Compliance Corner

The Compliance Division’s work contributes to the mission of the Department of Taxes by informing and educating taxpayers about complex tax laws, selecting and conducting audits, and collecting unpaid taxes. We have 55 auditors, collectors, technical, and support staff working on behalf of all Vermonters to ensure taxpayers are paying the right amount of tax.

One of our primary goals is to encourage “voluntary compliance” – that is, to enable Vermont taxpayers to accurately determine what taxes they are liable for and pay the correct amount on their own. Another goal is to provide a level playing field for Vermont taxpayers by making sure that everyone is paying their fair share, in accordance with current law.

Tax laws are complex, which can lead to honest mistakes and there are people and businesses who under report taxes or do not file tax returns at all. We work diligently to identify people and businesses who are not reporting and paying the correct amount of tax and help bring them in to compliance. This is achieved through educational outreach, fact sheets, regulations, and audits conducted from our office in Montpelier and field staff located around the state.

We are continually looking for ways to improve service to Vermont taxpayers, and we welcome your feedback. You can contact the Compliance Division by phone at (802) 828-2514 or send an e-mail.


TIPS & NEWS

June 11, 2019

Tax-Exempt Nonprofit Organizations

During some recent audits, it was discovered that some nonprofits are incorrectly claiming exemption from Vermont Sales and Use tax.

Many nonprofit organizations that qualify for an exemption from federal income tax are also exempt from Vermont income tax. However, nonprofits are generally not exempt from paying other state taxes, such as Vermont Sales and Use Tax. Taxes are due on most purchases and sales made by your nonprofit.

Only federally designated 501(c)(3) tax-exempt nonprofit organizations are normally exempt from Vermont Sales Tax when making purchases of items that are taxable in Vermont, subject to certain requirements and limitations.

A tax-exempt nonprofit organization that is not a 501(c)(3) is not exempt from Vermont Sales and Use Tax. Organizations with tax exempt status under subsections 501(c)(4)-(13) and (19), and political organizations under 26 U.S.C. § 527(e), are subject to sales and use tax unless specifically exempted.

March 8, 2019

Exempting Meals

An audit of a business revealed sales of meals that were filed as exempt where the records to support the meal exemptions were not maintained. When exempting sales to schools, qualifying government entities or municipalities or other qualifying exempt organizations you must maintain records to document the entity that paid for the purchase. The Law requires that businesses maintain records for three years.

When exempting meals, you must maintain documentation that shows the entity itself paid for the meal. Individuals representing themselves as members, employees or representatives of exempt entities, such as schools, qualifying government entities or municipalities, are not eligible for the exemption when they purchase meals. A payment from the entity itself is good documentation that the entity paid for the meal.

For more information see:

Read more tips & news


NOTABLE CASES

July 1, 2019

Short-Term Rental

Recent tax audits identified unreported income tax as well as unreported meals and rooms tax from individuals that provide short-term rentals. A short-term rental is a property that you own or control that you rent out for short periods of time. Income earned from the rent is subject to income tax and the rent charged to the lodger is subject to the Vermont meals and rooms tax.

Income Tax

Vermont tax law requires that individuals report the income earned from the short-term rentals. When you file your Vermont Income Tax Return, you will need to ensure the following entries include the income you earned from the short-term rental:

  • adjusted gross income and
  • taxable income (inclusive of the rental income) from your federal income tax return, found on Form 1040, Schedule E.

Meals and Room Tax

Sleeping accommodations offered to the public for a consideration on premises operated by a private person, entity, institution, or organization are subject to the Vermont Meals and Rooms Tax if those rentals total fifteen (15) or more days in any one calendar year.

The following are a few examples of the types of lodging rented or owned by the host which fall under the provisions of the law:

  • A house or room(s) in a house
  • Cabin, cottage, condominium, ski lodge
  • Barn, bunkhouse, tree house, camper, tent

You are personally responsible for registering for a Meals and Rooms tax account with the Vermont Department of taxes and charging your guests the 9% Vermont meals and rooms tax for the rent accommodation. Learn more about how to register for an account. In addition, if you are providing meals to your guests and billing them separately, those meals are also subject to the tax.

Please note: If you rent your room or other type of lodging to the same person for thirty (30) or more consecutive days, the person is then considered to be a permanent resident, and different rules apply. In addition to the state taxes, you may also be required to collect and remit a local option tax imposed by some Vermont municipalities. Please check with your town/municipality.

See more Notable Cases


CURRENT WORK

Corporate/Business Income Non-Filers

In general, any business that operates or has any presence in Vermont is required to file an Income Tax return with the state, or report on 1040 Schedule C if it is a sole proprietor or single member LLC. Our Office Audit and Discovery teams have been working on ways to identify companies that are operating in Vermont, but not filing the required returns for Corporate or Business Income tax.

We have identified dozens of businesses that fall into this category. Recently, we have been using various information sources that indicate companies that have employees working in Vermont, or own or rent property in Vermont, to conduct business. Going forward, we have more data stores and avenues to uncover other companies similarly operating, but without filing or paying Income Tax.

We want to share this information for two reasons. First, to let businesses and preparers know that if they are conducting business in Vermont, to be aware that there is generally an entity-level Income Tax filing requirement, and that the Department is actively working to find companies that are not meeting this responsibility. Second, and equally importantly, we want to assure all taxpayers – Vermont businesses and beyond – who voluntarily report and pay the correct tax, that we are diligently working to ensure your colleagues and competitors in the business community are doing the same. We want all businesses to be on a level playing field and be paying the correct amount of tax.

For more information review our Corporate and Business income tax web page, as well as Technical Bulletin 70 on this topic.


Personal Income Tax Discoveries

The Vermont Department of Tax regularly conducts the following four Personal Income Tax (PIT) discoveries:

  • CP2000 Discovery: A notice containing preliminary findings is mailed to a taxpayer based on information the Internal Revenue Service (IRS) has identified as being under reported, which information appears to not be considered on the Vermont tax return filed.
  • IRMF Non-Filer Discovery: A notice is mailed to the taxpayer when the Department has information that indicates a strong possibility a Vermont Personal Income Tax return should have been filed. The estimated tax liability on the preliminary notice is based on data received from the IRS and other information available to the Department. The preliminary notice indicates the taxpayer needs to file a return or let us know why they believe they do not have a filing requirement in Vermont.
  • IMF Non-Filer Discovery: This discovery covers situations where the taxpayer has filed a Federal return but did not file a Vermont Income Tax. The estimated tax liability on the preliminary notice is based on data received from the IRS and other information available to the Department. The preliminary notice indicates the taxpayer needs to file a return or let us know why they believe they do not have a filing requirement in Vermont.
  • Discrepancy Discovery: This discovery covers situations where the taxpayer has filed a Federal return and a Vermont Return, and it’s believed there is under reported financial income. The estimated tax liability on the preliminary notice is based on data received from the IRS and other information available to the Department.  The preliminary notice indicates the taxpayer needs to file an amended return or let us know why they believe they do not have to amend.

Over the course of 2019, we plan to release the following PIT discoveries:

Program tax year Expect Release 
Time Frame
IRMF Non-Filer 2015 February 2019
CP2000 2015 April 2019
CP2000 2016 May 2019
IMF/IRTF Non-Filer 2015 June 2019
IRMF Non-Filer 2016 July 2019
IMF/IRTF Non-Filer 2016 August 2019
Discrepancy 2016 September 2019

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