A Vermont sales tax exemption can save your business or organization thousands each year—if you know how to qualify and document it properly. Whether you’re a manufacturer, nonprofit, government agency, or reseller, understanding which items are exempt (and how to prove it) is essential for compliance and cash flow. But between outdated certificates, shifting tax rules, and local option taxes, mistakes are common.
That’s where Hands Off Sales Tax (HOST) makes a difference. From resale certificate generation to audit-ready documentation, HOST simplifies exemption management so you can focus on operations—not tax admin. This guide breaks down everything you need to know.
What Is Exempt Under Vermont Sales Tax Law?
Let’s break down in clear terms which products and entities qualify for tax exemptions in Vermont—and how recent updates have broadened eligibility.
Standard Exemptions
- Groceries (off-site consumption) – Foods like fresh produce, dairy, meats, and bread are exempt, though beverages such as soft drinks remain taxable.
- Clothing and Footwear – Everyday apparel including coats, uniforms, wedding attire, and shoes are fully exempt. Accessories and protective gear generally remain taxable.
- OTC Drugs, Menstrual Products & Durable Medical Equipment – Items such as aspirin, cough syrup, sanitary products, wheelchairs, and prosthetics qualify for exemption.
- Agricultural & Forestry Machinery – Equipment used predominantly (75% or more) for farming, horticulture, or timber processing is exempt.
- Manufacturing Equipment & Machinery – As of July 1, 2022, Vermont expanded its scope to exempt machinery and equipment that are part of an authentic integrated production operation—including conveyors, packaging systems, quality-control instruments, and environmental controls.
- Certain Entities – Purchases made by nonprofits, government agencies, and other qualifying organizations may be exempt under Vermont tax law, often via proper certification.
Why It Matters
Vermont’s exemptions are designed to ease the tax burden on essential goods, critical industries, and public-serving entities. Knowing what’s eligible—and how to document it properly—can lead to significant savings and smoother operations.
How to Claim Exemptions — Certificates & Documentation
Understanding how to properly claim sales tax exemptions in Vermont is essential. Here’s a clear walkthrough of the required documentation and certificate usage for different exemption categories.
Form S‑3: Exemption & Direct-Pay Permits
Vermont’s Form S‑3 is the official Sales Tax Exemption Certificate, used when purchasing:
- For resale
- By qualified exempt organizations (e.g. nonprofits)
- Using a direct-pay permit (e.g., contractors purchasing materials for construction).
This form must be furnished to the seller, not filed with the state. If not presented, sellers may be held liable for collecting sales tax.
Required Documentation
• Resale Certificates
Use Form S‑3 to claim exemption on goods intended for resale. It must include your Vermont tax account number, description of intended use, signature, and date. Sellers must keep it on file.
• Nonprofit or Government Purchases
Nonprofit and certain government entities must also submit Form S‑3, indicating their status (e.g., 501(c)(3), governmental unit) along with their account number to qualify for exemption.
• Direct-Pay Permit Usage
If authorized, some entities (like contractors) pay tax directly to the state instead of the seller. Form S‑3 must clearly indicate the permit number and exemption basis.
Best Practices for Use & Record-Keeping
- Present before or at the point of sale—ideally, prior to the transaction to avoid confusion or tax being charged.
- Ensure completeness—all forms must be fully filled, accurate, signed, and dated.
- Maintain records—sellers should keep certificates on file for at least three years to demonstrate “good faith” acceptance during an audit.
By using Form S‑3 correctly and consistently, you can confidently claim exempt transactions without risking penalties. Need a streamlined way to manage exemption certificates and documentation? HOST has powerful tools and guidance to keep your exemption process smooth and audit-ready.
When Exemptions Don’t Apply
While Vermont offers a broad set of sales tax exemptions, many products and services still fall outside these provisions. Understanding these exceptions is critical to avoiding costly compliance mistakes or unexpected charges.
Apparel Accessories and Luxury Items
Basic clothing and footwear are exempt in Vermont, but accessories and luxury goods are not. Taxable items include:
- Jewelry
- Handbags
- Cosmetic items
- Sports equipment and protective wear
Food and Beverage Exclusions
While unprepared grocery food is tax-exempt, these items are taxable:
- Prepared meals (e.g., takeout, restaurant meals)
- Soft drinks and sweetened beverages (regardless of where sold)
Digital Goods and Services: July 2024 Update
As of July 1, 2024, Vermont expanded its tax base to include many digital goods and services, such as:
- Streaming media
- E-books and downloads
- SaaS, IaaS, and cloud storage
- Pre-written software accessed remotely
Even nonprofits using digital platforms must pay sales tax unless a specific exemption applies.
Delivery & Shipping Nuances
Shipping charges are partially taxable when an order includes both taxable and exempt items. If no clear breakdown is provided, the full delivery fee becomes taxable.
Knowing when exemptions don’t apply is just as important as knowing when they do. Staying informed helps avoid audit triggers and overcharges.
Local Option Taxes & Geographic Nuances
Vermont’s statewide sales tax structure is simple on the surface—but municipalities have the authority to layer on local taxes, which can create added complexity. Understanding these nuances is essential for accurate invoicing, tax calculation, and exemption usage.
Statewide Base vs. Local Add-Ons
Vermont imposes a statewide sales tax of 6% on taxable goods and services. However, certain municipalities are authorized to collect an additional 1% “local option tax,” bringing the total rate to 7% in those areas.
