What is Exempt from Sales Tax in Vermont? A 2025 Guide for Businesses

Key Sales Tax Exemptions for Businesses in Vermont

Understanding Vermont’s sales tax exemptions is essential for businesses to remain compliant while taking full advantage of available benefits. This section outlines the general rules and specific product categories that qualify for exemptions, helping businesses manage their tax responsibilities effectively.

General Rules for Vermont Sales Tax Exemptions

Most tangible personal property sold in Vermont is subject to a 6% statewide sales tax, with an additional local option tax of up to 1% in certain municipalities. However, some items are explicitly exempt from sales tax under Vermont law, providing significant cost savings for businesses.

For a detailed understanding of what is exempt from sales tax in Vermont, businesses can consult the Exempt Items Under Vermont Sales Tax resource.

Tax Category	Tax Rate	Details
Statewide Sales Tax	6%	Applies to most tangible personal property.
Local Option Tax	Up to 1%	Applies in certain municipalities.
Exempt Items	0%	Clothing, medical equipment, groceries, and others.

Example Scenario Understanding Tax Rules

A retail business in Burlington, which has obtained a sales tax permit, sells $10,000 worth of taxable goods in one month. The applicable tax rate is 7% (6% statewide + 1% local option). The business would collect $700 in sales tax, which must be remitted to the Vermont Department of Taxes.

Vermont Tax Exempt Products and Categories

Vermont provides sales tax exemptions for specific product categories, reducing costs for businesses and consumers alike.

Clothing

Clothing and footwear are generally exempt from Vermont sales tax. This exemption includes items like aprons, coats, uniforms, shoes, and wedding apparel. Specialized items such as steel-toed boots and lab coats are also included. However, accessories such as jewelry, handbags, and sunglasses remain taxable.

Medical Equipment

Essential medical equipment and supplies are exempt from sales tax. Examples include durable medical equipment like wheelchairs, hospital beds, and oxygen equipment. Prosthetics such as artificial limbs, hearing aids, and prescription eyeglasses are also exempt. Businesses selling these items can learn more about exemptions from the Vermont Sales and Use Tax Exemptions page.

Groceries

Most groceries intended for off-site consumption are exempt from Vermont sales tax. However, prepared meals, soft drinks, and certain specialty items remain taxable.

Food Category	Tax Status	Examples
Exempt	No sales tax	Fruits, vegetables, dairy products, and bread.
Taxable	Subject to sales tax	Soft drinks, candy, and prepared meals.

Menstrual Care Products

All products related to the human menstrual cycle are fully exempt, offering savings for individuals and businesses selling these essential items.

Over-the-Counter Drugs

Non-prescription medications such as pain relievers, antacids, and cough syrups are exempt from Vermont sales tax. This category also includes items like throat lozenges and medicated creams.

Example Scenario Exempt Products in Action

A pharmacy in Vermont sells a mix of exempt and taxable items. For instance, $2,000 in sales of exempt items like aspirin and hearing aids would not incur sales tax, while $1,000 in taxable items such as cosmetics and non-prescription sunglasses would. The business would collect sales tax only on the $1,000 taxable portion, simplifying compliance and reducing costs for customers.

For additional clarity on exempt product categories, refer to the Comprehensive List of Taxable and Exempt Items in Vermont.

How Sales Tax Exemptions Affect Your Business Operations in Vermont

Understanding and leveraging Vermont’s sales tax exemptions can significantly impact business operations by reducing costs and streamlining compliance processes. This section explores key exemptions, how to determine eligibility, and the benefits these exemptions offer to businesses.

What is Exempt from Sales Tax in Vermont?

Vermont provides several sales tax exemptions that apply to specific industries and entities, helping businesses save money and ensure compliance.

Agricultural Equipment

Agricultural equipment used predominantly in farming—at least 75% of its usage—is exempt from Vermont sales tax. This includes machinery such as tractors, plows, and irrigation systems. Businesses purchasing these items can save significantly, especially for large-scale farming operations. For further details on agricultural exemptions, refer to the Exempt Items Under Vermont Sales Tax.

