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 has 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.
What is Taxable and Nontaxable
| Product | Taxable | Nontaxable |
|---|---|---|
| Custom software written exclusively for the customer’s business | x | |
| Development and technical support services | x | |
| Digital audio works | x | |
| Digital audio-video works | x | |
| Digital books | x | |
| Digital photographs | x | |
| Prewritten computer software accessed remotely on the internet or SaaS | x | |
| Prewritten computer software downloaded from the internet | x | |
| Prewritten computer software on tangible storage media | x | |
| Ringtones | x |
References
32 V.S.A §§ 9701(7), 9771(1), and 9773(1)
Vermont Sales and Use Tax Regulations, § 1.9701(7)-2z
Act 183 (H.887) of 2024, Secs. 3, 4, and 25(e)
Act 51 (S.138) of 2015, Secs. G.8 and H.1(b)(13)
Learn more about sales and use tax and local option tax