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Subchapter 002 : EXEMPTIONS(Cite as: 32 V.S.A. § 9741)
§ 9741. Sales not covered
Retail sales and use of the following shall be exempt from the tax on retail sales imposed under section 9771 of this title and the use tax imposed under section 9773 of this title:
(1) Sales not within the taxing power of this State under the Constitution of the United States.
(2) Drugs intended for human use, durable medical equipment, mobility enhancing equipment, and prosthetic devices and supplies, including blood, blood plasma, insulin, and medical oxygen, used in diagnosis or treatment intended to alleviate human suffering or to correct, in whole or in part, human physical disabilities; provided, however, that toothbrushes, floss, and similar items of nominal value given by dentists and hygienists to patients during treatment are supplies used in treatment to alleviate human suffering or to correct, in whole or part, human physical disabilities and are exempt under this subdivision.
(3) Agriculture feeds, seed, plants, baler twine, silage bags, agricultural wrap, sheets of plastic for bunker covers, liming materials, breeding and other livestock, semen breeding fees, baby chicks, turkey poults, agriculture chemicals other than pesticides, and bedding; and fertilizers and pesticides for use and consumption directly in the production for sale of tangible personal property on farms, including stock, dairy, poultry, fruit and truck farms, orchards, nurseries, or in greenhouses or other similar structures used primarily for the raising of agricultural or horticultural commodities for sale.
(4) Casual sales.
(5), (6) [Repealed.]
(7)(A) Except as provided in subdivision (B) of this subdivision (7), sales of:
(i) motor fuels taxed or exempted under 23 V.S.A. chapter 28;
(ii) dyed diesel used to power machinery described in subdivision (51) of this section; and
(iii) dyed diesel used to propel a vehicle off the highways of the State.
(B) Aviation jet fuel and natural gas used to propel a motor vehicle shall be taxed under this chapter with the proceeds to be allocated to the Transportation Fund in accordance with 19 V.S.A. § 11.
(9) Rents for rooms taxed under chapter 225 of this title and the transactions exempted therefrom.
(10) Sales of meals or alcoholic beverages taxed or exempted under chapter 225 of this title, or any alcoholic beverages provided for immediate consumption.
(12) Motor vehicle purchases and use taxed under chapter 219 of this title and the transactions exempted therefrom that are listed in section 8911 of this title. Provided, however, that notwithstanding subdivision 8911(5) of this title, construction, earthmoving, logging, and motorized equipment that has not been registered as a motor vehicle is subject to tax under this chapter, and further provided that power take off and other auxiliary equipment on motor vehicles, whether attached prior to or subsequent to registration, is not exempt under this section. Motor vehicle parts purchased by a dealer registered under the provisions of 23 V.S.A. §§ 451-468 shall be exempt from the tax under this chapter when used to recondition a used motor vehicle owned by the dealer in its inventory for resale.
(13) Sales of food and food ingredients sold for human consumption off the premises where sold, and sales of eligible foods that are purchased with benefits under the Supplemental Nutrition Assistance Program or any successor program, consistent with federal law.
(14)(A) Tangible personal property that becomes an ingredient or component part of or is consumed or destroyed or loses its identity in the manufacture of tangible personal property for sale.
(B) Machinery and equipment used in or consumed as an integral or essential part of an integrated production operation by a manufacturing or processing plant or facility engaged in the manufacture of tangible personal property for sale, or in the manufacture of other machinery or equipment, parts, or supplies for use in the manufacturing process. For the purposes of this subdivision (14), “manufacture” includes extraction of mineral deposits, the entire printing and bookmaking process, and the entire publication process.
(C) As used in this subdivision (14):
(i) “Integrated production operation” means 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.
