Code of Vermont Rules › Agency 10 - AGENCY OF ADMINISTRATION › Sub-Agency 060 - DEPARTMENT OF TAXES › Chapter 007 - CORPORATION FRANCHISE TAX › Section 10 060 007 - CORPORATION FRANCHISE TAX

Current through June, 2024
Introduction
The principle of the Vermont Tax Department in assessing and
				  collecting franchise taxes is to collect all taxes which any corporation may be
				  required to pay, but no more; to develop smooth and efficient functions within
				  its own organization and to cultivate cordial and helpful relations with other
				  public agencies and the taxpayers of the State. This policy is intended to
				  guide the Vermont Tax Department in performing its essential services.
The Vermont Franchise Tax is measured by "entire net income"
				  (based principally upon Federal Net Income) or the portion thereof allocable to
				  Vermont. The rate of tax measured by "entire net income" is four per cent or a
				  minimum of $ 25 whichever is greater. A corporation is entitled to allocate its
				  business income within and without Vermont only if it has a regular place of
				  business outside the State; otherwise 100% of its income must be allocated to
				  Vermont. Income is allocated by the formula most generally used in other
				  States, viz: tangible property, sales or charges for services performed and
				  payrolls. The tax is imposed annually for each of the taxpayer's calendar or
				  fiscal years and is measured by the "entire net income" (or other allocable
				  basis) of the next preceding year of operations. The privilege year and the
				  base year do not coincide with each other in that the tax paid for the
				  privilege of doing business in any particular calendar or fiscal year is
				  measured by the operations and "entire net income" of the preceding calendar or
				  fiscal year.
The tax imposed by Chapter 44 is a franchise, privilege or
				  excise tax. It is not an income tax although income is the measure of computing
				  the amount payable; nor is it a direct tax on the corporation's assets although
				  in peculiar situations assets may be in whole or in part a measure for
				  computing the amount payable.
A foreign corporation doing business in this State is also
				  subject to a Vermont Franchise Tax and the regulations herein stated.
Part I CORPORATONS SUBJECT TO TAX
Article 100 General
Section 950 of the Tax Law subjects to franchise tax all
				  corporations which are not subject to franchise tax under some other provision
				  of the Vermont Law and are not exempt from tax.
Article 101 Definition of Taxpayer
The term "taxpayer" means any corporation which is subject
				  to tax imposed by Section 950, Chapter 44 of the Vermont Statutes, Revision of
				  1947, as Amended.
Article
				102 Definition of Corporation
The term "corporation" includes any entity created as such
				  under the laws of the United States, any state, territory or possessions
				  thereof, the District of Columbia, or any foreign country, or any political
				  subdivision of any of the foregoing, which provides a medium for the conduct of
				  business and the sharing of its gains. It also includes any joint-stock company
				  or association; any business conducted by a trustee or trustees wherein
				  interest or ownership is evidenced by certificate or other written instrument
				  and a dissolved corporation which continues to conduct business in this State.
				  The term "corporation" does not include a membership or other non-stock
				  corporation unless it is doing business for profit.
Article 103 Domestic Corporations Subject to
				Tax
The tax is imposed on every domestic corporation, with
				  specified exceptions, for the privilege of exercising its corporate franchise;
				  that is to say, for the mere possession of the privilege. Accordingly, a
				  domestic corporation is subject to tax for every fiscal or calendar year, or
				  part thereof, during which it is in existence, irrespective of whether it does
				  any business, owns any property, maintains any office, or engages in any
				  activity, within or without Vermont. For the same reason, a domestic
				  corporation is subject to tax even though it carries on its business entirely
				  outside of Vermont.
Example: A corporation is incorporated under the laws of
				  Vermont on July 1, 1953. It begins to do business on February 1, 1954, setting
				  up its books on the basis of a calendar year. Since the corporation had the
				  privilege of exercising its corporate franchise from July 1, 1953 to December
				  31, 1953, it is subject to tax for that period.
A domestic corporation which has been dissolved by the filing
				  of a certificate of dissolution or otherwise, is not subject to the franchise
				  tax after such dissolution, unless it continues to do business in Vermont, in
				  which case it remains subject to tax. A dissolved corporation, the activities
				  of which are limited to the liquidation of its business and affairs, the
				  disposition of its assets (other than in the regular course of business) and
				  the distribution of the proceeds, is not doing business. On the other hand, a
				  dissolved corporation which engages in activities in the pursuit of profit or
				  gain is doing business.
Article
				104 Foreign Corporations Subject to Tax
The tax is also imposed on every foreign corporation, with
				  specified exceptions, which does business in Vermont in a corporate or
				  organized capacity, irrespective of whether it has qualified to do business in
				  Vermont.
