NCPA - National Center for Policy Analysis

Vermont's Soft Drink Tax Is a Nightmare for Small Business

September 3, 2015

Vermont's state legislature has passed a new six-percent sales tax on soft drinks which imposes a heavy compliance cost on small business.

The main issue is that the Vermont Department of Taxation has a very confusing definition of which soft drinks fall under the new tax. The new tax applies to those beverages that contain natural or artificial sweeteners but if the drink contains milk in any form or more than 50% vegetable or fruit juice, or if it is a beverage powder, then the drink is exempt.

This has become very time consuming for small retailers because:

  • They do not possess a sophisticated computer inventory system and have to rely on staff to carry out the classification which can lead to errors.
  • Moreover, these businesses need to follow unclear and unhelpful guidelines from the Vermont Department of Taxation (which has said that the best way to ensure compliance is to review each beverage's nutritional label).

Vermont is clearly moving in the wrong direction; neighboring New Hampshire does not levy a sales tax or a tax on personal income while Vermont levies one of the highest marginal personal income taxes in the nation. The state's tax and spending policies have caused it to rank near the bottom in a list of states' economic outlook.

Source: Meaghan O'Connor and Kati Siconolfi, "Vermont's Soft Drink Tax Is a Nightmare for Small Business," American Legislator, August 26, 2015.

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