Clarification and Expansion of the Sales Tax Exemption for Manufacturing Machinery and Equipment Near Final Passage in the Legislature

Clarification and expansion of Vermont’s sales tax exemption for manufacturing machinery and equipment, another long standing tax priority for AIV, is near final passage in the Legislature.  Provisions addressing several shortcomings in Vermont’s current law were included by the Senate Finance Committee in this year’s technical tax bill, H.738.  Although this legislation traditionally addresses technical issues rather than substantive policy matters, the bill passed by the House last year that addressed this issue, H.437, ran into problems with some of the other issues included in the legislation.  As of this writing, H.738 is still awaiting final passage in the House, possibly until outstanding budget legislation is settled as the session comes to a close.

Currently Vermont’s statute (32 VSA §9741(14)) exempts from sales tax “machinery and equipment for use or consumption directly and exclusively, except for isolated or occasional uses, in the manufacture of tangible personal property for sale, or in the manufacture of other machinery or equipment, parts, or supplies for use in the manufacturing process”.  However, unrelated “isolated or occasional uses” is presumed to disqualify machinery and equipment if those uses make up more than 4% of overall use.  This is far more limiting than other states and has prompted a number of disputes between the Tax Department and Vermont manufacturers.  The statute also has a more limited scope of when the manufacturing process begins and ends than other states.  The result is that Vermont is at a competitive disadvantage in the tax treatment of machinery and equipment for manufacturers and thereby investment in Vermont based production.

The provisions now in H.738 address these two issues by expanding the scope of what is considered the manufacturing process with the incorporation and defining of an “integrated production operation” and replacing the 4% threshold for non-manufacturing uses to 50%, which should result in far fewer conflicts and less uncertainty and dispute.

AIV will be working on outreach and education about these changes with a particular focus on identifying any equipment or machinery that might still not fit under the new scope and definitions of the law that could be worked on in the future.  For example, there are states that have a broader scope on the initial, raw material end of the manufacturing process.

In the meantime, however, we strongly encourage manufacturers to review the new provisions to determine how they might benefit, and to contact us with any questions or suggestions for further changes.  You can review the relevant provisions in H.738 by clicking here and going to page 8, and please do not hesitate to contact us at info@aivt.org.