Vermont — Corporate Income / Franchise Tax

Vermont imposes a corporate income tax on every "taxable corporation" for each calendar year or fiscal year ending during that calendar year.

Source: 32 V.S.A. § 5832

## Definition of Taxable Corporation

A corporation is a "taxable corporation" for any taxable year if, at any time during that taxable year, it:

• was incorporated under the laws of Vermont;
• possessed a certificate of authority to do business within Vermont; or
• received any income allocable or apportionable to Vermont under the apportionment provisions of 32 V.S.A. § 5833.

Source: 32 V.S.A. § 5811(15)

## Protected Activities Exception

A corporation that would otherwise be taxable under the third criterion (income allocable or apportionable to Vermont) is exempt if its activities in Vermont are limited to activities that, standing alone, would not subject the corporation to taxation under federal constitutional limits (such as solicitation protected by Public Law 86-272), plus certain additional protected activities including:

• ownership of data or programming code in Vermont, or use of that data or programming code by a person other than the corporation or by a person not in this state;
• ownership of, or receipt of services from, computer servers in Vermont; and
• receipt of computer processing or web hosting services from a computer service provider or web hosting service in Vermont.

Source: 32 V.S.A. § 5811(15)

## What is a Corporation for Vermont Tax Purposes

"Corporation" means any business entity subject to income taxation as a corporation under federal law, and any entity qualified as a small business corporation (S corporation) under federal law. Certain entities are exempt from this chapter, including railroad and insurance companies taxed under Vermont Chapter 211, credit unions organized under Vermont law, and nonprofit medical service corporations organized under Vermont law.

Source: 32 V.S.A. § 5811(3)

## Separate Filing for Pass-Through Entities

S corporations, partnerships, and LLCs taxed as pass-through entities are not subject to Vermont's corporate income tax. Instead, they file Vermont's Business Entity Income Tax return (Form BI-471).

Source: Vermont Department of Taxes – Corporate Income Tax

LLCs that elect to be taxed as C corporations for federal purposes are treated as C corporations for Vermont corporate income tax purposes and must file Form CO-411.

Source: Vermont Department of Taxes – Business and Corporate

Vermont imposes a corporate income tax on a corporation's Vermont net income (income allocated or apportioned to Vermont, reduced by any Vermont net operating loss). The statute prescribes graduated marginal tax brackets. A corporation's tax liability is the greater of the amount calculated under the bracket schedule or a minimum tax based on Vermont gross receipts.

Unable to confirm as of 2026-05-27.

Source: 32 V.S.A. § 5832

Vermont apportions the income of multistate corporations using a single-sales-factor formula. A corporation doing business both inside and outside Vermont multiplies its Vermont net income by the percentage of its total sales that are in Vermont. Sales of tangible personal property are in Vermont if delivered to a purchaser within the state. Sales other than tangible personal property are in Vermont if the taxpayer's market for the sales is in Vermont. This single-sales-factor formula became effective January 1, 2023, replacing the prior double-weighted sales factor used from 2020 through 2022.

Source: 32 V.S.A. § 5833

Vermont's corporate income tax liability is the greater of the tax calculated on net income or a minimum tax based on Vermont gross receipts. The minimum tax applies regardless of profitability.

For C corporations, the minimum tax is: $100 for Vermont gross receipts up to $500,000; $500 for receipts of $500,001–$1,000,000; $2,000 for receipts of $1,000,001–$5,000,000; $6,000 for receipts of $5,000,001–$300,000,000; and $100,000 for receipts over $300,000,000.

Small farm corporations pay a minimum tax of $75. A "small farm corporation" is a corporation organized for farming, owned solely by active participants in the farm business, that receives less than $100,000 in Vermont gross receipts from the farm operation (excluding forest crop income).

Source: 32 V.S.A. § 5832

Vermont imposes corporate income tax using a three-tier graduated bracket structure. The tax is calculated by applying marginal rates to successive portions of Vermont net income, with each bracket taxed only at its corresponding rate.

For tax years beginning on or after January 1, 2023, the graduated rates are:

• 6.0% on Vermont net income from $0 to $10,000
• 7.0% on Vermont net income from $10,001 to $25,000
• 8.5% on Vermont net income above $25,000

These are marginal rates: a corporation with $30,000 of Vermont net income pays 6% on the first $10,000 ($600), 7% on the next $15,000 ($1,050), and 8.5% on the final $5,000 ($425), for a total tax of $2,075 before comparing to the minimum tax.

The statute structures this as a base-tax-plus-marginal-rate formula rather than a pure bracket table. Under that formulation:

• Vermont net income $0–$10,000: tax is 6% of total net income
• Vermont net income $10,001–$25,000: tax is $600 plus 7% of the amount over $10,000
• Vermont net income above $25,000: tax is $1,650 plus 8.5% of the amount over $25,000

The $600 and $1,650 base amounts represent the cumulative tax on income up to each threshold. Both formulations yield identical results.

Vermont's graduated-bracket regime applies only to C corporations. S corporations, partnerships, and LLCs treated as pass-through entities for federal purposes file Vermont's Business Entity Income Tax return (Form BI-471) and are not subject to the corporate income tax brackets; instead, income passes through to owners who report it on their individual Vermont income tax returns.

