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June 28, 2022

Vermont enacts significant corporate income tax changes

A new Vermont law (2022 Vt. Laws Act No. 148 (2022 VT SB 53 or new law)),1 makes significant changes to the state's corporate income tax laws and updates the state's conformity to the Internal Revenue Code of 1986, as amended (IRC).


Effective for tax years beginning on or after January 1, 2023, Vermont will shift from a three-factor (i.e., property, payroll and double weighted sales) formula for apportioning income to a single sales factor apportionment formula. The law also repeals Vermont's throwback rule, which required sales of tangible property to be included in the Vermont sales factor numerator if the property was shipped from Vermont and (1) the corporation is not taxable in the destination state, or (2) the purchaser is the US government. Corporations subject to apportionment must still report in-state and out-of-state property and payroll information to the tax commissioner.

Combined reporting and affiliated groups

Effective for tax years beginning on or after January 1, 2023, the new law repeals Vermont's so called "80/20" provisions. Specifically, an "overseas business organization" (i.e., a business organization with 80% or more of its payroll and property outside the 50 states and the District of Columbia) was historically excluded from a Vermont combined reporting group if certain tests were met. Under the new law, the definition of "overseas business organization" is repealed and the definition of "affiliated group"2 is amended to specifically exclude "foreign corporations" instead of "overseas business organizations." Consequently, the new law will require overseas business organizations previously excluded from the Vermont combined reporting group based on foreign activity to be included in such a group going forward.

As revised by the new law, "[a] taxable corporation that is part of an affiliated group engaged in a unitary business shall be treated as a single taxpayer and shall file a group return containing the combined net income of the affiliated group … " (Italics indicates text added to 32 V.S.A. Section 5862(d)text.) The new law further requires the unitary combined return to include the income and apportionment factors of any taxable corporation that has a unitary relationship with the taxpayer and is incorporated in the US or formed under the laws of any state, the District of Columbia or any US territory or possession. The income, gain or losses of the combined reporting group members must be combined to the extent allowed under the IRC, as if the combined group were filing a consolidated return. State tax credits, however, are limited and can only be used by the group member to which the credit is attributed. Thus, any such Vermont state tax credits cannot be combined to offset the income of other members of the group.

For purposes of determining the sales factor in a combined report, Vermont will switch from the Joyce methodology to the Finnigan methodology. Thus, if one member of the unitary group has nexus with Vermont, then the Vermont sales factor numerator will include the Vermont sales of tangible personal property of all members of the unitary group.

The new law requires the Vermont Department of Taxes (VT DOT) to adopt rules on the changes made to the state's unitary combined reporting provisions, including the transition to the Finnigan methodology, in apportioning sales to the state. The VT DOT has until January 15, 2024, to report to the Vermont House Committee on Ways and Means and its Senate Committee on Finance any proposed rules and any recommended legislative changes.

These changes brought about by 2022 VT SB 53 are effective for tax years beginning on or after January 1, 2023.

Corporate minimum tax

The new law modifies Vermont's corporate minimum tax structure by increasing the minimum tax for C corporations with Vermont gross receipts exceeding $500,000. Currently, the minimum taxes are $300 for corporations with Vermont gross receipts of $2 million or less), $500 (for corporations with Vermont gross receipts exceeding $2 million but up to $5 million), and $750 (for corporations with Vermont gross receipts exceeding $5 million).

Starting in 2023, the new rate structure for the corporate minimum tax will be as set forth in the following table:

For C corporations with Vermont gross receipts from:

The greater of the tax imposed under Vt. Stat. Ann. tit. 32, Section 5832(1) "the corporate income tax rate schedule" or

$0.00 - $500,000

$ 100


$ 500

$1,000,001 - $5,000,000

$ 2,000

$5,000,001 - $300,000,000

$ 6,000

$300,000,001 or more

$ 100,000

IRC conformity

For tax years beginning on or after January 1, 2021, the date of conformity to the IRC for Vermont corporate income tax purposes is the IRC as in effect on December 31, 2021 (previously March 31, 2021), without regard to federal income tax rates and other Vermont modifications.


2022 VT SB 53 represents a significant change in Vermont's corporate income tax regime. While some corporations based in Vermont may benefit from certain aspects of the legislation (e.g., the adoption of the single sales factor and repeal of the throwback provisions) other taxpayers may experience an increased Vermont tax liability. Moreover, with the repeal of the so-called 80/20 provisions, the new law may impact the makeup of a taxpayer's Vermont combined filing group. Taxpayers should also consider the substantial modifications made to Vermont's corporate minimum tax structure.


Contact Information
For additional information concerning this Alert, please contact:
State and Local Taxation Group
   • Brian Marks (


1 Enacted May 31, 2022.

2 Vt. Stat. Ann. tit. 32, Section 5811.