Does Vermont Have a State Tax?

Vermont, like many states, implements various forms of taxation to fund public services and infrastructure. These taxes encompass personal income tax, sales and use tax, property tax, and several other specific levies.

Vermont Personal Income Tax

Vermont operates a progressive personal income tax system, meaning that as taxable income increases, the tax rate applied to higher income brackets also rises. This structure aims to distribute the tax burden more equitably across different income levels. The state’s income tax is imposed on various types of income, including wages, salaries, business income, and investment earnings.

Taxpayers determine their Vermont taxable income by starting with their federal adjusted gross income (AGI). From this federal AGI, certain additions or subtractions specific to Vermont tax law are applied to arrive at the state’s taxable income. Vermont allows for certain deductions and exemptions, such as a standard deduction or itemized deductions, similar to federal tax provisions, which can reduce the amount of income subject to tax.

The state uses a system of tax brackets, with different percentages applied to specific income ranges. For example, for the 2024 tax year, income up to a certain threshold might be taxed at a lower rate, while income exceeding that threshold falls into a higher bracket with a greater tax percentage. While the specific rates and bracket thresholds can change annually, the progressive nature of the system remains consistent.

Taxpayers may also be eligible for various credits that directly reduce their tax liability, rather than just their taxable income. These credits can include those for dependents, earned income, or specific educational expenses. The interplay between federal AGI, state-specific adjustments, deductions, and credits ultimately determines an individual’s final Vermont income tax obligation.

Vermont Sales and Use Tax

Vermont imposes a statewide sales tax of 6% on the retail sale of most tangible personal property and certain services. This tax is typically collected by the seller at the point of sale and then remitted to the state.

Certain goods and services are exempt from Vermont sales tax. Common exemptions include most food items purchased for home consumption and prescription drugs. However, prepared foods or meals served in restaurants are generally subject to the sales tax.

The state also levies a use tax, which complements the sales tax. The use tax applies to items purchased outside of Vermont for use, storage, or consumption within the state, where no Vermont sales tax was paid. For instance, if a Vermont resident buys an item online from a retailer located in another state that does not charge Vermont sales tax, the resident is responsible for remitting the Vermont use tax directly to the state. The use tax rate is the same as the sales tax rate.

Vermont Property Tax

Property taxes in Vermont are a significant source of revenue, primarily levied at the local level by municipalities and school districts. However, the state plays a substantial role, particularly in funding public education through a statewide education property tax. This system ensures that all properties contribute to the state’s education fund, regardless of their specific town.

Property values are assessed by local assessors based on the fair market value of the property. This assessment forms the basis for calculating the property tax liability. Vermont distinguishes between “homestead” and “non-homestead” properties for tax purposes. A homestead is the primary residence of a Vermont resident, and it may be subject to different education tax rates or caps compared to non-homestead properties.

To qualify for homestead property tax rates or relief, homeowners must file a Homestead Declaration with the Vermont Department of Taxes. The state also offers a Property Tax Adjustment program, which provides tax relief to eligible homeowners based on their income and property tax bill. This program helps to ensure that property taxes do not become an undue burden for lower and middle-income residents.

Other Notable Vermont Taxes

Vermont levies several other taxes that contribute to state revenue. These include various excise taxes, which are imposed on specific goods or services. For example, excise taxes are collected on the sale of motor fuel, alcoholic beverages, and tobacco products. These taxes are typically built into the price of the product and are ultimately borne by the consumer.

Vermont also has an estate tax, which is levied on the estates of deceased individuals whose gross estate exceeds a certain threshold. The purpose of this tax is to capture a portion of the wealth transferred at death. While the specific exemption amount can vary, it is generally aligned with federal estate tax thresholds, though state-specific rules apply.

Additionally, the state imposes a corporate income tax on businesses operating within its borders. These various taxes collectively contribute to the funding of state and local government services across Vermont.