10-034 Code Vt. R. 10-060-034-X
THE FOLLOWING REGULATIONS ARE PROMULGATED BY THE VERMONT COMMISSIONER OF TAXES AS PROVIDED BY 32 V.S.A. § 6105 FOR THE PURPOSE OF CLARIFYING AND ADMINISTRATING THE SMALL BUSINESS CORPORATION TAX LAW AND SO AS TO CONFORM AS CLOSELY AS POSSIBLE TO THE OPERATION OF SUB-CHAPTER S OF CHAPTER ONE. SUBTITLE A OF THE INTERNAL REVENUE CODE OF THE UNITED STATES OF AMERICA AS IT RELATES TO FEDERAL TAXATION.
Domestic corporation means a corporation organized under the laws of the State of Vermont and does not include corporations organized under the laws of the United States or any other state or territory. Further, the term does not include an unincorporated business entity.
A Vermont domestic corporation which is qualified may elect to be taxed as a small business corporation if all persons who are shareholders in the corporation consent to such election on:
In this connection election may be made during the last month preceding the taxable year for which the election will be effective or during the first month of such taxable year.
For the year 1962 election may be made during the first 90 days or on or before March 31, 1962. Election may be made by corporations operating on a fiscal year basis within the first 90 days of 1962 to prorate that portion of their fiscal year operations which falls in 1962 as a small business corporation under Provisions of Chapter 157. In instances where fiscal year corporations elect to be taxed as a small business corporation on 1962 earnings, only a single corporate franchise tax return (Form # 104) need be filed. However, a schedule setting forth the 1962 proration should be attached.
Example # 1 - X corporation has four shareholders owning equally and devoting equal time and attention to the business. Operations are on a fiscal year basis, ending April 30th of each year. An election has been made to tax that portion of its 1962 earnings as a small business corporation. Fiscal 1962 earnings total $ 12,000.00. On or before September 15, 1962 the corporation is required to file a franchise tax return (Form # 104) reflecting its entire net income of the fiscal year ending April 30, 1962. A separate schedule prorating 1962 earnings should be attached and the franchise tax computed as follows:
$ 12,000.00 net income | / 12 = $ 1,000.00 per month |
$ 1,000.00 | x 8 = $ 8,000.00 1961 income |
$ 1,000.00 | x 4 = $ 4,000.00 1962 income |
Franchise tax for fiscal year ending April 30, 1963 based on operations of fiscal year ending April 30, 1962 (income attributed to small business corporation operations omitted):
$ 8,000.00 | x 5% = $ 400.00 franchise tax |
Small business corporation income distribution -
$ $ 4,000.00 | / 4 = $ 1,000.00 1962 distributable |
to each share-holder. |
Example # 2 - Facts same as # 1 except loss of $ 12,000.00 is sustained. Return (Form # 104) is filed September 15,1962 and minimum tax of $ 25.00 is paid. Small business corporation loss distribution:
$ 12,000.00 | / 12 = $ 1,000.00 per month |
$ 1,000.00 | x 8 = $ 8,000.00 1961 loss |
$ 1,000.00 | x 4 = $ 4,000.00 1962 loss |
$ 4,000.00 | / 4 = $ 1,000.00 1962 loss |
to each shareholder. |
No extension will be allowed for election by corporations operating on either a fiscal or calendar year basis beyond the aforementioned 90 day period.
If a small business corporation as defined in 1.6101-1 has made an election under 1.6102-1 and such election is in effect for the taxable year in question, then the corporation is an electing small business corporation for such taxable year. The corporation is not an electing small business corporation as to a particular tax year if it was ineligible to make the election or failed to make the election within the prescribed time.
Example # 3 - Facts same as in # 1 except that period involved is fiscal year ending April 30, 1963 or any fiscal year thereafter with election having been made. Small business corporation return (Form # 106) is filed September 15, 1963. Minimum tax of $ 25.00 is payable representing franchise tax for fiscal year ending April 30, 1964. Small business corporation income distribution:
$ 12,000.00 net earnings / 4 = $ 3,000.00 income taxable to each shareholder - prorated to calendar basis by dividing by 12 and multiplying by number of months in each calendar year involved; in instant case.