Forestry Equipment

Forestry machinery and accessories used for timber processing, such as skidders, chainsaws, and loaders, are also exempt. These exemptions are vital for businesses in Vermont’s forestry industry, a key contributor to the state’s economy.

Advanced Wood Boilers

High-efficiency wood boilers that meet Vermont state standards are exempt from sales tax, promoting energy efficiency and sustainability. This exemption is particularly beneficial for businesses and property owners upgrading to eco-friendly heating systems.

Manufactured Goods Components

Items incorporated into manufactured products for resale are exempt from sales tax. For example, a Vermont-based manufacturer producing furniture can purchase wood, screws, and varnish without paying sales tax, as these components become part of the final product sold to consumers. To learn more, explore the Comprehensive List of Taxable and Exempt Items in Vermont.

Entity-Based Exemptions

Nonprofits, government organizations, and certain veteran groups are eligible for exemptions when purchasing goods or services in Vermont. These exemptions allow organizations to allocate more resources toward their missions rather than taxes.

How to Determine if Your Business Qualifies for Exemptions

Sales tax exemptions in Vermont often depend on the intended use of an item.

• Use-Based Exemptions: Eligibility is determined by how an item is used. For instance, fertilizer purchased for farming qualifies for an exemption, but fertilizer for personal garden use does not.
• Documentation Requirements: Businesses must provide valid exemption certificates to vendors when making tax-exempt purchases. These certificates must detail the reason for the exemption and be retained for audit purposes. For guidance on obtaining and managing exemption certificates, visit the Guidelines on Vermont Tax Exemption Certificates.

Benefits of Sales Tax Exemptions for Business Owners

Taking advantage of sales tax exemptions can offer several benefits to businesses:

• Reduced Operational Costs: Exemptions lower expenses for essential purchases like machinery, raw materials, and fuel, directly improving profitability.
• Simplified Compliance: Proper documentation of exemptions simplifies tax reporting, reduces errors, and minimizes the risk of penalties during audits.

What Items Are Not Taxed in Vermont?

Certain items are explicitly exempt from Vermont’s sales tax, as outlined by statute. These include:

• Clothing: Everyday wear, including shoes and uniforms.
• Medical Equipment: Durable goods like wheelchairs and prosthetics.
• Groceries: Food items intended for home consumption, excluding prepared meals and soft drinks.
• Menstrual Care Products: Fully exempt to reduce costs for essential items.

Example Scenario Exemptions in Practice

A nonprofit organization in Vermont purchases $5,000 worth of equipment for a community project. By using a valid exemption certificate, the organization avoids $300 in sales tax (at Vermont’s 6% rate). This savings can be redirected toward furthering its mission.

Compliance with Vermont Sales Tax Exemptions

Adhering to Vermont’s sales tax exemption rules is critical for businesses to avoid penalties and ensure accurate tax filings. This section explains how to manage exemptions, apply for certificates, and prepare for audits effectively.

Managing Sales Tax Exemptions for Businesses in Vermont

Businesses in Vermont must understand the different types of exemption certificates and follow proper record-keeping practices to maintain compliance.

Types of Exemption Certificates

Vermont businesses commonly use the following exemption certificates:

• Entity-Based Exemptions: Issued to nonprofits, government organizations, and veteran groups for qualifying purchases.
• Use-Based Exemptions: Apply when the taxability of an item depends on its intended use, such as fertilizer for farming versus personal gardening.
• Product-Based Exemptions: Cover specific exempt items like groceries, clothing, and medical equipment.

To ensure you’re applying exemptions accurately, consult the Vermont Sales and Use Tax Exemptions guide for detailed rules.

Record-Keeping Guidelines

To remain compliant, businesses must retain exemption certificates for at least three years. These records should include:

• Buyer information and exemption status.
• Details of the exempt purchase, including receipts and invoices.
• The reason for the exemption.

