Officials outline Vermont sales, meals and rooms taxes and recent changes

At a luncheon workshop hosted by the Ways & Means Committee and the Joint Fiscal Office, state tax experts reviewed how Vermont’s consumption taxes work, what they fund and several recent legal and statutory changes affecting online and platform-based sellers.

The presentation, led by Kirby Keaton of the Office of Legislative Counsel and Ted Barnett of the Joint Fiscal Office, covered the sales-and-use tax base, exemptions, the role of use tax, the impact of the U.S. Supreme Court’s Wayfair decision on remote sellers and marketplace facilitators, changes to taxation of remotely accessed software, and a short-term-rental surcharge that allocates additional revenue to the education fund.

Keaton framed the technical starting point: “we're gonna talk about consumption taxes,” then summarized the sales-and-use tax base and exemptions. “The tax rate for the sales tax in Vermont is 6%,” he said, and noted that some municipalities may add a 1% local option tax. Keaton added that Vermont has “more than 50, I think maybe more than 60 sales and use tax exemptions,” and warned that the exemptions make the area “a pretty complex area of the tax code.”

Why this matters: Ted Barnett said consumption taxes are a significant revenue source, estimating “consumption taxes overall in that bridal bin is $1,340,000,000 estimated in fiscal year 25. That's about 26% of overall revenue collection by the state.” Barnett and Keaton emphasized that a sizable share of those collections—tens to hundreds of millions of dollars—flows to the state education fund.

Sales and use tax basics

Keaton explained that Vermont’s sales tax applies primarily to retail sales of tangible personal property and certain enumerated items; the liability rests with the buyer. He described the complementary role of the use tax: “Use tax comes into play. It's it's it's important because without it, we would have major loopholes in the sales tax,” for example when residents buy taxable goods out of state and bring them into Vermont.

Keaton cited the legal background that left states unable to require out-of-state sellers to collect sales tax until the U.S. Supreme Court reversed the earlier Quill decision. He summarized the court shift: states can require collection from remote sellers when an economic-presence threshold is met, a change commonly referred to as the Wayfair decision. Vermont’s statute, Keaton said, adopted economic-presence thresholds similar to the South Dakota law that led to Wayfair; Vermont’s collection rules for large remote sellers took effect July 1, 2018.

Marketplace facilitators and software

Keaton noted an added wrinkle: platforms that facilitate sales for third-party sellers are generally captured by Vermont’s law as marketplace facilitators and may be responsible for collecting tax on transactions processed through their sites. He also reviewed software taxation changes: after a prior session law treated remote access to certain prewritten software as non-taxable, “After act 183 of last year, it is now taxable,” Keaton said, meaning pay-to-access (cloud) software is now subject to sales tax. He clarified that custom software, digital photos and IT support remain treated as services and are not taxable under current law.

Meals and rooms tax and short-term rentals

Keaton summarized meals-and-rooms rules: a 9% state rate on taxable meals and lodging (10% on alcoholic beverages), with some local-option authority for municipalities. He described the rooms tax as applying to short-term occupancy but not to rentals of 30 consecutive days or more. Keaton discussed how the law evolved to cover short-term rentals and online travel agents, noting that those intermediaries are now treated as operators in many cases and must collect the tax.

Keaton also stated a more recent statutory change: the legislature added a 3% short-term-rental surcharge that is allocated to the education fund.

Fiscal context and exemptions

Barnett placed consumption taxes inside the broader revenue picture and discussed tax-expenditure estimates. He reported that sales-and-use tax and related consumption taxes are estimated to yield about $1.34 billion in fiscal 2025 and that a significant share flows to the education fund; on sales-and-use tax alone, Barnett said the state will deliver “over $600,000,000 to the education fund” in fiscal 2025 (consensus forecast figures summarized during the presentation). He also cited tax-expenditure estimates: the Joint Fiscal Office’s catalog estimates roughly $380,100,000 in sales-and-use tax exemptions for fiscal 2026, with the single largest exemption being the grocery/food exemption (about $143,400,000).

Barnett and Keaton discussed equity and simplicity trade-offs: exemptions such as food, clothing and medical products reduce regressivity but increase complexity and administrative burden. Barnett noted long-term structural trends that matter for consumption-tax receipts: an increasing share of household spending on services (which Vermont generally does not tax) and inflation-driven nominal revenue increases.

Audience questions and clarifications

Presenters fielded audience questions about resale certificates (used by retailers to avoid tax on purchases intended for resale), whether large warehouse retailers accept resale certificates, and whether online booking sites collect tax for stays outside Vermont. On one question Keaton confirmed: a Vermont hotel stay booked through an online travel site generally results in collection of Vermont tax when the occupancy is in Vermont.

Ending

Presenters closed by reminding attendees that the legal and statutory framework for consumption taxes has shifted substantially over the past decade due to court rulings and legislative changes, and that the JFO and Department of Taxes continue to catalog exemptions and forecast revenue to inform policy decisions.