Vermont LLC Taxes
When setting up a Vermont limited liability company (LLC), having a clear understanding of the state’s tax laws and regulations is crucial for keeping your LLC in good standing.
In this guide, we will help you understand the key aspects of Vermont LLC Taxes, including the steps on how to correctly file your LLC taxes in Vermont and how to keep it compliant with federal, state, and local laws.
Recommended: Schedule a free consultation with 1-800Accountant to stay on top of your taxes.
How Is an LLC Taxed in Vermont?
Taxation in Vermont isn’t applied in the same way to all LLCs – instead, it varies depending on a number of factors, such as an LLC’s nature, locality, and tax election.
While LLCs typically benefit from pass-through taxation (where income is funneled directly to all members) by default, they can elect to be taxed as one of the following:
- C Corporations: The LLC is treated as a separate entity to its owners, paying corporate income tax rates on its total profit while the owners also pay personal income taxes on any distributions they take.
- S Corporations: In return for paying owners a “reasonable salary,” the LLC’s remaining profits are distributed among members without a need to pay self-employment tax or FICA tax on them.
The following sections go into the various tax responsibilities of your LLC at local, state, and federal levels in Vermont to help you ensure your LLC navigates them effectively.
Vermont Local Taxes
Vermont has a range of local taxes that vary across different areas of the state. To help you, we have compiled a list of the specific local taxes that may apply to your LLC.
Local Option Taxes
Municipalities in Vermont can impose a local option tax (LOT) on sales, meals, rooms, and/or alcoholic beverages in addition to the applicable state business taxes. This tax does not apply to the sale or rental of motor vehicles.
The LOT rate remains fixed at 1%, but the total sales tax rate is the combined state rate and the LOT rate, which may differ based on the type of business activity and the location of the transaction in question.
For example, an LLC in Rutland Town would have a total sales tax of 7% (6% state rate + 1% LOT), a total meals tax of 10% (9% state rate + 1% LOT), a total alcohol tax of 11% (10% state rate + 1% LOT), and a total rooms tax of 10% (9% state rate + 1% LOT). Meanwhile, an LLC in Rutland City would just have to pay the 1% LOT for sales tax (for a total of 7%).
With the exception of the Cities of Burlington and Rutland, the Vermont Department of Taxes collects local option tax returns.
Tip: Use the local option tax finder to search for a specific address or town to determine if a LOT is levied. You can also see the list of municipalities that have a 1% LOT on sales, meals, rooms, and/or alcoholic beverages, and their effective dates.
In Vermont, property taxes are imposed at the local level by the municipalities, which vary by town and are based on the assessed value of the property.
LLCs are subject to property taxes in Vermont if they own real or personal property in the state. Real property includes land and buildings, while personal property includes machinery, equipment, furniture, fixtures, and inventory.
Your LLC must file a property tax return with the Vermont Department of Taxes by April 15 of each year and report the value of your property by April 1. LLCs may also qualify for property tax exemptions if they meet certain criteria, such as being a nonprofit organization, a farm, or a renewable energy facility.
Note: For more information about property taxes, see the Vermont Secretary of State's website.
Recommended Service: Schedule a free consultation with 1-800Accountant to ensure your business remains legally compliant.
Vermont State Taxes
Every state has its own regulations and rules that dictate how it taxes individuals and businesses. Below is a list of the most relevant state-level taxes for LLCs in Vermont.
Business Entity Income Tax
The business entity income tax applies to LLCs that are engaged in business activities in the state.
This tax is not a flat rate, but a variable rate that depends on both the type of entity and the income of the entity in question. The minimum tax for all active business entities is $250; keep in mind that this is the case even if the business entity has no income profits.
State Income Tax
The state individual income tax is a graduated tax, which means that the rate increases as the taxpayer's income increases.
The tax rates are structured as follows:
- For the lowest income earners, the tax rate starts at 3.35%.
- For the highest income earners, the tax rate can go up to 8.75%.
This state income tax applies to LLCs that are pass-through entities by default, where the LLC members report their share of the LLC income on their personal tax returns.
Note: To find out the rates that apply to various income brackets, see Vermont’s updated Rate Schedules and Tax Tables.
Corporate Income Tax
Vermont LLCs electing to be taxed as a C corporation are subject to the state’s corporate income tax rate, which is between 6% and 8.5% (depending on your LLC’s Vermont net income).