For a comprehensive understanding of taxable and exempt items, visit the Comprehensive List of Taxable and Exempt Items in Vermont.

Steps for Businesses to Apply Sales Tax Exemption in Vermont

Applying sales tax exemptions correctly is essential to avoid errors during tax reporting or audits.

Collect Valid Exemption Certificates

• Request exemption certificates from customers at the time of purchase.
• Verify that the certificates are complete and signed.
• Ensure the exemption type aligns with the transaction (e.g., product- or entity-based).

Ensure Proper Documentation

• Maintain organized records of all exemption certificates.
• Cross-reference certificates with invoices to ensure consistent reporting.

Audit Preparation for Vermont Sales Tax Exemptions

Being prepared for a sales tax audit involves ensuring that all exemption documentation is accurate and accessible.

Documentation and Preparation

• Keep detailed and organized records of all exempt sales.
• Regularly review exemption certificates to confirm validity.
• Update expired or incomplete certificates before filing returns, considering the appropriate filing frequency for your business.

Example Handling Exemption Certificates During Audits

A retailer in Vermont is audited for its sales over the past three years. The audit reveals inconsistencies in exemption certificate documentation, resulting in penalties for improperly claimed exemptions. Businesses that regularly update and validate exemption certificates can avoid such costly mistakes.

What Businesses Need to Know About Digital Product Sales Tax in Vermont

The digital economy presents unique challenges for sales tax compliance, especially for businesses selling digital goods and services. This section provides an overview of Vermont’s tax rules for digital products and clarifies the taxability of software-as-a-service (SaaS).

Vermont Sales Tax Rules for Digital Goods and Services

Digital goods are subject to Vermont’s 6% state sales tax, with an additional local option tax of up to 1% in certain municipalities. These include:

• Taxable Items:
  • Software downloads, eBooks, and digital media such as music and movies.
  • Digital templates and graphic design files sold online.
• Exempt Services:
  • Professional services like consulting, accounting, and legal services remain exempt, even if conducted online.

Example Scenario Taxing Digital Goods

A Vermont-based graphic design company sells $500 worth of digital templates to a customer in Burlington. The applicable sales tax rate is 7% (6% state + 1% local). The total sales tax collected would be:

• Tax = $500 x 7% = $35
• Total Cost = $500 + $35 = $535

For more information about tax rules for digital products, visit the Comprehensive List of Taxable and Exempt Items in Vermont.

Vermont SaaS Tax Exemptions and Taxability

Unlike professional services, SaaS products are fully taxable under Vermont law, as they are categorized as “prewritten computer software” accessed remotely. Businesses selling SaaS products must collect and remit Vermont sales tax based on the customer’s location.

Example SaaS Sales in Vermont

A SaaS company sells a $2,000 annual subscription to a Vermont customer. If the customer is located in South Burlington, the total tax rate is 7%. The SaaS provider would collect:

• Tax = $2,000 x 7% = $140
• Total Cost = $2,140

Compliance Considerations for SaaS Businesses

• SaaS companies must monitor economic nexus thresholds of $100,000 in annual sales or 200 transactions in Vermont.
• Accurate records of sales and tax remittance are essential for audit readiness.

To better understand the nuances of taxing SaaS, check out Sales Tax on SaaS.

Automate Vermont Sales Tax Exemptions for Your Business with Kintsugi

Managing Vermont’s sales tax exemptions manually, including considerations for the streamlined sales tax initiative, can be challenging, but Kintsugi simplifies compliance through powerful automation tools.

Explore Kintsugi’s pricing and capabilities further on the Kintsugi Product Platform page.

Benefits of Automating Vermont Sales Tax Compliance

Automation helps businesses stay compliant while saving time and reducing errors:

• Tracking Exempt Transactions: Kintsugi monitors taxable and exempt sales in real time, minimizing manual mistakes.
• Simplifying Exemption Certificates: Automated tools store, validate, and organize certificates efficiently, with reminders for expiring documentation.

Learn more about the advantages of automation at Benefits of Automated Sales Tax Solutions.