a single-member pass-through entity (e.g., limited liability company) is sold, because these entities are disregarded for federal income tax purposes and the assets are treated as assets of the owner. [3 ]The sale is treated as the sale of the assets under federal law. Vermont follows the federal tax treatment of income in these cases. 32 V.S.A. § 5820.

(B) Examples:

(1) Taxpayer is selling the membership interest in single member LLC. For federal tax purposes, and therefore for Vermont income tax purposes, this is treated as the sale of assets. All of the assets that are used in the LLC's trade or business, consisting of real estate, tangible personal property, intangible rights and licenses, and goodwill, are being sold. The business real estate and intangibles, including good will, are eligible for the 40 percent exclusion. To the extent that the tangible personal property is depreciable, it is not eligible for the exclusion. Taxpayer must be able to produce a reasonable allocation schedule.

(2) Taxpayer owns a convenience market that is going out of business. He sells the coolers and remaining inventory to another market and sells his leasehold interest in the real estate to a third party for a clothing store. Gain related to the coolers, which have been depreciated over several years, and gain from the sale of the inventory is not eligible for the 40 percent exclusion; gain from the sale of the leasehold interest is eligible.

Section 7 Pass-Through Entities

The 40 percent exclusion is available only with respect to assets "held by the taxpayer for more than three years" prior to the sale giving rise to adjusted net capital gain. If the seller is a pass-through entity, such as an S-Corporation, partnership or limited liability company, the exclusion is available to the shareholder, partner or member who reported adjusted net capital gain with respect to the sale provided the entity held the asset for more than three years.

Section 8 Basis

The 40 percent exclusion applies only to gain that is included in "adjusted net capital gain" (see subdivision 2 above) which is an amount determined under federal law. Any basis adjustment permitted under federal law to arrive at adjusted net capital gain is therefore reflected in the amount which is eligible for the Vermont exclusion. For example, to the extent that expenses associated with one asset are capitalized to another asset under federal law, that reallocation is recognized for purposes of determining the adjusted net capital gain eligible for the 40 percent exclusion.

Section 9 Holding Period

When stock or another form of ownership interest in a business is sold, the three-year holding period is measured from acquisition of the stock or interest. In the case of an asset sale, the Department will follow federal rules in determining holding period of the asset the sale of which gives rise to adjusted net capital gain.

Section 10 Filing Requirements

In order to exclude capital gains income from Vermont income tax, taxpayers will need to identify income that qualifies as adjusted net capital gain income under Section l(h) of the Internal Revenue Code. Vermont taxable income may be reduced by the first $ 5000 of such income. Alternatively, taxpayers with eligible assets held more than 3 years may claim the 40 percent exclusion in lieu of the flat exclusion. All taxpayers claiming the 40 percent exclusion should retain records detailing the source of the gain that can be produced upon request by the Department.

If there is a loss with respect to the sale of an asset that would qualify for the 40 percent exclusion if the transaction had resulted in a gain, the loss must be netted against gains that qualify for the 40 percent exclusion. "Adjusted net capital gain" for purposes of calculating the exclusion under 32 V.S.A. § 5811(21)(B)(ii) may not exceed the amount of capital gain reported on line 13 of Federal Form 1040.

[1] The general rule in the case of a non-corporate taxpayer is that gross income does not include 50 percent of any gain from the sale or exchange of qualified small business stock. 26 U.S.C. §1202. Special rules for 2009 through 2014 provided for even more favorable treatment -the exclusion of 75 or 100 percent of the gain from gross income -depending on the date of acquisition. For purposes of the Vermont exclusion, since this gain is not part of adjusted net capital gain it is not eligible for the 40 percent exclusion.

[2] For purposes of this regulation, "parcel" has the same meaning as in 32 V.S.A. § 4152(a)(3) where it is defined as "all contiguous land in the same ownership, together with all improvements thereon."