Article 105 Doing
				Business in Vermont
The term "doing business" is used in a comprehensive sense
				  and includes all activities which occupy the time or labor of men for profit.
				  Irrespective of the nature of its activities, every corporation organized for
				  profit and carrying out any of the purposes of its organization is doing
				  business. In determining whether a corporation is doing business, it is
				  immaterial whether its activities actually result in a profit or a loss.
Whether a foreign corporation is doing business in Vermont is
				  determined by the facts in each case. Consideration is given to such factors
				  as:
(1) the nature and extent of the
				activities of the corporation in Vermont, compared with its activities
				elsewhere;
(2) the purposes for
				which the corporation was organized, compared with its activities in
				Vermont;
(3) the location of its
				offices and other places of business;
(4) the continuity, frequency and regularity
				of the activities of the corporation in Vermont, compared with the continuity,
				frequency and regularity of its activities elsewhere;
(5) the income of the corporation and the
				portion thereof derived from activities in Vermont;
(6) the employment in Vermont of agents,
				officers and employees;
(7) the
				location of the actual seat of management or control of the
				corporation;
(8) the mere ownership
				of real property within the State.
In determining whether a foreign corporation is doing
				  business in Vermont, no consideration is given to the following factors:
(a) the maintenance of cash balances with
				banks or trust companies in Vermont;
(b) the ownership of shares of stock or
				securities kept in Vermont in a safe deposit box, safe, vault or other
				receptacle rented for the purpose, or pledged as collateral security, or
				deposited with one or more banks or trust companies, or brokers who are members
				of a recognized security exchange, in safekeeping or custody
				accounts;
(c) the taking of any
				action by any such bank or trust company or broker, which is incidental to the
				rendering of safekeeping or custodian service to such corporation;
(d) any combination of the foregoing
				activities;
A foreign corporation, the business of which is wholly
				  interstate commerce, may do business in Vermont without becoming subject to the
				  tax. But a foreign corporation, the business of which is partly interstate
				  commerce and partly local business, is subject to the franchise tax imposed for
				  the privilege of doing business in Vermont, and such tax, when measured by
				  "entire net income," is measured by all of its "entire net income," including
				  that derived from interstate commerce.
The mere ownership by a foreign corporation of goods, which
				  are held in Vermont by an independent factor on consignment for sale at his own
				  discretion, does not constitute doing business in Vermont.
A foreign corporation, which regularly maintains a stock of
				  goods in Vermont and makes deliveries to its customers from such stock, is
				  doing business in Vermont so as to be subject to tax.
Example 1: A foreign corporation is engaged in the business
				  of manufacturing. Its factory is located outside Vermont but it maintains a
				  stock of merchandise in Vermont. Orders are filled from its Vermont stock. The
				  corporation is subject to the Vermont Franchise Tax.
Example 2: A foreign manufacturing corporation has its
				  factory outside Vermont. Its only activity in Vermont is the solicitation of
				  orders for its products through a sales office. The orders are forwarded to its
				  home office outside the State for acceptance and the merchandise is shipped by
				  common carrier from the factory direct to the purchasers. The corporation is
				  subject to the Vermont Franchise Tax.
Example 3: A foreign corporation is organized for the purpose
				  of buying and selling securities. It maintains an office in Vermont from which
				  it directs the purchase and sale of securities. The corporation is subject to
				  the Vermont Franchise Tax.
Example 4: A foreign corporation is organized or operated for
				  the purpose of buying and selling securities but does not maintain a physical
				  office anywhere, other than a statutory office in the state of its
				  incorporation. Regular and continuous purchases and sales of securities are
				  directed by its officers or agents located in Vermont. The corporation is
				  subject to the Vermont Franchise Tax.
Example 5: A foreign corporation, the sole assets of which
				  consist of patents, has an office in Vermont at which it issues patent licenses
				  to out-of-state manufacturers and at which it receives royalties. The
				  corporation is subject to the Vermont Franchise Tax.
Example 6: A foreign corporation, formerly engaged in the
				  business of manufacturing in another state, discontinues such business and
				  transfers its office to Vermont where its activities consist solely of the
				  liquidation of intangible personal property, the acquisition of United States
				  Government bonds and the receipt of interest on such bonds, and the holding of
				  directors' meetings. The corporation is subject to the minimum Vermont
				  Franchise Tax.
Example 7: A foreign corporation imports grain and stores it
				  in Vermont. The grain is purchased from time to time by another corporation
				  which resells it to its customers. The foreign corporation is subject to the
				  Vermont Franchise Tax.
