If you are starting a nonprofit organization that has obtained federally designated tax-exempt status, you are exempt from paying corporate and business income taxes in Vermont. However, you must pay taxes on unrelated business income.
Regarding other types of Vermont taxes, such as sales and use tax and meals and rooms tax, only some nonprofit organizations are exempt in situations that meet specific criteria. In other words, assume that a nonprofit must pay tax when buying or renting or must charge tax when selling unless specifically exempted by Vermont law.
Any nonprofit organization employing paid staff must withhold federal and state income taxes from employee paychecks and remit the taxes to the IRS and to the Vermont Department of Taxes.
Some nonprofits that meet specific criteria in Vermont law are exempt from property taxes in Vermont.
It is important to follow IRS guidance to maintain tax-exempt status. When the IRS revokes the federally designated tax-exempt status of an organization, the organization can no longer claim tax-exempt status under Vermont law. The day following the date of revocation, the organization is subject to Vermont taxes as any for-profit, commercial business operating in Vermont.
Learn more about federally designated nonprofit organizations.
Learn more about taxation of nonprofits in Vermont.
How To Register For A Business Tax Account and License
Nonprofit organizations that qualify for tax-exempt status may be exempt from Vermont business taxes. However, in many situations, nonprofits are required to collect and remit these taxes.
Anytime you are remitting Sales and Use, and Meals and Rooms taxes, you will need to register with the Vermont Department of Taxes as a nonprofit organization.
To register for a Vermont Business Tax Account and appropriate licensing, you must do the following:
- Obtain an Employer Identification Number (EIN) from the IRS even if you have no employees.
- Register for a Vermont Business Tax Account with the Vermont Department of Taxes before you make purchases or sales.
- Register for a Sales and Use Tax or Meals and Rooms Tax license before you make any sales, rent rooms, or serve meals—taxable or tax-exempt.
- You may register online through myVTax or the Vermont Secretary of State. If you register online, you will receive your account and license more quickly than registering using a paper form.
- If you prefer to use a paper form, submit Form BR-400, Application for Business Tax Account.
Submit a photocopy of the IRS determination letter granting tax exempt status with the application for the license.
Please note: Federally designated tax-exempt nonprofit organizations from out of state that want to do business in Vermont must register for a Vermont Business Tax Account and appropriate licensing before making any transactions in Vermont.