Vermont – Introduction of Sales Tax Liability for SaaS
3 min. read
Vermont Legislature adopted Act 183 (H.887) of 2024 last June, which overrides the Governor’s veto on the sales tax exemption for “prewritten computer software accessed remotely.” Since 2015, prewritten software accessed remotely has been out of the sales and use tax scope. However, the abovementioned bill repealed that leverage for cloud software providers.
Under the new legislative act, tangible personal property also includes prewritten computer software – regardless of the method it is paid for, accessed, or delivered to the buyer.
Timeline
The introduction of the Sales Tax Liability for Saas suppliers shall be effective from July 1, 2024.
Regulatory Landscape and Impact
Before adopting the new legislation, Vermont hasn’t extended its sales and use tax obligation to the supplies of cloud-based software applications. Expanding the concept of prewritten computer software to the types that are reachable remotely makes the different types of cloud-based software, such as Software as a Service(Saas) and Platform as a Service(Paas), among others, part of the sales and use tax matrix.
From a practical perspective, this means that the underlying supply of cloud-based software solutions(which belong to the new concept of prewritten computer software) should be treated as a taxable transaction.
The sales or use tax rate for this supply is 6%. The providers or users of the prewritten computer software, such as Saas, are obliged from July 1, 2024, to impose a sales or use tax rate for this type of supply. Customized prewritten computer software is still exempt from the sales or use tax liability.
Compliance Responsibilities
Sellers of the prewritten computer software are responsible for charging, collecting, and reporting sales tax to the respective state revenue administration. In cases where sales tax isn’t collected, the responsibility for tax collection is transferred to the purchasers. The obligation to impose a use tax is founded on where the software is first used. If the supply or possession takes place in Vermont, the buyer should levy a use tax and report it adequately.
Vermont has joined the list of many other US States that have introduced sales tax liability for cloud-based prewritten computer software suppliers. The legislators were driven by the idea of expanding the taxability concept of prewritten computer software to cloud-based solutions because the tax derived from these service providers would contribute to the public budget.
It’s calculated that public revenue will increase approximately by USD 22 million in the first year since the adoption of new rules.
Aleksandar Delic 1stopVAT Senior Indirect Tax Researcher (Global Content)
