What taxes apply to a new small business?

Taxes Applicable to New Small Businesses in Vermont

When starting a small business in Vermont, understanding your tax obligations is essential for smooth operations and compliance. Below are the key taxes you should consider as of 2026.

State Income Tax

Vermont requires businesses to pay state income tax on net earnings. The tax applies to various business structures including sole proprietorships, partnerships, LLCs, and corporations. Proper bookkeeping and accounting will help determine taxable income accurately.

Sales and Use Tax

If your business sells tangible goods or certain services, you must register for Vermont sales tax and collect it from customers. The current sales tax rate is 6%. Use tax applies to goods purchased out-of-state but used in Vermont. Timely filing and reporting are critical to avoid penalties.

Employer Payroll Taxes

If you hire employees, you are responsible for payroll taxes including:

• State Unemployment Insurance (SUI): Employers must register and pay unemployment insurance taxes based on payroll.
• State Income Tax Withholding: Employers must withhold Vermont income tax from employee wages and remit it to the state.
• Federal Payroll Taxes: Includes Social Security, Medicare, and federal income tax withholding.

Accurate employee classification and payroll automation can simplify compliance.

Business Entity Taxes

Corporations may be subject to Vermont corporate income tax, which requires separate registration and filing. LLCs and partnerships typically report income through individual returns but should confirm specific obligations based on their structure.

Local Taxes and Fees

Some Vermont municipalities may impose local taxes or business license fees. Check with your city or town clerk’s office to ensure full compliance.

Operational Recommendations

• Register your business with the Vermont Department of Taxes early in your startup process.
• Implement bookkeeping systems to track income, expenses, and tax liabilities.
• Use payroll software or services to manage employee tax withholdings and filings.
• Stay updated on tax rate changes and filing deadlines to avoid penalties.
• Consult Vermont Department of Taxes resources for specific forms and guidance.