(ii) “Manufacturing or processing business” means a business that utilizes an integrated production operation to manufacture, process, fabricate, or finish items for wholesale and retail distribution as part of what is commonly regarded by the general public as an industrial manufacturing or processing operation or an agricultural commodity processing operation. “Manufacturing or processing business” does not include nonindustrial businesses whose operations are primarily retail and that produce or process tangible personal property as an incidental part of conducting the retail business, such as retailers who bake, cook, or prepare food products in the regular course of their retail trade; the assembling of product by retailers for sale; grocery stores, meat lockers, and meat markets that butcher or dress livestock or poultry in the regular course of their retail trade; contractors who alter, service, repair, or improve real property; and retail businesses that clean, service, or refurbish and repair tangible personal property for its owner. The examples provided in this subdivision (ii) shall not be construed as exclusive.
(iii) “Manufacturing or processing plant or facility” means a single, fixed location owned or controlled by a manufacturing or processing business that consists of one or more structures or buildings in a contiguous area where integrated production operations are conducted to manufacture or process tangible personal property to be ultimately sold at retail. A business may operate one or more manufacturing or processing plants or facilities at different locations to manufacture or process a single product of tangible personal property to be ultimately sold at retail.
(iv) “Primary” or “primarily” means more than 50 percent of the time.
(v) “Production line” means the assemblage of machinery and equipment at a manufacturing or processing plant or facility where the actual transformation or processing of tangible personal property occurs.
(D) For the purposes of this subdivision (14), machinery and equipment shall be deemed to be used as an integral or essential part of an integrated production operation when used during the integrated production operation:
(i) to transport, convey, handle, or store the property undergoing manufacturing or processing at any point from the beginning of the production line until it is placed into initial packaging;
(ii) to act upon, effect, promote, or otherwise facilitate a physical change to the property undergoing manufacturing or processing;
(iii) to guide, control, or direct the movement of property undergoing manufacturing or processing;
(iv) to test or measure materials, the property undergoing manufacturing or processing, or the finished product during the manufacturer’s integrated production operations;
(v) to plan, manage, control, or record the receipt and flow of property while undergoing manufacturing or processing;
(vi) to lubricate, control the operating of, or otherwise enable the functioning of other production machinery and equipment and the continuation of production operations;
(vii) to transmit or transport electricity, gas, water, steam, or similar substances used in production operations from the point of generation, if produced by the manufacturer or processor at the plant site, to that manufacturer’s production operation or, if purchased or delivered from off–site, from the point where the substance enters the site of the plant or facility to that manufacturer’s production operations;
(viii) to package the property being manufactured or processed in any container or wrapping in which such property is normally sold or transported, even if the machinery operates after the point of initial packaging;
(ix) to cool, heat, filter, refine, or otherwise treat water, steam, acid, oil, solvents, or other substances that are used in production operations;
(x) to provide and control an environment required to maintain certain levels of air quality, humidity, or temperature in special and limited areas of the plant or facility where such regulation of temperature or humidity is part of and essential to the production process;
(xi) to treat, transport, or store waste or other byproducts of production operations at the plant or facility and to clean manufacturing machinery and equipment;
(xii) to control pollution at the plant or facility where the pollution is produced by the manufacturing or processing operation; or
(xiii) to inspect or conduct quality control on the product, even if the inspection or quality control machinery operates after the point of initial packaging.
(E) “Machinery and equipment used as an integral or essential part of an integrated production operation” does not mean:
(i) machinery and equipment used for nonproduction purposes, including machinery and equipment used for plant security, fire prevention, first aid, accounting, administration, record keeping, advertising, marketing, sales or other related activities, plant cleaning, plant communications, and employee work scheduling;
(ii) machinery, equipment, and tools used primarily in maintaining and repairing any type of machinery and equipment or the building and plant;
(iii) transportation, transmission, and distribution equipment not primarily used in a production, warehousing, or material handling operation at the plant or facility, including the means of conveyance of natural gas, electricity, oil, or water, and related equipment, located outside the plant or facility;
(iv) office machines and equipment, including computers and related peripheral equipment, not used directly and primarily to control or measure the manufacturing process;
(v) furniture and other furnishings;
(vi) buildings, other than exempt machinery and equipment that is permanently affixed to or becomes a physical part of the building, and any other part of real estate that is not otherwise exempt;
(vii) building fixtures that are not integral to the manufacturing operation, such as utility systems for heating, ventilation, air conditioning, communications, plumbing, or electrical;
(viii) machinery and equipment used for general plant heating, cooling, and lighting; or
(ix) motor vehicles that are registered for operation on public highways.