[3] Proc. & Admin. Regs. § 301.7701 - 3. Other disregarded entities under federal law are "qualified subchapter S subsidiaries" and "qualified REIT subsidiaries"

History

• STATUTORY AUTHORITY: 32 V.S.A. § 3201(a) (1)
• EFFECTIVE DATE: March 11, 2014 Secretary of State Rule Log #14-008

Chapter 042 SUBORDINATION OF CURRENT USE LIEN (REG. section 1.3777)

10-042 Code Vt. R. 10-060-042-X SUBORDINATION OF CURRENT USE LIEN (REG. section 1.3777)

Section 1 Introduction

Upon enrollment in Vermont's Use Value Appraisal Program, also known as the Current Use Program (the "Program"), a lien arises on the enrolled property to secure the payment of the Land Use Change Tax. 32 V.S.A. § 3757(f). This lien is superior to any subsequent encumbrances upon the land and serves to protect the State's interest in collecting the Land Use Change Tax that may subsequently be imposed on the property, pursuant to 32 V.S.A. § 3757. The Commissioner has discretion to subordinate the State's lien in favor of a lender's mortgage interest in circumstances in which the State's interest is protected. 32 V.S.A. § 3777. Subordination of the Current Use Lien relegates the State's priority claim on the property to a subordinate position. Therefore, as the administering agency of the Current Use Program, the Department of Taxes (the "Department") reviews subordination requests to ensure protection of the State's lien and compliance with Program standards.

Section 2 Application for Subordination of Current Use Lien and Application Review

To request subordination of the State's lien, a completed Application for Subordination of Current Use Lien (Form CU-306), together with a nonrefundable statutory fee of $ 179, must be submitted to the Department by the landowner, buyer or lender (Applicant). To subordinate its lien, the State will also require copies of the following documents:

(1) A title opinion issued by a licensed attorney or commitment for title insurance issued by a company licensed to issue title insurance in the State of Vermont with an effective date no more than thirty (30) days prior to the date of the application for the subordination, which describes the property for which the subordination is requested and all encumbrances and claims against that property. Following review of the title report or title commitment by the Department, the Department may require that the applicant provide copies of one or more of the documents identified in the title report or commitment letter;

(2) A copy of a commitment letter or other evidence of the proposed term and provisions of the loan to which the current use lien will be subordinated. In the event of a material change in the terms of the proposed loan during review of the subordination request, the applicant shall submit the revised commitment letter or revised term or provisions of the loan to the Department.

(3) Such other documentation as the Department deems necessary to protect its interest in collecting the land use change tax.

Section 3 Inspection of Relevant Materials

(A) The Department will review completed applications to assess whether:

(1) There is sufficient equity to satisfy all existing mortgages and liens superior to the State's lien, the proposed mortgage, and the potential land use change tax. A subordination request for which the value of all mortgages, liens, and the land use change tax constitute no more than 90 percent of the fair market value of the property shall be generally considered to have sufficient equity.

(2) Whether the parcel presently complies with the eligibility requirements of the program as set forth in statute and regulation.

(B) In the course of its review the Department may:

(1) Review the relevant parcel file in order to establish whether any changes have been made to the parcel since enrollment, including, by way of example:

(a) Changes in the owner(s) of record;

(b) Subdivision or sale of the parcel to a different owner;

(c) Development of the parcel as defined in 32 V.S.A. § 3752(5);

(2) Determine whether Program standards are being met. Such determination may be made through review of relevant documents, including parcel maps. The Department may review the relevant parcel maps to determine, by way of example, whether:

(a) Parcel maps on file meet Program mapping standards;

(b) Parcel maps are accurate regarding excluded land location, enrolled land location, land uses, house sites, and other geographical information;

(3) Consult with county and consulting foresters regarding relevant parcels;

(4) Request and review legal documents, such as a title report, in order to ascertain property ownership and the existence of other liens and encumbrances upon the property;

(5) Request and review bank documents, such as property appraisals, in order to calculate residual equity in the parcel;

(6) Require the applicant to submit new or revised documents as a condition of subordination in order to ensure compliance with Program requirements and standards.

(C) Unless all requested documents and information are provided to the State, its lien will not be subordinated. If a requested document or information is not provided to the Department within 45 days of the Department's request, the application will be denied.

Section 4 Denial of Subordination Requests

Subordination requests may be denied when:

(1) The applicant has not provided all required documents or information to the Department;

(2) There is insufficient equity in the parcel to satisfy the proposed mortgage, all current liens and mortgages superior to the State's lien, and the potential land use change tax; or back taxes are owed on the enrolled property to be subordinated;

(3) The subordination request is not an active condition of the loan, as evidenced, for example, by receipt of a subordination request for a mortgage that closed before the completed Application for Subordination of Current Use Lien and required documents were submitted.

Section 5 Recording a Subordination Request

The applicant bears the responsibility and the cost of filing any approved subordination agreement for recording in the appropriate town land records.

History

• STATUTORY AUTHORITY: 32 V.S.A. § 3777.
• EFFECTIVE DATE: September 23, 2015 Secretary of State Rule Log #15-043