The three-tier structure replaced a prior double-weighted-sales-factor apportionment and different bracket schedule effective January 1, 2023, as part of broader corporate tax modernization legislation enacted in 2022.

Source: Vermont Joint Fiscal Office, Corporate Income Tax Overview, January 2026 Source: 32 V.S.A. § 5832

Vermont corporate income tax begins with a corporation's federal taxable income as the starting point, then applies Vermont-specific additions and subtractions to arrive at "Vermont net income"—the base to which apportionment and tax rates apply.

## Federal Taxable Income as Starting Point

Vermont net income is defined as "the taxable income of the taxpayer for that taxable year under the laws of the United States," with certain modifications. For C corporations, this is line 28 (or its equivalent) from federal Form 1120—taxable income after all federal deductions but before state income taxes are applied.

This federal conformity means Vermont automatically incorporates most federal income inclusions, deductions, accounting methods, and timing rules without requiring separate legislation. When federal tax law changes, Vermont's corporate income tax base changes unless Vermont statute explicitly decouples.

Source: 32 V.S.A. § 5811(18)(A)

## Key Additions to Federal Taxable Income

Vermont adds back the following items when computing Vermont net income:

State and local income taxes. The full amount of any deduction for state and local taxes on or measured by income, franchise taxes measured by net income, franchise taxes for the privilege of doing business, and capital stock taxes is added back to federal taxable income. Because Vermont does not allow corporations to deduct state income taxes against state income, this addition prevents double benefit.

Out-of-state municipal bond interest. Interest income from state and local obligations other than Vermont and its political subdivisions is added back to the extent it was excluded from federal gross income. Federal law exempts all state and local bond interest from federal taxation, but Vermont taxes interest on non-Vermont municipal bonds.

Federal net operating loss deduction. The amount of any deduction for a federal net operating loss under IRC § 172 is added back. Vermont has its own net operating loss regime under 32 V.S.A. § 5888, so the federal NOL deduction is reversed and Vermont's rules apply separately.

Source: 32 V.S.A. § 5811(18)(A)(i)

## Key Subtractions from Federal Taxable Income

Vermont subtracts the following items:

Dividend gross-up for foreign tax credit. The "gross-up of dividends" required by the Internal Revenue Code to be included in taxable income when a corporation elects the foreign tax credit is subtracted. This prevents Vermont from taxing deemed income that reflects foreign taxes already paid.

Targeted Jobs and WIN credit wage adjustments. Income that results from the required reduction in salaries and wages expense for corporations claiming the federal Targeted Job or Work Incentive (WIN) credits is subtracted, reversing the federal add-back of wages that were claimed as credits.

Source: 32 V.S.A. § 5811(18)(A)(ii)

## Federal Bonus Depreciation Decoupling

Vermont does not conform to IRC § 168(k) bonus depreciation. The definition of Vermont net income explicitly states federal taxable income is determined "without regard to 26 U.S.C. § 168(k)."

Corporations that claimed 50%, 100%, or other bonus depreciation percentages under federal law for qualified property must add back that excess depreciation and instead claim depreciation under the Modified Accelerated Cost Recovery System (MACRS) without the bonus. This decoupling applies to both regular bonus depreciation and any special allowances enacted under federal stimulus or tax legislation.

Vermont's decoupling from bonus depreciation has been continuous since the enactment of IRC § 168(k). The state has not adopted the federal provision in any tax year, meaning corporations must maintain separate federal and Vermont depreciation schedules for affected assets.

Source: 32 V.S.A. § 5811(18)(A) Source: Vermont Department of Taxes, TCJA Conformity

## Income Exempt from State Taxation

Vermont net income excludes "income that under the laws of the United States is exempt from taxation by the states." This exclusion applies to income protected by federal statute from state taxation, such as interest on U.S. obligations under 31 U.S.C. § 3124 and income earned by federal instrumentalities to the extent constitutionally or statutorily immune from state tax.

Source: 32 V.S.A. § 5811(18)(A)

## Unitary Combined Reporting Modification

For a taxable corporation that is a member of an affiliated group engaged in a unitary business with one or more other members of that group, Vermont net income includes the corporation's allocable share of the combined net income of the unitary group, not simply the separate-company federal taxable income. Vermont's combined reporting rules modify the starting point to prevent income-shifting among related corporations.

Source: 32 V.S.A. § 5811(18)(C)

## S Corporations and Tax-Exempt Entities

S corporations. In the case of an S corporation, Vermont net income includes only the income taxable to the corporation under the Internal Revenue Code (such as built-in gains tax or excess passive income tax under IRC §§ 1374–1375). S corporations ordinarily do not pay Vermont corporate income tax; instead, income passes through to shareholders who report it on Vermont's Business Entity Income Tax return (Form BI-471).

Tax-exempt entities. For federally tax-exempt corporations, Vermont net income includes all income subject to federal income tax, including unrelated business income under IRC § 511 and income from debt-financed property under IRC § 514. Vermont does not grant a blanket exemption to federally exempt organizations for their taxable activities.

Source: 32 V.S.A. §§ 5811(18)(B), (D)