(F) Subdivisions (D) and (E) of this subdivision (14) shall not be construed as exclusive lists of the machinery and equipment that qualify or do not qualify as an integral or essential part of an integrated production operation. When machinery or equipment is used as an integral or essential part of production operations part of the time and for nonproduction purposes at other times, the primary use of the machinery or equipment shall determine the qualification of the machinery or equipment for the exemption.
(15) Sales of newspapers and sales of tangible personal property that becomes an ingredient or component part of, or is consumed or destroyed or loses its identity in the manufacture of newspapers, whether sold or distributed without charge. A publication shall not be considered a newspaper unless, on an average for the taxable year, at least 10 percent of its printed material consists of news of general or community interest, community notices, editorial comment, or articles by different authors.
(16) Materials, containers, labels, sacks, cans, boxes, drums, or bags and other packing, packaging, or shipping materials for use in packing, packaging, or shipping tangible personal property by a manufacturer or distributor.
(17) Rentals of furniture in furnished apartments or houses for residential use.
(18) Fees and charges paid for admission to or use of federal, State, or municipal recreation areas and facilities, including swimming pools.
(19) Rentals of coin-operated washing facilities for individual or personal use, including car washes and laundries.
(20) Fees and charges for admission to nonprofit museums.
(21) Sales of equipment, supplies, and building materials made directly to volunteer fire departments, volunteer ambulance companies, or volunteer rescue squads for official use by the volunteer organizations.
(22) Funeral charges, including sales of tangible personal property such as caskets, vaults, boxes, clothing, crematory urns, and other such funeral furnishings as are necessary incidents of the funeral, but excluding the sale of flowers and other items sold as an accommodation rather than as an integral part of the funeral service or preparation therefor.
(24) Tangible personal property purchased for use or consumption directly and exclusively, except for isolated or occasional uses, in commercial, industrial, or agricultural research or development in the experimental or laboratory sense. It shall be rebuttably presumed that uses are not isolated or occasional if they total more than four percent of the time the machinery or equipment is operated. Such research or development shall not be deemed to include the ordinary testing or inspection of materials or products for quality control, efficiency surveys, management studies, consumer surveys, advertising, promotions, or research in connection with literary, historical, or similar projects.
(25) Sales of agricultural machinery and equipment for use and consumption predominately in the production for sale of tangible personal property on farms, including stock, dairy, poultry, fruit, and truck farms, orchards, nurseries, or in greenhouses or other similar structures used primarily for the raising of agricultural or horticultural commodities for sale. As used in this subdivision, the term “predominately” means 75 percent or more of the time the machinery or equipment is in use.
(26) Sales of electricity, oil, gas, and other fuels used in a residence for all domestic use, including heating, but not including fuel sold at retail in free-standing containers, or sold as part of a transaction where a free-standing container is exchanged without a separate charge. Wood pellets sold to an individual on the vendor’s premises or delivered to an individual’s residence shall be presumed to be purchased for residential use and shall be exempt sales under this subdivision unless the vendor knew or ought reasonably to have known that the wood pellets were not purchased for residential use. A certificate of exemption shall not be required for exempt retail sales of wood pellets to an individual. The Commissioner shall by rule determine that portion of the sales attributable to domestic use where fuels are used for purposes in addition to domestic use.
(27) Sales of electricity, oil, gas, and other fuels used directly and exclusively for farming purposes.
