Vermont uses a withholding tax to make sure that nonresidents pay capital
gains taxes due to the state of Vermont upon the sale of real estate here.
The measure was enacted in 1989 as a “collection tool.”
When Vermont property is sold by a nonresident of Vermont, the buyer is
required to withhold 2.5% of the amount paid for the transfer and transmit
this amount to the Vermont Department of Taxes within 30 days of the sale.
A “nonresident” includes someone who once lived in a Vermont property as a
primary residence but has already begun living in another state or
country.
The amount withheld is considered a payment against the Vermont income
tax on the funds received by the seller. If no gain occurred or the amount
withheld is more than the tax, the seller can get a refund. A buyer who
fails to withhold 2.5% of the sales price at the closing is personally
liable for the tax.
Withholding from a nonresident is not necessary, or may be in a reduced
amount, if before the closing the buyer or seller obtains a certificate
from the Commissioner of Taxes. These are available if 1) no tax will be
due, 2) the seller or buyer has provided adequate security to cover the
tax liability, or 3) reduced withholding is appropriate because the 2.5%
amount exceeds the seller’s maximum tax liability.
For more information on the Vermont withholding tax, call the Vermont
Tax Department at 828-2777.
