Corporate Tax Reform Passes the Legislature and Awaits Governor’s Action, Key Manufacturing Provisions Included

The House and Senate conference committee negotiating a final version of S.53 reached an agreement for the bill addressing corporate income tax reform.  Both chambers have now passed the final bill and we are now awaiting the Governor’s action.  The bill includes the most impactful provision, adopting single sales factor apportionment, that had been removed from the earlier Senate version of the bill.  Adopting this reform has been a long standing, top priority for AIV for many years.  Also included is another top AIV priority and complementary reform in repealing the “throwback rule”, the repeal of which provides benefits for Vermont manufacturers analogous to single sales apportionment and avoids problems with throwback that could have been exacerbated by moving to single sales apportionment.

Unfortunately, the final bill also retains the House-passed provision creating higher alternative minimum corporate tax brackets, the most significant of which would impose a $100,000 minimum tax on Vermont gross receipts over $300 million.  However, because the tax only applies to gross receipts from Vermont sources, the understanding has been that manufacturers and other exporters whose income mostly comes from receipts sourced outside of Vermont are unlikely to be impacted.  Nevertheless, AIV will be working with the Tax Department and Vermont employers to better understand the companies that will be impacted by this change and pursue further reforms as warranted.  AIV had opposed the change in the AMT structure and had also put forward for consideration exemptions for manufacturing and technology companies similar to New York law, but neither the House or Senate fully explored the impact of the AMT change or possible alternatives.

Other House-passed provisions not related to corporate income tax, including new sales taxes on cloud based services and products, were not included in the final bill.

Below is a general overview of the key provisions in the final bill.  To review the text of the final bill, click here.  For some additional summary and explanation, click here.

Adoption of single sales factor apportionment.  This change will determine a company’s Vermont tax liability by the percentage of total national sales of the company or affiliated corporate group that come from Vermont customers, dropping the current law that also factors in the Vermont percentage of the company’s or group’s property and payroll.  Vermont companies with instate employment and property but some percentage of out of state sales should generally benefit from this change.

Repeal of the throwback rule.  The throwback rule considers sales to states where the company does not have a taxable nexus, as well as sales to the federal government, to be Vermont-based sales.  Repealing this law not only complements the benefits of moving to single sales factor apportionment, but also avoids potential negative effects of adopting single sales while retaining throwback.

Adopting the Finnigan method rather than the Joyce method for determining taxable nexus for an affiliated corporate group.  Referring to court cases addressing the determination of taxable nexus, this change is considered to be broadly complementary to adopting single sales apportionment and repealing throwback.

Repealing the 80/20 rule.  The 80/20 rule was adopted when unitary combined reporting was enacted in 2004/2006.  It exempts from the calculation of an affiliated group’s national income the domestic income of a subsidiary entity that is based in the US but has more than 80% of its property and payroll outside the country.  It is not clear which companies are likely to be impacted by this change, but if you have any questions or concerns please contact us at

Increasing the alternative minimum tax for corporations.  The bill creates additional alternative minimum corporate tax brackets and new amounts based on gross receipts from Vermont sources.  While the amount is lowered slightly for the lowest brackets, the biggest change is for those companies with more than $300 million in Vermont gross receipts, who will pay a minimum of $100,000.

AIV will be working on outreach and education about these changes, should the bill become law, with a particular focus on identifying any negative impacts that might not have been understood or intended by the Legislature, as well as identifying opportunities for further positive reforms.  However, if you have any questions or concerns about any of these changes in the meantime, please do not hesitate to contact us at