Date: December 16, 2024

Written by Abby Shepard

Approved by: Craig Bolio, Commissioner of Taxes

This is a formal ruling in response to your request of [date], regarding the Vermont Sales and Use Tax treatment of certain purchases made by your Firm. This ruling is based upon representations in your letter dated [date].

Facts

1. You operate an accounting firm in Vermont. You use the purchases described below in the State.

[Company]

2. [Company] is a large provider of human resources management services, allowing a business owner or manager to outsource human resources and payroll functions. ([website deleted]).

3. You utilize the payroll processing services of [Company]. It prepares payroll and executes payments to the employees of your firm, calculates and withholds income withholding, and prepares filings and remits filings and payments to the State and Federal Governments. It also provides you with reporting, payroll journals and tax reports.

4. [Company] charges you a monthly fee to perform these services.

5. You interact with [Company] and send and receive information between you and [Company] primarily via its website.

File Transfer and digital signing software

6. You purchase and utilize software which enables your clients to upload documents and files to your computer systems. You use this software to receive the information for the purpose of tax preparation. You also use this software to obtain digital signatures from your clients and to share documents with your clients.

7. This is prewritten software and you have purchased this product “canned.” That is, the vendor of this software has neither written it for you nor customized it for you in any way and sells the same software to many customers.

Tax preparation

8. For some clients, you provide tax return and financial statement preparation using the file transfer and digital signing software described above. Your interactions with your clients include interactions via the software, including the sharing of documents and collecting digital signatures.

Discussion

You have asked whether the use of [Company]’s services and the use of the file transfer and digital signing software is subject to sales tax. [Company] provides a service to you and this service is not taxable in Vermont. Your use of the file transfer and digital signing software is subject to sales tax.

You also ask whether your tax return and financial statement preparation is subject to sales tax. This is a service that is not taxable in Vermont, even if you utilize taxable software to assist you in providing these services.
Vermont sales tax applies to retail sales within the State of prescribed items, including tangible personal property. 32 V.S.A. § 9771(1). Few services are subject to sales tax in Vermont and the services that are taxable do not relate to the services described in this ruling.

For retail sales, the tax applies to the sales price – the total amount of consideration paid. 32 V.S.A. § 9701(4)(A). Tangible personal property includes “prewritten computer software regardless of the method in which the prewritten computer software is paid for, delivered, or accessed.” 32 V.S.A. § 9701(7).

“Prewritten computer software” means “computer software, including prewritten upgrades, which is not designed and developed by the author or other creator to the specifications of a specific purchaser. The combining of two or more prewritten computer software programs or prewritten portions thereof does not cause the combination to be other than prewritten computer software. […].” Vt. Reg. § 1.9701(7)-2(A).

While you interact with [Company] primarily via its website, it is providing a service to you of preparing and calculating the payroll and withholdings of your employees, as well as executing the payments and preparing and filing the tax returns on your behalf with the Federal and State Governments. These tasks are specifically customized to your and your employees’ circumstances based on your needs and directions to [Company], utilizing the expertise of [Company] and provided on an ongoing basis. This is a service and is not subject to sales tax in Vermont.

The file transfer and digital signing software is prewritten software and the use of this software is subject to sales tax. This software is canned – it is the same software sold to many other customers. The software accomplishes the same tasks for all purchasers. The software is only beneficial for you if you specifically use and direct the software each instance to assist you in accomplishing the desired task, such as receiving a file or collecting a signature.

The provision of tax return and financial statement preparation is not subject to sales tax. This is a service; it is provided based on your specialized knowledge and skill and the delivered product is uniquely created for each client. Even though you may use various software programs to aid in the provision of these services, this does not make the service taxable.

General Provisions

Issuance of this ruling is conditioned upon the understanding that neither the taxpayer nor a related taxpayer is currently under audit or involved in an administrative appeal or litigation concerning the subject matters of the ruling. This ruling is issued solely to the taxpayer and is limited to the facts presented, as affected by current statutes and regulations.

Other taxpayers may refer to this ruling, when redacted to protect confidentiality, to see the Department's general approach, but the Department will not be bound by this ruling in the case of any other taxpayer or in the case of any change in the relevant statutes or regulations.

This ruling will be made public after deletion of the taxpayer’s name and any information that may identify the taxpayer. A copy of this ruling showing the proposed deletions is attached, and you may request within 30 days that the Commissioner delete any further information that might identify the taxpayer. The final discretion as to deletions rests with the Commissioner.

You have the right to appeal this ruling within 30 days. 3 V.S.A. §§ 808, 815.