Understanding Connecticut Sales and Use Taxes
Understanding and complying with the sales tax requirements in the states in which you do business is absolutely essential. More states are taxing services, as well as retail sales, so no business owner can afford to be in the dark. In addition, you may find that you are liable for use taxes for products purchased out of state. This article answers some of the basic questions regarding sales tax in Connecticut.
In Connecticut, the state sales and use taxes are generally imposed at the rate of 6 percent. Local governments do not have the ability to assess a local sales tax.
The sales tax is imposed upon the privilege of making sales at retail, rendering taxable services, renting hotel rooms for up to 30 days, and the storage, acceptance, consumption or any other use in Connecticut of tangible personal property, manufacturing machinery and enumerated business services.
The tax rate is 12 percent when renting hotel rooms for the first period of 30 consecutive calendar days or less. The tax rate is 5.5 percent on repair or replacement parts for use in machinery directly in a manufacturing or agricultural production process.
The sales and use tax applies to the gross receipts from all of the following services, but the rates may differ from the general sales tax rate:
- advertising or public relations services
- business analysis, management, management consulting, and public relations services
- cable and satellite television services
- computer and data processing services
- contractor services
- credit information and reporting services
- employment and personnel agency services
- exterminating services
- flight instruction and chartering services by a certificated air carrier
- furniture reupholstering and repair services
- health, athletic club, and yoga studio services
- janitorial services
- landscaping and horticultural services, except those provided by a licensed landscape architect
- lobbying or political special interest group consulting services
- locksmith services
- maintenance services to real property
- miscellaneous personal services, exclusive of services rendered by licensed massage therapists and licensed hypertrichologists
- mooring and storage
- motor vehicle repairs, parking, and car washing services
- painting and lettering services
- parking services, except in metered spaces, in a lot with more than 29 spaces or valet parking at airports
- personnel training
- photographic studio services piped in music provided to business or professional establishments
- pre-paid telephone calling services
- private investigation, protection, patrol work, security, and armored car services
- refuse removal for commercial and industrial and income-producing property
- repair services to electrical devices
- renovation and repair services to noncommercial real property
- repair or maintenance services to tangible personal property
- services in connection with the sale of tangible personal property
- services to industrial, commercial, or income-producing real property
- stenographic services
- swimming pool cleaning and maintenance services
- telecommunications services
- telephone answering services
- warranty and service contracts
- window cleaning services
Leases. Generally, the leasing or rental of tangible personal property in Connecticut is a sale subject to the sales and use taxes. Lessors are considered retailers. Therefore, lessors must register with the Commissioner of Revenue Services and collect the tax from lessees.
Many Items Are Exempt from Tax
Connecticut includes many specific items that are exempt from sales tax. Examples of exempt items are food products and prescription medication. You'll want to check and see if you or any of the items you sell are exempt from the sales tax.
Seller is Responsible for Paying Sales Tax
The Connecticut sales tax is imposed on the retailer (or lessor or service provider) measured by taxable gross receipts. However, the retailer is entitled to collect reimbursement of the tax from the purchaser.
Absorbing the tax is not permitted. In Connecticut retailers may not advertise or hold out that any part of the tax will be assumed or absorbed, will not be added to the taxable price, or will be refunded.
Obtaining tax permits in Connecticut
In Connecticut an application for registration must be submitted, along with a $100 fee, to the Commissioner of Revenue Services for each place of business. The permit expires every two years on its anniversary date. The permit is renewed without an additional fee.
Organizations Can Obtain Tax Exemption Certificate
In Connecticut nonprofit organizations, charitable, religious, and educational institutions are exempt from sales tax. The scope of the exemption varies, but in all cases, proof of eligibility for the exemption must be filed with the Connecticut Commissioner of Revenue Services.
Resale exemptions and blanket exemptions are two of the most important exceptions to sale tax liability. In additon, it is important to understand if you have enough "presence" within a state to be taxed by it.
Sales for Resale Are Tax Exempt
In Connecticut sales for resale in the regular course of business are expressly exempt from tax. The burden of proving that a sale is for resale is on the seller, unless the seller takes from the purchaser a resale certificate. The resale certificate relieves the seller of the burden of proof only if it is taken in good faith from a person engaged in selling or leasing tangible personal property or taxable services who, at the time of purchase:
- intends to sell the property or services in the regular course of business
- intends to use the personal property in the delivery of landscaping or horticultural services (provided the total sale price of all such services are taxable) or
- cannot then ascertain whether it will be sold or not
Resale certificates are valid only for the period in which the purchaser is a reseller of the items specified and should be renewed at least every three years.
In Connecticut the resale certificate should include the following information:
- signature of the purchaser
- name and address of purchaser
- description of the general character of the property or service sold by the purchaser in the regular course of the business
- the number of the seller's permit held by the purchaser
Blanket Resale Certificate Are Permitted
In Connecticut a purchaser may give a "blanket" resale certificate covering all purchases within a period not to exceed three years. A blanket certificate will relieve the burden of executing a separate certificate for each individual tax-exempt purchase as long as there is no significant change in the operations. A blanket certificate describes the general nature of the property purchased for resale and remains in force for three years or until revoked in writing.
Physical Presence Requires for Sales Tax Liability
Connecticut has a statute that specifically taxes out-of-state mail order and catalogue sellers. However, you will be responsible for paying this tax only if you have physical presence within Connecticut. To determine if you have physical presence, ask yourself the following:
- Do I have retail facilities, a warehouse or any office space in Connecticut? Maintaining retail or warehouse facilities will give you physical presence. Also, having an office for employees, even for business activities unrelated to mail order sales, will give you physical presence.
- Do my employees or I enter Connecticut for purposes of taking and transmitting orders from Connecticut? If your employee or independent contractor goes into Connecticut to take or transmit orders your business may have physical presence in Connecticut. However, contracting with a common carrier to deliver mail order goods does not constitute physical presence.
- Do my delivery vehicles frequently enter Connecticut for purposes of delivering property? Frequent deliveries in Connecticut by your trucks will give you physical presence in Connecticut.
Sales tax "bracket system."
The state of Connecticut has issued sales tax brackets which are available on the Department of Revenue website.
Use Tax Imposed on Out-of-State Purchases
In Connecticut if sales or use tax has been paid to another state or political subdivision you can reduce your tax by that amount. The rate of tax applicable will be the difference between the rate imposed by Connecticut and the rate at which the tax to the other state was computed. If the other state's tax rate is equal to or more than the Connecticut rate, no tax will be due to Connecticut.
The use tax is based on the retail sales price for the storage, acceptance, consumption or other use by a person in Connecticut. The use tax is not imposed on sales or services that are subject to the sales tax.
Responsibility for collecting use tax. The Connecticut use tax is imposed on the storage, acceptance, consumption, or any other use in Connecticut of tangible personal property and the acceptance or receipt of taxable services.
Claiming Refund for Excess Tax Payments
In Connecticut before a refund or credit of sales and use tax can be allowed, a written claim must be filed with the Commissioner of Revenue Services stating the specific grounds for the claim. The claim must be filed within the three-year period.