(28) Sales of films where the films are acquired exclusively for the purpose of charging admission to see such films and where such admission is subject to the tax imposed by subdivision 9771(4) of this title.
(29) Aircraft, but not drones, sold to a person that holds itself out to the general public as engaging in air commerce, for use primarily in the carriage of persons or property for compensation or hire; and parts, machinery, and equipment to be installed in any aircraft, other than drones.
(30) Railroad rolling stock, including depreciable parts, machinery, and equipment to be installed as a capital asset in such rolling stock, sold for use primarily in the carriage of persons or property. As used in this section, “railroad rolling stock” shall include locomotives, cabooses, boxcars, tank cars, flatbed cars, maintenance of way equipment, and all other wheeled vehicles used on rails or tracks.
(31) Ferryboats, including depreciable parts, machinery, and equipment to be installed as a capital asset in such ferryboat, sold to a person who holds himself or herself out to the general public as engaging in water commerce, for use primarily in the carriage of persons or property for compensation or hire.
(32) Forty percent of the receipts from sales of mobile homes, as defined in 9 V.S.A. § 2601, and modular housing, when they are sold as tangible personal property.
(33) Sales of the flag of the United States to and by veterans’ organizations exempt under 26 U.S.C. § 501(c)(19).
(34) Sales of electricity, oil, gas, and other fuels used directly or indirectly in manufacturing tangible personal property for sale.
(35) Charges made when tangible property is transferred as part of a personal services transaction or a transfer of intangible property rights, as long as the focus of the transaction is the provision of services or the transfer of intangible property rights and not the transfer of tangible personal property; no separate charge is made for the transfer of tangible personal property; and the value of the tangible personal property transferred, including the value of services added to the tangible personal property transferred, is less than 10 percent of the total charge for the transaction. When the focus of the transaction is the transfer of tangible personal property, all receipts from the sale are taxable, including receipts from separately stated charges for services to produce the property, unless the receipts are otherwise exempt under this chapter.
(36) Charges by an advertising agency for the transfer of title or possession of or right to use advertising materials when the transfer is made in conjunction with the delivery of advertising services. This exemption does not extend to charges by any business other than an advertising agency or to charges by any person for printing, imprinting, copying, or reproducing advertising materials.
(37) Charges for documents, the sole purpose of which is to record or memorialize professional services rendered, such as charges for briefs, memoranda, agreements, and wills prepared by lawyers; charges for tax returns and reports produced by accountants; charges for drawings produced by architects; or charges for insurance policies.
(38) Tax on the sale or use of a tracked vehicle shall not exceed $1,100.00 adjusted as follows: as of July 1 of each even-numbered year, the Commissioner shall adjust the most recent unrounded cap amount by the cumulative inflation index for the prior two calendar years under the consumer price index for urban consumer all items, and round that amount to the nearest $10.00, and shall publish this rounded amount as the new cap.
(39) Sales of building materials within any three consecutive years in excess of $1,000,000.00 in purchase value used in the construction, renovation, or expansion of facilities that are used exclusively, except for isolated or occasional uses, for the manufacture of tangible personal property for sale.
(41) Charges for wholesale transactions between telecommunications service providers where the service is a component part of a service provided to an end user. This exemption includes network access charges and interconnection charges paid to a local exchange carrier.
(43) Sales of scrap materials generated in the course of construction or demolition and diverted from waste disposal at the construction or demolition job site, provided that the sale is not by the generator and is by a person who received the materials from the generator with no payment.
(44) Tangible personal property to be incorporated in a rail line in connection with the construction, maintenance, repair, improvement, or reconstruction of the rail line.
(45) Clothing, but clothing shall not include clothing accessories or equipment, protective equipment, or sport or recreational equipment.