Additionally, all active corporations (and LLCs taxed as C corps) must pay a minimum annual tax, depending on their Vermont gross receipts. The minimum tax rates are:
- $2,000,000 or less: $300
- $2,000,001–$5,000,000: $500
- $5,000,001 and over: $750
Sales and Use Taxes
If your LLC sells tangible personal property in Vermont, you must collect and charge sales tax at the rate of 6%. You must also register for a Vermont Business Tax Account via the myVTax portal and obtain a sales tax license (also known as a seller’s permit or a sales tax account number) before you collect sales tax.
If your LLC purchases tangible personal property from an out-of-state seller that does not charge Vermont sales tax, you will be required to pay use tax at a rate of 6%.
Note: To learn more about sales and use tax filing deadlines, visit the Sales and Use Tax Record of Payment provided by the Vermont Department of Taxes.
In Vermont, your business may be subject to a variety of miscellaneous taxes in addition to the primary tax categories for specific activities or products. These taxes include:
- Alcoholic Beverage Tax
- Bank Franchise Tax
- Cannabis Excise Tax
- Captive Insurance Premium Tax
- Cigarette Tax and Tobacco Products Tax (including E-cigarettes)
- Fuel Tax
- Health Care Claims Tax
- Insurance Premium Tax
- Malt and Vinous Beverage Tax
- Railroad Tax
- Solid Waste Tax
- Surplus Lines Insurance and Direct Insurance Placement Tax
- Telephone Gross Receipts Tax and Telephone Personal Property Tax
- Uniform Capacity Tax
- Wind-Powered Electric Generating Facility Tax
Note: For more information on miscellaneous taxes in Vermont, please refer to the specific tax forms and instructions.
Regardless of where your business is located, if you run an LLC in the US, there are a number of federal taxes you’ll need to pay. Below are some of the main types your LLC may be required to pay for federal tax purposes:
By default, the Internal Revenue Service (IRS) will not treat single and multi-member LLCs as separate entities from you for tax purposes. What this means is that you’ll need to report your share of your LLC’s profits on your individual tax returns and pay federal income tax on them at the personal rate of your tax bracket.
Having said that, keep in mind that LLCs can also elect to be taxed as C corps or S corps, which changes how these taxes are levied in different ways.
In addition to income tax, members of single- and multi-member LLCs will need to pay federal self-employment taxes on the share of the business’s profits that they report on their personal income tax return at the end of the year.
This tax is levied at a flat rate of 15.3% against businesses with net earnings that exceed $400, though it is applied slightly differently to LLCs that have elected to be taxed as S corps or C corps.
If your LLC hires any employees, it will need to withhold a portion of their salaries to pay taxes on your employees’ behalf – including Social Security, Medicare (FICA), and payroll taxes.
Furthermore, the members of any LLCs that have elected to be taxed as an S corp will be required to pay employment taxes on their salaries. However, in return for this, the remainder of the business’s profit after these salaries have been distributed will be safe from both self-employment and FICA taxes.
If your LLC engages in certain types of business (such as the sale of alcohol and tobacco or operating a heavy highway vehicle, among others), it may need to pay federal excise taxes in order to do so legally. Each excise tax comes with its own set of rules, rates, and filing obligations you’ll need to be aware of.
Understanding and fulfilling these federal tax obligations is crucial for keeping your LLC compliant and avoiding unnecessary financial penalties and/or fines.
How to File LLC Taxes in Vermont
Below, we’ve outlined the general process an LLC in Vermont will need to follow in order to file their tax return correctly. Note that the specificities of each step will vary slightly depending on how your LLC is organized and the specific locality it’s based in.
Step 1: Gather Your Documentation
To ensure accurate tax filing, thorough record-keeping is essential. Begin by collecting your personal information, including:
- You and your partner’s Social Security number, date of birth, and residential address
- The previous year’s tax returns
- Your LLC’s Federal Tax Identification Number or Employer Identification Number (EIN)
Then, you’ll need to gather all documentation related to your business’s income, such as:
- Invoices you’ve issued
- Sales transaction logs
- Electronic payment reports from services like PayPal or Stripe
Lastly, assemble all records pertaining to your business expenses, which should cover:
- Lease receipts for your business premises
- Bills for utilities
- Records of office supplies purchases
- Documentation of business-related travel
- Payroll records for employees
Note: Depending on how your LLC is organized and its tax election, you may need different information for your tax return.
