Vermont software users getting notices about new tax added to their bills
By Guy Page
The tax bill is coming due on the software you download.
Effective July 1, Vermonters will pay a 6% sales tax on all purchases of most prewritten computer software. The expansion of the state sales and use tax to include software is one of two new taxes created by the Vermont Legislature this spring to reduce the 20% school spending property tax increase down to 14%.
The other new tax propping up school spending is levied on short term rental stays AKA ‘air BnBs’.
The software tax is assessed on the vendor, which will (as shown on the notice to a Vermont business, see photo) likely pass along the added cost to the customer.
As Gov. Scott is predicting another double-digit property tax increase next year if the Legislature fails to reform school spending and taxation, it is not unlikely that the 6% tax increase will climb.
The Vermont Department of Taxes website includes information on the expanded sales tax (see below).
Prewritten Computer Software
Effective July 1, 2024, all sales of prewritten computer software are subject to sales and use tax, including software purchased on storage media, downloaded to a computer system, or accessed remotely via the internet.
Since 2015, prewritten software accessed remotely and not downloaded had been exempt from sales tax. However, Act 183 (H.887) of 2024 specifically applies the sales and use tax to all prewritten computer software, regardless of the method in which the software is delivered or accessed, effective July 1, 2024.
Definition of “Prewritten Computer Software”
Prewritten computer software is defined as software not designed or developed by the creator to the specifications of a specific purchaser. This includes upgrades to software and software maintenance contracts for the provision of upgrades of prewritten computer software.
Prewritten computer software includes:
programs for office work such as spreadsheet editor, word processing, or software that creates electronic documents
accounting software
video games
web browsers
Prewritten computer software does not include:
Custom software (software designed for a specific customer). If prewritten computer software is sold together with customized software, it remains prewritten computer software and is taxable. However, if 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 and is exempt from tax.
Responsibility to Collect and Remit Tax
Vendors of prewritten computer software are responsible for collecting and remitting sales tax if selling software in Vermont. If sales tax is not collected, users (buyers) are responsible for paying use tax. Use tax applies if a product is first used in a Vermont location, or possession takes place in Vermont.
The first payments of sales and use tax on prewritten computer software accessed remotely are due on or before August 1, 2024, unless the seller is eligible to make quarterly or annual payments under 32 V.S.A. § 9775.
In addition to sales and use tax, some Vermont communities levy a 1% Local Option Tax on sales that are subject to Vermont Sales Tax. For more information, see https://tax.vermont.gov/business/local-option-tax.