(46) Tangible personal property to be incorporated into:
(A) a net metering system as defined in 30 V.S.A. § 8002;
(B) a home or business energy system on a premises not connected to the electric distribution system of a utility regulated under Title 30 and that otherwise meets the requirements of 30 V.S.A. § 8002(16)(A), (C), and (D); or
(C) a hot water heating system that converts solar energy into thermal energy used to heat water, but limited to that property directly necessary for and used to capture, convert, or store solar energy for this purpose.
(48) Sales of tangible personal property sold by an auctioneer licensed under 26 V.S.A. chapter 89, including any buyer’s premium charged by the auctioneer, that are conducted on the premises of the owner of the property, provided that no other person’s property is sold on the auction premises and provided that the property was obtained by the owner, through purchase or otherwise, for his or her own use.
(49) Clean high carbon bulking agents, as that term is used in the Agency of Natural Resources’ Solid Waste Management Rules, used for commercial or on-farm composting, and food residuals used for commercial or on-farm composting or on-farm energy production.
(50) Compost, animal manure, manipulated animal manure, and planting mix when any of these items are sold in bulk. As used in this section, the term “sold in bulk” shall mean sold in a form that is not prepackaged, or sold in a packaged form in volumes greater than one cubic yard.
(51) The following machinery, including repair parts, used for timber cutting, timber removal, and processing of timber or other solid wood forest products intended to be sold ultimately at retail: skidders with grapple and cable; feller bunchers; cut-to-length processors; forwarders; delimbers; loader slashers; log loaders; whole-tree chippers; stationary screening systems; firewood processors, elevators, and screens; and when sold for use on any machinery listed under this subdivision, traction enhancement accessories, tire chains, track systems, and winch cables. The Department of Taxes shall publish guidance relating to the application of this exemption.
[Subdivision (52) repealed effective July 1, 2023.]
(52) Advanced wood boilers, as defined in section 9701 of this title.
(53) Prescription drugs intended for animal use, and durable medical equipment and prosthetics intended for animal use, and veterinary supplies intended for animal use. As used in this subdivision, “prescription drugs intended for animal use” means a drug dispensed only by or upon the lawful written order of a licensed veterinarian, and “veterinary supplies” means tangible personal property therapeutic in nature, not normally used absent illness or injury, and not intended for repeated usage.
(54) Sales of recyclable paper carryout bags to customers pursuant to 10 V.S.A. § 6693, provided that sales of recyclable paper carryout bags to stores and food service establishments as defined under 10 V.S.A. § 6691 shall not be exempt under this subdivision and shall not be considered sales for resale under subdivision 9701(5) of this title.
(55) Cannabis and cannabis products, as defined under 7 V.S.A. § 831, sold by any dispensary as authorized under 7 V.S.A. chapter 37, provided that the cannabis or cannabis product is sold only to registered qualifying patients directly or through their registered caregivers.
