In Vermont, an American state (7)
I believe the answer is:
montana
'state' is the definition.
(Montana is an example)
'in vermont an american' is the wordplay.
'in' indicates a hidden word.
'MONTANA' can be found hidden inside 'vermont an american'.
(Other definitions for montana that I've seen before include "One US state ..." , "North-western US state" , "American state, capital Helena" , "Send manna to this US state" , "North-west US state bordering Canada" .)