Example 8: A foreign corporation which operates several
				  retail stores outside Vermont, leases an office in Vermont for the convenience
				  of its buyers when they come to Vermont. The buyers also purchase merchandise
				  in Vermont, ie: maple syrup, sugar, etc., for other retailers who pay the
				  corporation a commission for such services. Salesmen call at such office to
				  solicit orders from the buyers and merchandise is shipped by the sellers
				  directly to offices of the purchasers outside Vermont. The corporation is
				  subject to the Vermont Franchise Tax.
Example 9: A foreign corporation, which operates several
				  retail stores outside Vermont, leases an office in Vermont for the convenience
				  of its buyers when they come to Vermont. It has several employees permanently
				  assigned to such office. Salesmen call at the office to solicit orders from the
				  buyers, and the merchandise is shipped to such office by the sellers. Upon
				  receipt, the merchandise is examined, separated and ticketed, by the
				  corporation's employees and then shipped by them to the various stores of the
				  corporation outside Vermont. The corporation is subject to the Vermont
				  Franchise Tax.
Article 106 Corporations Not Subject to Tax
The following corporations shall not be deemed to be
				  mercantile, manufacturing, or business corporations within the meaning of
				  Chapter 44, and shall be exempt from the taxes imposed:
I. Railroad, express, telephone, telegraph,
				steamboat, trolley or electric railway corporations, insurance, surety and
				guaranty companies, mutual or otherwise;
II. Life, fire and marine insurance
				corporations and mutual life, fire and marine insurance companies;
III. Cemetery corporations and associations,
				labor, agricultural or horticultural organizations, fraternal beneficiary
				societies, no part of the net earnings of which inures to any member or
				stockholder;
IV. Sanitary
				corporations and corporations organized for religious, charitable, scientific
				or educational purposes, no part of the net earnings of which inures to the
				benefit of any private stockholder or individual member;
V. Business organizations, chambers of
				commerce or boards of trade not organized for profit, no part of the net
				earnings of which inures to the benefit of any private stockholder or
				individual member;
VI. Civic
				leagues or organizations not organized for profit but operated exclusively for
				the promotion of social welfare;
VII. Clubs organized and operated exclusively
				for pleasure and recreation and other non-profitable purposes, no part of the
				net earnings of which inures to the benefit of any private stockholders or
				individual member;
VIII. Farmers'
				or other mutual hail, cyclone, fire or life insurance companies, mutual water
				companies, mutual or cooperative telephone companies, or similar organizations
				of a purely local character, the income of which companies consists solely of
				assessments, dues and fees collected from the members for the sole purpose of
				meeting the expenses of the company;
IX. Farmers', fruit-growers' or like
				associations organized and operated on a cooperative basis (a) for the purpose
				of processing, preparing for market, handling or marketing the farm products of
				members or other producers and turning back to them the proceeds of sales, less
				the necessary marketing, handling or processing expenses, on the basis of
				either the quantity or the value of the products furnished by them, or (b) for
				the purpose of purchasing supplies and equipment for the use of members or
				other persons and, turning over such supplies and equipment to them at actual
				cost, plus necessary expenses.
Article 107 Change of Classification
A corporation subject to tax under § 950 may, by reason
				  of a change in the nature of its activities or holdings, cease to be subject to
				  such tax and become taxable under some other section of the Vermont Law.
				  Conversely, a corporation subject to tax under some other section of the
				  Vermont Law may, for the same reason, cease to be taxable thereunder and become
				  subject to tax under § 950. The date on which any such change of
				  classification becomes effective will be determined by the facts of each
				  case.
A corporation which becomes subject to tax under § 950
				  during one of its fiscal or calendar years by reason of a change of
				  classification is treated in the same manner as a corporation which acquired
				  its franchise or began to do business during such year. Similarly, a
				  corporation which ceases to be subject to the franchise tax imposed by §
				  950 during one of its fiscal or calendar years by reason of a change of
				  classification is treated, in so far as § 950 is concerned, in the same
				  manner as a corporation which is dissolved or ceases to do business in Vermont
				  during such year.
Example 1: A corporation, subject to tax under § 950,
				  which owns and operates a hotel (the personal property in which is owned by
				  another person or corporation) and has no other assets or business, ceases to
				  do business on April 15, 1953 and files necessary documents, see Articles 1000,
				  1001. The corporation ceases to be subject to tax under § 950 on April 15,
				  1953.
Example 2: The corporation referred to in Example 1 resumes
				  possession of the hotel and commences to operate it again on June 1, 1954. The
				  corporation again becomes subject to tax under § 950 on June 1,
				  1954.