(56) Menstrual products. As used in this subdivision, “menstrual products” means tampons, panty liners, menstrual cups, menstrual napkins, and other similar tangible personal property designed for use in connection with the human menstrual cycle but does not include “grooming and hygiene products” as defined in this chapter. (Added 1969, No. 144, § 1, eff. June 1, 1969; amended 1969, No. 263 (Adj. Sess.), § 2, eff. April 6, 1970; 1973, No. 270 (Adj. Sess.), §§ 3-5; 1975, No. 156 (Adj. Sess.), § 2; 1975, No. 243 (Adj. Sess.), § 10(c), eff. May 1, 1976; 1977, No. 62, §§ 1, 2; 1977, No. 86, §§ 2-5; 1977, No. 135 (Adj. Sess.); 1979, No. 105 (Adj. Sess.) § 40; 1981, No. 13, eff. date, see note below; 1981, No. 87, § 21; 1981, No. 172 (Adj. Sess.), § 11d, eff. April 20, 1982; 1985, No. 88, § 1, eff. June 1, 1985; 1985, No. 135 (Adj. Sess.), §§ 1, 2, eff. April 24, 1986; 1985, No. 168 (Adj. Sess.), eff. May 7, 1986; 1985, No. 207 (Adj. Sess.), § 2; 1987, No. 82, § 10, eff. June 9, 1987; 1987, No. 113, § 2, eff. June 26, 1987; 1987, No. 184 (Adj. Sess.), eff. April 1, 1988; 1989, No. 32; 1989, No. 133 (Adj. Sess.), § 1, eff. April 5, 1990; 1989, No. 174 (Adj. Sess.); 1991, No. 32, §§ 13, 27, eff. June 1, 1991; 1991, No. 148 (Adj. Sess.), § 1, eff. May 4, 1992; 1993, No. 89, §§ 14c, 14d, eff. July 1, 1996; 1995, No. 29, § 27, eff. July 1, 1996; 1995, No. 86 (Adj. Sess.), § 3, eff. March 28, 1996; 1997, No. 50, § 45, eff. June 26, 1997; 1997, No. 60, § 72a, eff. June 26, 1997; 1997, No. 60, § 79; 1997, No. 71 (Adj. Sess.), §§ 50-52; 1997, No. 76 (Adj. Sess.), § 1, eff. March 30, 1998; 1997, No. 156 (Adj. Sess.), § 21, eff. April 29, 1998; 1999, No. 49, §§ 34, 34a, 64, 74, 92-94, eff. June 2, 1999; 2001, No. 54, § 1; 2001, No. 138 (Adj. Sess.), § 5, eff. June 21, 2002; 2001, No. 140 (Adj. Sess.), § 35, eff. June 21, 2002; 2001, No. 144 (Adj. Sess.), § 12, eff. January 1, 2003; 2001, No. 145 (Adj. Sess.), § 6, eff. June 21, 2002; 2003, No. 68, § 58, eff. date, see note below; 2003, No. 121 (Adj. Sess.), § 88, eff. June 8, 2004; 2003, No. 152 (Adj. Sess.), § 17, eff. date, see note below; 2005, No. 75, §§ 2, 2b, 22; 2005, No. 184 (Adj. Sess.), § 4; 2007, No. 81, § 7, eff. June 11, 2007, § 7a, eff. July 1, 2011; 2007, No. 164 (Adj. Sess.), § 34; 2011, No. 45, § 36g; 2011, No. 143 (Adj. Sess.), § 49, eff. May 24, 2011; 2011, No. 143 (Adj. Sess.), § 54, eff. Jan. 1, 2012; 2011, No. 143 (Adj. Sess.), § 54a; 2011, No. 153 (Adj. Sess.), § 42, eff. July 1, 2013; 2013, No. 73, § 45, eff. June 5, 2013; 2013, No. 99 (Adj. Sess.), § 9, eff. Jan. 1, 2017; 2013, No. 174 (Adj. Sess.), §§ 36, 46, 49; 2013, No. 200 (Adj. Sess.), § 22; 2015, No. 57, § 92; 2015, No. 100 (Adj. Sess.), § 1; 2015, No. 144 (Adj. Sess.), § 12; 2015, No. 157 (Adj. Sess.), § H.9, eff. Jan. 1, 2017; 2017, No. 73, § 19, eff. Sept. 1, 2017; 2017, No. 75, § 17; 2017, No. 77, § 9; 2017, No. 194 (Adj. Sess.), § 26; 2019, No. 29, § 1, eff. May 23, 2019; 2019, No. 46, § 5; 2019, No. 51, § 39, eff. June 10, 2019; 2019, No. 150 (Adj. Sess.), § 6, eff. July 13, 2020; 2019, No. 164 (Adj. Sess.), § 16, eff. March 1, 2022; 2021, No. 54, § 21, eff. June 3, 2021; 2021, No. 73, § 11a; 2021, No. 179 (Adj. Sess.), § 27, eff. July 1, 2022; 2021, No. 179 (Adj. Sess.), § 27b, eff. June 7, 2022.)