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:
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.
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.
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.
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.
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.
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:
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:
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.
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:
The state of Connecticut has issued sales tax brackets which are available on the Department of Revenue website.
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.
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.