32 V.S.A. § 7473: Allocation of payments

(a) Any payment received by the Commissioner from any taxpayer with respect to a tax liability of the taxpayer may be applied to any tax liability in the following order of priority, notwithstanding any direction by the taxpayer to the contrary:

(1) first, against any portion of any tax liability initially incurred with respect to a preceding taxable year, with the portion incurred with respect to the earliest preceding taxable year to be satisfied before any portion incurred with respect to any succeeding taxable year; and

(2) next, against any portion of any tax liability incurred with respect to the current taxable year.

(b) As to each portion, the payment shall be applied as follows:

(1) first, to the amount of any interest;

(2) next, to the amount of any penalty;

(3) next, to the amount of any fee; and

(4) next, to the amount of any unpaid tax, incurred with respect to the taxable year.