Step 2: Find The Right Tax Forms
Once you've gathered all necessary documents, the next step is to select the correct tax forms for your LLC based on its organization:
- Single-Member LLCs: The business’s total income and expenses are reported on a Schedule C form, which is attached to the owner’s personal tax return and due by April 15 or the following business day if it lands on a weekend or holiday.
- Multi-Member LLCs: File an information return using Form 1065. Members must fill out a Schedule K-1 showing their individual earnings or losses by March 15 or the next business day.
- C Corporations: File a corporate tax return using Form 1120 by the April 15 deadline or on the next business day if it's a weekend or holiday.
- S Corporations: Use Form 1120-S for the corporate tax return and distribute Schedule K-1 forms to shareholders for reporting their shares of profits or losses. The deadline for filing taxes using 1120-S is March 15 or the following business day.
Since state and local taxes will have their own individual forms and requirements, we recommend contacting your municipality or hiring an accountant for guidance.
With the appropriate documentation gathered and the correct tax forms for your business entity on hand, you’ll be ready to fill them out and submit them.
Step 3: File Your Taxes
The majority of businesses choose electronic filing for its speed, enhanced security, and reliability compared to paper filing, which can be slower and more prone to errors. Here’s how it works:
- Federal Tax Returns: The IRS provides two electronic services for tax submission: Free File for businesses with an AGI below $72,000 and Free Fillable Forms for those above the threshold.
- State Tax Returns: You can file your local and state taxes online via the myVTax portal or by paper form and mailing it to the Vermont Department of Taxes.
- Local Tax Returns: It may be helpful to contact your local officials for information about specific property taxes that apply to your business.
Note: These electronic filing tools are best suited for those who are already confident in handling their LLC taxes as if filling out a paper form.
For new business owners, we recommend opting for the expertise of a tax professional in order to ensure both accuracy and compliance in your tax filings.
Recommended: Schedule a free consultation with 1-800Accountant to stay on top of your taxes.
Keep Your Vermont LLC Compliant
While LLCs are generally easier to maintain than corporations, there are certain state and local formalities your LLC must satisfy in order to remain compliant.
Vermont LLC Annual Report
LLCs must renew their business registration each fiscal year by filing an annual report, which needs to be done within the first three months of the end of each LLC’s fiscal year. This report updates your LLC’s name, address, registered agent, managers, members, and other relevant information.
You must file your annual report online and pay the $35 filing fee. Failure to file your annual report on time may result in a late fee of $25 and the suspension or termination of your LLC’s ability to do business in Vermont.
Licensure and Tax Requirements
In Vermont, almost all businesses are required to obtain various licenses and permits at the local, state, and federal levels. Below, we’ve broken down three of the most common types your LLC may need:
- Sales Tax Licenses: If your LLC sells goods or services that are taxable, you will need to register for a sales tax license with the Vermont Department of Taxes.
- Professional Licenses: If your LLC plans to offer professional services that require a state license, such as accounting, law, medicine, real estate, etc., you will need to form a Professional LLC (PLC) and obtain the necessary licenses from the appropriate boards or agencies.
- Environmental Permits: If your LLC operates in a sector that may affect the environment, such as agriculture, construction, energy, mining, etc., you will need to apply for the relevant environmental permits from the Vermont Agency of Natural Resources.
Note: Refer to the Vermont Licenses and Permits Handbook for a comprehensive list of statewide licenses and permits required for your LLC.
Vermont LLC Taxes FAQs
Yes, you need a Vermont business tax account if your LLC sells taxable goods or services, rents rooms, sells meals or alcohol, or hires employees. You must register for a separate account for each tax type. You can register online with the Vermont Department of Taxes.
To learn how to pay your LLC’s taxes, see our section on how to file your taxes.
Vermont is considered a high-tax state, as it has high rates of income, sales, and property taxes. Vermont ranks 43rd overall on the 2024 State Business Tax Climate Index published by the Tax Foundation. Vermont also has a progressive income tax system with four brackets and a top rate of 8.75%.
However, there are other benefits to doing business in Vermont. Learn more with our How to Start an LLC in Vermont guide.
Yes, Vermont taxes out-of-state income, which residents must report on their tax return. They can receive a credit for tax paid to another state to avoid double taxation, ensuring Vermont receives its share of state income tax.
For a general overview of state taxes, visit our LLC Taxes guide.
The amount of taxes that Vermont takes out depends on your income, filing status, and deductions. For example, a single filer with a $50,000 annual income and no deductions would pay about $6,300 in federal, state, and local taxes, which is about 12.6% of their income.
For more information, check out our section on Vermont state taxes.