Machinery used in or consumed as an integral or essential part of an integrated production operation is not subject to sales and use tax in the State of Vermont as of July 2022 following an amendment expanding the Manufacturing Tax Exemption.
The amendment defines an integrated production operation as “an integrated series of operations at a manufacturing or processing plant or facility to process, transform, or convert tangible personal property by physical, chemical, or other means into a different form, composition, or character from that in which it originally existed.
“Integrated production operations begin when raw material is first changed physically, chemically, or otherwise in form, composition, or character, including being removed from storage or introduced for this manipulation, and end when the product is placed in initial packaging and shall include production line operations, including initial packaging operations, and waste, pollution, and environmental control operations.”
Writing in support of the amendment, the Vermont Chamber of Commerce said the exemption will modernize Vermont’s tax law, improve workforce recruitment, retention and upskilling, and encourage the modernization of facilities.
With this expansion, Vermont moves away from the prior standard of the exemption only applying to an item directly used in manufacturing. The expansion also broadens the exemption to include more of the production process from beginning to end, even potentially including items such as conveyors, piping, forklifts, and other equipment used to transport items throughout the manufacturing process. This offers taxpayers greater potential for sales tax exemptions when purchasing machinery and equipment used in the integrated plant.
Taxpayers in Vermont engaged in the manufacturing industry should review their production process, determine which items are defined as included in the integrated plant, and seek to purchase such machinery and equipment exempt of sales tax. Vermont provides a sales tax exemption certificate for Manufacturing (Form S-3M) that can be used to issue to the seller for a sales-tax-exempt purchase.
Not every state offers a manufacturing exemption. When states do offer such an exemption based on the use of machinery or equipment, there is much diversity in how each state defines when the exemption is applicable. Some states define manufacturing exemption qualification as when the item is used “directly” or “predominately” or “exclusively” on the item being transformed. It is essential to review each states’ definitions, what is included in the taxable measure, and what is exempt to determine if a taxpayer qualifies for a manufacturing exemption.
(Vermont General Assembly, Act 179 (H.B. 738), Laws 2022)