§ 138 — Local option taxes

(a) Local option taxes are authorized under this section for the purpose of affording municipalities an alternative method of raising municipal revenues. Except as provided in subsection (h) of this section, and subject to certification by the Commissioner of Taxes, a local option tax shall be effective beginning on the next tax quarter following 90 days’ notice to the Department of Taxes of the imposition.
(b) If the legislative body of a municipality by a majority vote recommends, the voters of a municipality may, at an annual or special meeting warned for that purpose, by a majority vote of those present and voting, assess any or all of the following:
(1) a one percent sales tax;
(2) a one percent meals and alcoholic beverages tax;
(3) a one percent rooms tax.
[Subdivision (c)(1) effective until October 1, 2025; see also subdivision (c)(1) effective October 1, 2025 set out below.]
(c)(1) Any tax imposed under the authority of this section shall be collected and administered by the Department of Taxes, in accordance with State law governing such State tax or taxes and subdivision (2) of this subsection; provided, however, that a sales tax imposed under this section shall be collected on each sale that is subject to the Vermont sales tax using a destination basis for taxation. Except with respect to taxes collected on the sale of aviation jet fuel, a per-return fee of $5.96 shall be assessed, 70 percent of which shall be borne by the municipality, and 30 percent of which shall be borne by the State to be paid from the PILOT Special Fund. Notwithstanding 32 V.S.A. § 603 or any other provision of law or municipal charter to the contrary, revenue from the fee shall be used to compensate the Department for the costs of administering and collecting the local option tax and of administering the State appraisal and litigation program established in 32 V.S.A. § 5413. The fee shall be subject to the provisions of 32 V.S.A. § 605.
[Subdivision (c)(1) effective October 1, 2025; see also subdivision (c)(1) effective until October 1, 2025 set out above.]
(c)(1) Any tax imposed under the authority of this section shall be collected and administered by the Department of Taxes, in accordance with State law governing such State tax or taxes and subdivision (2) of this subsection; provided, however, that a sales tax imposed under this section shall be collected on each sale that is subject to the Vermont sales tax using a destination basis for taxation. Except with respect to taxes collected on the sale of aviation jet fuel, a per-return fee of $5.96 shall be assessed, 75 percent of which shall be borne by the municipality, and 25 percent of which shall be borne by the State to be paid from the PILOT Special Fund. Notwithstanding 32 V.S.A. § 603 or any other provision of law or municipal charter to the contrary, revenue from the fee shall be used to compensate the Department for the costs of administering and collecting the local option tax and of administering the State appraisal and litigation program established in 32 V.S.A. § 5413. The fee shall be subject to the provisions of 32 V.S.A. § 605.
(2) Notwithstanding any other law or municipal charter to the contrary, if the Commissioner determines that local option tax was collected on a transaction in a municipality not authorized to impose local option tax under this section, the Commissioner shall either refund the erroneously collected tax pursuant to 32 V.S.A. chapter 233 or 225 or, if the purchaser cannot reasonably be determined, deposit the erroneously collected tax as required for State sales and use tax pursuant to 16 V.S.A. § 4025(a)(6) or State meals and rooms tax pursuant to 10 V.S.A. § 1388(a)(4), 16 V.S.A. § 4025(a)(4), and 32 V.S.A. § 435(b)(7).
[Subdivision (d)(1) effective until October 1, 2025; see also subdivision (d)(1) effective October 1, 2025 set out below.]
(d)(1) Except as provided in subsection (c) of this section and subdivision (2) of this subsection with respect to taxes collected on the sale of aviation jet fuel, of the taxes collected under this section, 70 percent of the taxes shall be paid on a quarterly basis to the municipality in which they were collected, after reduction for the costs of administration and collection under subsection (c) of this section. Revenues received by a municipality may be expended for municipal services only, and not for education expenditures. Any remaining revenue shall be deposited into the PILOT Special Fund established by 32 V.S.A. § 3709.
[Subdivision (d)(1) effective October 1, 2025; see also subdivision (d)(1) effective until October 1, 2025 set out above.]
(d)(1) Except as provided in subsection (c) of this section and subdivision (2) of this subsection with respect to taxes collected on the sale of aviation jet fuel, of the taxes collected under this section, 75 percent of the taxes shall be paid on a quarterly basis to the municipality in which they were collected, after reduction for the costs of administration and collection under subsection (c) of this section. Revenues received by a municipality may be expended for municipal services only, and not for education expenditures. Any remaining revenue shall be deposited into the PILOT Special Fund established by 32 V.S.A. § 3709.
(2)(A) Of the taxes collected under this section on the sale of aviation jet fuel, on a quarterly basis, 70 percent of the taxes shall be paid to the municipality in which they were collected, and 30 percent shall be deposited in the Transportation Fund.
(B) All revenues referenced in subdivision (A) of this subdivision (2) shall be used exclusively for aviation purposes consistent with 49 U.S.C. § 47133 and Federal Aviation Administration regulations and policies.
(e) As used in this section, “municipality” means a city, town, or incorporated village.
(f) Nothing in this section shall affect the validity of any existing provision of law or municipal charter authorizing a municipality to impose a tax similar to the local option taxes authorized in this section.
(g) If the legislative body of a municipality by a majority vote recommends or by petition of ten percent of the voters of a municipality recommends, the voters of a municipality may at an annual or special meeting warned for that purpose by a majority vote of those present and voting rescind any or all of the local option taxes assessed under subsection (b) of this section.
(h)(1) The Commissioner of Taxes may limit the number of municipalities enacting a local option tax under subsection (b) of this section to five per calendar year.
(2) The Commissioner of Taxes shall certify the first five notices from municipalities it receives under subsection (a) of this section in each calendar year and those municipalities may proceed to assess a local option tax according to subsection (a) of this section.
(3) In the Commissioner’s discretion, after receiving notice from the fifth municipality pursuant to subsection (a) of this section in a calendar year, the Commissioner of Taxes may delay certification, or reject further notices for that year, if the Commissioner determines that additional certifications would cause an undue burden on tax administration. (Added 1997, No. 60, § 88; amended 1997, No. 71 (Adj. Sess.), § 61, eff. March 11, 1998; 1999, No. 49, § 87, eff. June 2, 1999; 2001, No. 144 (Adj. Sess.), § 25; 2003, No. 66, § 53b, see effective date note set out below; 2003, No. 68, §§ 66, 68, eff. June 18, 2003; 2003, No. 152 (Adj. Sess.), § 15; 2005, No. 215 (Adj. Sess.), §§ 286, 293b, 293c; 2009, No. 160 (Adj. Sess.), § 8; 2011, No. 128 (Adj. Sess.), § 37; 2011, No. 143 (Adj. Sess.), § 48, eff. May 15, 2012; 2017, No. 158 (Adj. Sess.), § 36, eff. Jan. 1, 2019; 2023, No. 72, § 6, eff. June 19, 2023; 2023, No. 78, § E.111.3, eff. July 1, 2023; 2023, No. 144 (Adj. Sess.), § 20, eff. July 1, 2024; 2025, No. 57, § 11, eff. October 1, 2025.)