Get a CT Sales Tax Permit for Goods and “Sales Taxable Services”
If you are doing business in Connecticut, it is important that you determine whether you need a sales and use tax permit to conduct that business. The penalty for engaging in business in CT without a seller’s permit is $250 for the first day and $100 for every subsequent day. As you can imagine, these penalties can add up, and these penalties will be in addition to the payment of the sales tax amounts that you should have been collecting on those sales.
Alright, to first determine if you need a seller’s permit you have to take a step back and review the business that you plan to be doing. You’ll need a seller’s permit if you will be selling/renting/leasing goods, selling taxable services, or operating a hotel, motel, bed and breakfast, etc inside Connecticut (or in some cases into CT from other states). If you’re selling goods in CT, get a seller’s permit. If you’re providing services in CT, we have to stop and ask if those services are “taxable services”.
The DRS (Department of Revenue Services, i.e. CT’s version of the IRS) maintains a pretty thorough list of what services are taxable services. You can find that list here: https://portal.ct.gov/DRS/Sales-Tax/Services-Subject-to-Sales-and-Use-Taxes with each item on the list cited to the appropriate place in the Connecticut regulations. If you’re uncertain if the services you provide are considered taxable services for the CT sales tax, be sure to read through this entire list. Don’t just rely on a text search of this list as the service may be titled differently than you’d expect. For example, if you search for “dog groomer” you may think that because this isn’t listed, that it isn’t a taxable service, but that would be incorrect. If you read through the entire list you would have seen that “Pet grooming, pet boarding services, and pet obedience services” are listed as sales taxable services.
It’s also worth noting that there are some enumerated exceptions to the application of the sales tax on some goods, you can find a list of these exceptions here: https://portal.ct.gov/DRS/Sales-Tax/Exemptions-from-Sales-and-Use-Taxes.
Getting the Permit and Paying the Taxes
Now that you’ve determined whether you will require a CT sales tax permit, the next step is acquiring the permit. Previously a Form Reg-1 would be used to acquire the permit, but there has been a recent push to handle these permits digitally and you can acquire the permit by setting up a myconneCT account. You can start that process here: https://portal.ct.gov/drs-myconnect. Acquiring the sales tax permit has a $100 fee.
You should also be aware that these sales tax permits do have to be renewed. These permits are valid for two years and they will automatically be renewed and mailed to you. This automatic renewal only occurs if you are fully in compliance with your sales tax filings and payments. This renewal will not require you to pay the $100 fee again, as that is a one-time fee for the issuance of the permit. Be aware that sales and use tax returns are required even for periods during which there were no taxable sales, and failure to file these returns can prevent the automatic renewal of your permit.
The standard CT sales tax is 6.35% (note there are some special rates for specific goods and services that deviate from the 6.35%). There is a general expectation by consumers that businesses that are subject to sales taxes will pass this expense on to their customers by itemizing the sales tax component of the invoice. Note that businesses that are subject to the sales tax on their sales are required to charge this tax to their customers and collect and remit these tax amounts to Connecticut. These sales taxes are due on your sales taxable sales whether you have collected it from your customers or not, this means that it is very important that you fully inform yourself regarding your sales tax obligations because you could find yourself in a situation wherein you owe a considerable amount in sales taxes. When you consider all of the other taxes that you are required to pay (income taxes, employment taxes, property taxes, sales taxes on items you purchase) the last thing your business needs is to have to pick up the bill for the sales tax that should have been paid by your customers. An additional 6.35% coming out of your profits may be more than your business can bear.
You can file your sales tax returns and arrange for payment of the sales taxes right through the myconneCT website as well. When you first register you will be setup to file either quarterly or monthly with the DRS. The DRS will then notify you if your filing frequency has been changed. Expect that if you have under $1,000 of sales taxes for the prior 12 month period that they will update your filings to be done annually rather than quarterly or monthly. Conversely, if your sales tax liability exceeds $4,000 you should expect to be notified that your filings have been changed to monthly.
Concerns for Out of State Businesses
There are several details relating to sales tax permits in Connecticut that can cause significant problems for out of state businesses conducting business in CT. I won’t be able to comprehensively go through all of the potential issues here but I do want to highlight a couple of those potential issues.
Whether you are selling your goods at a flea market, a craft fair, or a trade show, you need to be aware of your state sales tax obligations
If you’re going to be physically in Connecticut making sales (whether you’re at the Durham fair, the Brooklyn fair, Oyster fest, or one of the many trade shows or carnivals that occur annually) then you need to obtain a seller’s permit, even if you are only going to be here making sales for one day. As a point of comparison, Massachusetts has an exception for out of state vendors that solicit orders in Massachusetts fewer than three days in the year. The MA policy seems like a more reasonable policy to me, but it’s important that you understand your filing obligations based on these laws as they have been written, and to understand that these rules differ between states and you should look into the sales tax rules for any state that your considering doing business within.
If you’re an out of state seller who does not have any physical presence or contacts with CT aside from sales to CT residents, you may need to register and collect and remit sales tax. The thresholds to be aware of are 200 different sales into Connecticut or $100,000 in gross receipts from sales into CT. There are also some other activities that if they are found to be targeting CT residents can give rise to a sales tax obligation as well (like billboards in CT or other types of business solicitation targeting Connecticut consumers).
The sales tax is only one of the two primary components of this conversation, the other component is the use tax. The use tax is the amount of tax that a person or business should pay on his/her/its annual tax return to disclose the purchase of goods out of state for use within Connecticut. Unfortunately for businesses, it is significantly easier to enforce sales tax requirements on businesses than it is to enforce use tax obligations on individuals.
In Connecticut there has been some history of the state trying to be a bit more aggressive in collecting use tax. For example, in 2018 an online computer and computer parts vendor, Newegg, gave CT some of their customers’ purchase data and the state proceeded to make use tax assessments on those customers based on that data. Then in 2021 (as is detailed at greater length in this article https://www.oconnorlyon.com/blog/2021/12/9/ct-drs-using-us-customs-data-to-threaten-use-tax-audits?rq=sales%20tax) CT threatened to make use tax assessments against individuals based on data that “U.S. Customs has provided the Department of Revenue Services.”
Despite these instances of attempts to hold CT consumers accountable for the tax that should have been paid for the purchase of goods that are being used in Connecticut, it remains both easier and more efficient to target the businesses and vendors that are selling within or into the state. This is especially true after the Supreme Court of the United States decided South Dakota V. Wayfair, Inc. determining that the absence of a physical presence in a state is not sufficient to avoid collecting and remitting sales taxes to that state. In other words, the court rejected the idea that a business needed a physical presence to be subjected to sales tax in a particular state. The South Dakota law imposed a sales tax on businesses that had 200 or more transactions into the state or that had over $100,000 worth of goods or services delivered into the state. This magnitude of activity is enough to give a business substantial nexus (based on “economic and virtual contacts”) requiring that business to collect and remit sales tax to the state. You’ll note that this South Dakota law was upheld and CT has updated its prior threshold of 200 transactions or $250,000 to match the 200 transactions or $100,000 from the Wayfair decision.