Some municipalities that have adopted the local option tax include:
- Burlington
- Brattleboro
- Rutland
- Middlebury
- Montpelier
- Hartford
How Exemptions Apply Across Jurisdictions
While state exemptions (e.g., groceries, clothing, manufacturing equipment) apply uniformly across Vermont, local option taxes still apply on non-exempt items sold in or delivered to applicable towns. For example:
- A nonprofit organization making an exempt purchase will not pay the 6% state sales tax.
- But if the item is otherwise taxable and shipped to Burlington, the 1% local tax may still apply, unless that entity also qualifies for local exemption.
Destination Matters
In Vermont, sales tax is destination-based. This means that the location where the buyer receives the goods—not where the seller is located—determines whether the local option tax is triggered.
To stay compliant, businesses must track customer addresses and apply local taxes accordingly.
Compliance Tips & Audit Readiness
Vermont sales tax compliance isn’t just about collecting the right amount—it’s about maintaining airtight records and staying ahead of regulatory changes. Whether you’re a retailer, manufacturer, or nonprofit, following best practices helps you avoid penalties, audit risks, and unnecessary tax liabilities.
Maintain Exemption Certificate Records
Keep copies of all exemption certificates, including:
- Form S-3 for resale and nonprofit transactions
- Direct-pay permits and related authorization letters
All certificates should be readily available for at least three years, as required by the Vermont Department of Taxes.
Classify Goods with Precision
Incorrect product classification is a common trigger for audits. Examples:
- Protective footwear used in manufacturing may be exempt
- Everyday shoes are taxable
Review item descriptions carefully and consult Taxable and Exempt Items List
Track Taxable Portions of Mixed Orders
If an order includes both taxable and exempt items (e.g., groceries + soda), shipping charges must be apportioned accordingly. Improper allocation could result in over-collection or under-remittance.
Stay Current with Law Changes
Recent changes include:
- Repeal of the exemption for cloud-based software in July 2024
- Expanded exemptions for integrated manufacturing equipment in 2022
Monitor Vermont legislative tax updates or work with compliance experts to stay informed.
By implementing these practices, businesses improve audit readiness and maintain long-term compliance in Vermont.
Why Businesses Trust HOST for Sales Tax Compliance
Navigating Vermont’s complex exemption rules is just one part of the broader sales tax landscape—and that’s where Hands Off Sales Tax (HOST) steps in. As a full-service compliance partner, HOST helps businesses of all sizes reduce risk, stay compliant, and avoid costly errors.
One of HOST’s standout offerings is ResaleCertify, a powerful platform that streamlines the resale certificate creation process. With ResaleCertify, you can generate valid, accurate resale certificates quickly, minimizing human error and ensuring you have proper documentation for every exempt transaction. It’s the easiest way to stay audit-ready without spending hours on manual paperwork.
But HOST doesn’t stop there. Our end-to-end compliance services include:
- Sales Tax Registration across all U.S. states, including Vermont
- Nexus Analysis to help you identify where you’re required to collect and remit sales tax
- Ongoing Filing Services (monthly, quarterly, or annual based on thresholds)
- Audit Defense and response management
- Sales Tax Matrix Creation to classify your products correctly
- Notice Resolution and compliance troubleshooting
- VDA (Voluntary Disclosure Agreements) support for past liabilities
HOST is more than just a service provider—we’re your long-term partner in navigating sales tax with confidence. Whether you’re scaling your eCommerce brand or running a regional business, we’ve got you covered.
Exempt, Not Exempt from Responsibility
Understanding Vermont sales tax exemptions can save your business or organization thousands—but only if you apply them correctly. From groceries to manufacturing equipment, the range of exempt items is broad, but so are the rules. Proper documentation, awareness of local taxes, and staying ahead of regulation changes are critical to compliance.
That’s where HOST comes in. From helping you issue resale certificates through ResaleCertify to managing complex filings and audits, HOST ensures you’re never caught off guard. Ready to simplify your tax compliance? Get in touch with HOST today and take control of your sales tax obligations.
Frequently Asked Questions
1. What items are exempt from Vermont sales tax?
Common exemptions include groceries (excluding soft drinks), clothing, footwear, OTC medications, menstrual products, agricultural machinery, and manufacturing equipment. Certain nonprofits and government entities may also qualify for exemption with proper certification.
2. How do I claim a Vermont sales tax exemption?
You must present a completed Form S‑3 to the seller at the point of sale. Depending on the exemption type, you may also need a resale certificate, direct-pay permit, or nonprofit verification. The form must be fully completed and retained for audit purposes.
3. Are digital goods exempt from Vermont sales tax?
No. As of July 1, 2024, most digital goods—including SaaS and cloud services—are subject to Vermont sales tax, regardless of exemption status. Businesses offering digital products should carefully classify and report these sales.
4. Does the 1% local option tax apply to exempt goods?
No. If the item is fully exempt under Vermont law, the local option tax does not apply. However, if the item is partially taxable (e.g., part of a mixed order), the local tax applies to the taxable portion only.
5. How long is an exemption certificate valid in Vermont?
Most exemption certificates are valid for four years from the date of issue. Blanket resale certificates remain valid as long as transactions occur at least once per year. Be sure to track renewal deadlines to avoid compliance issues.
