Vermont’s Exemption on Cloud Computing

This blog was last updated on June 26, 2021

Last year Vermont enacted legislation to be exempted from taxation sales of cloud computing (also known as remotely accessed prewritten software, Software-as-a-Service, “SaaS”, or ASP).

A Brief Legislative History

In 2010, Vermont issued a technical bulletin that interpreted existing law as imposing tax on prewritten software regardless of how the software was accessed. Act 143 of 2012 imposed a moratorium on the assessment of sales tax on purchases and allowed for refunds of tax paid. The moratorium expired on July 1, 2013. The Vermont Department of Taxes then issued a fact sheet outlining whether a transaction involving remotely accessed software may or may not be subject to tax. This guidance lapsed as of July 1, 2014. The Department then circulated draft regulations for comment and composed the legislation that was eventually enacted on July 1, 2015.

Cloud computing goes from taxable to exempt

Originally the Vermont Department of Taxes imposed tax on cloud computing because the state considered the charge for the right to access remotely prewritten software as charges for tangible personal property. However, the 2015 Legislation provides that software accessed solely on a cloud platform does not fall within the definition of tangible personal property. Based on the 2015 legislation it is clear Vermont now treats charges for access over the cloud as a computer service or intangible transaction, which is generally not subject to sales tax unless specifically enumerated.

Be aware…

This legislation addressed only software accessed remotely. Prewritten software in other forms — including download — would continue to fall under the definition of tangible personal property found in 32 V.S.A. § 9701(7). Vermont also continues to tax specific digital products including digital audio-visual works, digital audio works, digital books, and ringtones that are transferred electronically.