$ 3,000.00 | / 12 = $ 250.00 per month |
$ 250.00 | x 8 = $ 2,000.00 1962 income, |
each shareholder. | |
$ 250.00 | x 4 = $ 1,000.00 1963 income, |
each shareholder. |
Example # 4 - Assume facts in # 2 except fiscal year ends April 30, 1963 and each fiscal year thereafter.
Form # 106 filed on or before September 30, 1963 and minimum tax of $ 25.00 paid.
Small business corporation loss distribution-
$ 12,000.00 | / 4 = $ 3,000.00 distributed |
to each shareholder. | |
$ 3,000.00 | / 12 = $ 250.00 per month |
$ 250.00 | x 8 = $ 2,000.00 1962. loss |
to each. | |
$ 250.00 | x 4 = $ 1,000.00 1963. loss |
to each. |
Example # 5 - X corporation elects to be taxed as a small busines corporation. It realizes $ 40,000.00 net profit and has eight (8) shareholders. The shareholders received compensation in the amount of $ 10,000.00 each. For Vermont income purposes each shareholder would be required to report as gross income the sum of $ 15,000.00 ($ 10,000.00 salary plus $ 5,000.00 distributive share of the small business corporation).
Example # 6 - Y corporation elected to be taxed as a small business corporation. It sustained a loss of $ 36,000.00 and had six (6) shareholder who contributed equally in time and effort to the corporate activities and each realized personal compensation of $ 8,000.00. For Vermont income tax purposes each shareholder would be required to report as adjusted gross income the sum of $ 2,000.00 ($ 8,000.00 salary less $ 6,000.00 distributive loss of the small business corporation).
Example # 7 - Z corporation elects to be taxed as a small business corporation and realizes net profit of $ 30,000.00. It has five (5) shareholders, two of whom are non-residents and perform their services for the corporation entirely outside the state. Each shareholder contributes equally in time and effort to the corporate activities and each receives wage of $ 6,000.00. The three shareholders who are residents of Vermont would report as gross income a total of $ 11,000.00 ($ 6,000.00 salary and $ 5,000.00 each, distributive income of the small business corporation). The two non-resident shareholders would report as gross income $ 5,000.00 each representing their distributive income of the small business corporation Their salaries would be excluded in the determination of their Vermont income tax.
Consent of shareholders to an election by a Vermont small business corporation shall be in the form of a signed statement in which such shareholders consent to the election of the corporation. The consent is binding and may not be withdrawn after a valid election has been made by the corporation. The statement of consent shall set forth:
Consents of all shareholders may be incorporated in a single statement. However, it is necessary that consents of all persons who are shareholders at the time the election is made be attached to the election filed by the corporation.
The election of a small business corporation once made remains in full force and effect thereafter but shall terminate at the end of the taxable year in which:
Corporations qualified and elected to be taxed as small business corporations are exempt from Vermont corporate franchise taxes with the exception of the minimum tax prescribed by Statute in the amount of $ 25.00. In other words, all corporations subject to the franchise tax law even though electing to be taxed as a small business corporation must remit a franchise tax in at least the amount of $ 25.00.
Example # 8 - ABC corporation elects to be taxed as a small business corporation and during the year 1962 realizes net profits of $ 40,000.00 which are distributed to shareholders. On or before May 15, 1963 the corporation is required to file a small business corporation tax from # 106 and remit payment therewith of the minimum tax prescribed by Statute in the amount of $ 25.00. Such amount represents payment of the franchise tax for the privilege of doing business during 1963.
Corporations subject to the franchise tax and not electing to be taxed as a small business corporation are subject to a franchise tax measured at the rate of 5% of net income attributable to Vermont or a minimum of $ 25.00 whichever is greater.
The treasury regulations promulgated by the Commissioner of Internal Revenue pertaining to Sub-chapter S of Chapter One. Sub-title A of the Internal Revenue Code of the United States of America shall apply in the interpretation of the Vermont Small Business Tax Act. unless contrary to rules and regulations promulgated by the Vermont Commissioner of Taxes or unless the Commissioner determines that said regulations are illegal or unauthorized or are in conflict with the laws of the State of Vermont. Statutory Authority: 32 V.S.A. § 6105
10-034 Code Vt. R. 10-060-034-X
Effective Date: February 1962