As a business, do I need to collect Connecticut sales tax?
Businesses are required to collect sales tax in Connecticut if they have a sales tax nexus in the state. This includes having a physical presence or reaching a specific sales level, which establishes an economic nexus. This is why understanding Connecticut state sales tax obligations is crucial for compliance.
Do I have a physical nexus in Connecticut?
A physical nexus in the state of Connecticut is established if your business has a physical presence in the state. Following are examples of physical presence that can trigger a physical nexus in the state of Connecticut:
- Contractors (customer facing roles): "Contractors" are usually considered independent entities or individuals. They operate their own businesses and are not typically under the direct control of the hiring company. The presence of contractors engaged in customer-facing roles, such as marketing, sales, support, or servicing, usually triggers a physical nexus in the state.
- Employees (customer facing roles): In the context of establishing a physical nexus, "employees" refer to individuals who work for your business and are physically present in the respective state. Employees engaged in customer-facing roles, such as marketing, sales, support, or servicing, usually trigger a physical nexus in this state.
- Office: An "office" in the context of establishing a physical nexus refers to a physical location or workspace that a business maintains within the respective state. This could include a dedicated facility where administrative tasks are carried out, meetings are conducted, or business operations are managed.
- Warehouse: A "warehouse" in the context of establishing a physical nexus refers to a physical facility used for storing goods, inventory, or products within the respective state. Businesses may utilize warehouses for various purposes, such as storage, distribution, or fulfillment of orders.
How do I know if I have an economic nexus in Connecticut?
An economic nexus in Connecticut is determined by your sales volume. If the annual sales of your enterprise exceed the given threshold in Connecticut, you must register for an Connecticut sales tax permit, collect tax on sales shipped to Connecticut, and remit that sales tax to the state revenue authorities.
In Connecticut, an economic nexus is established for your enterprise if your sales in the state exceed 100000 AND number of transactions exceed 200, based on the sales from the 12-month period ending on September 30.
While calculating the sales or number of transactions for determining economic nexus, Connecticut requires transactions made through marketplaces, like Amazon, eBay, etc. to be included. Transactions made for resale purposes should be excluded while determining whether a business has exceeded the Connecticut economic nexus threshold. Finally, the sale of products that are non-taxable in Connecticut should be included while determining the establishing of nexus in Connecticut.
For an in-depth understanding, read our comprehensive guide on economic nexus reference periods.
Which goods are taxable in Connecticut?
For businesses in Connecticut, local sales tax is applicable on the sale of all tangible personal property sold at retail in the state, on the rental or leasing of tangible personal property, and on the gross receipts from the rendering of certain services like Advertising or public relations services, furniture reupholstering and repair services, car wash services, cable and satellite television services, computer and data processing services, etc .
Businesses need to stay updated on current tax information as well as the associated obligations and exemptions to avoid any compliance issues.
What items are exempt from Connecticut sales tax?
Connecticut exempts several items from sales tax- child car seats, bicycle helmets, safety apparel, agricultural products meant for exclusive use in agricultural production, firearm safety devices, medical goods & equipment, to name a few.
Understanding these exemptions is vital for businesses to calculate sales tax accurately in Connecticut. If you are uncertain about the tax status of specific items, seek guidance from professionals at Galvix.
Is SaaS taxable in Connecticut?
In Connecticut, the sales tax laws consider certain types of software, SaaS, and related services as taxable. These include:
- Software delivered on tangible media: Software distributed and obtained through physical means, such as CDs or DVDs.
- Software delivered electronically: Any software that is distributed and accessed electronically, usually over the internet, without physical media.
- IaaS (Infrastructure as a Service): IaaS provides virtualized computing infrastructure over the internet. It includes services like virtual machines, storage, and networking. Examples include Amazon Web Services (AWS), Microsoft Azure, and Google Cloud Platform.
- PaaS (Platform as a Service): PaaS provides a platform allowing customers to develop, run, and manage applications without dealing with the complexity of building and maintaining the underlying infrastructure. Examples include Heroku and Google App Engine.
- SaaS - General (Software as a Service): SaaS delivers software applications over the internet, typically on a subscription basis. Users can access the software through a web browser. Examples include Google Workspace, Microsoft 365, and Salesforce.
- SaaS - On premises: This refers to Software as a Service installed and operated from the customer's in-house server and computing infrastructure rather than a third-party server.
- SaaS - Security: SaaS solutions focused on providing security services, such as antivirus software, firewall protection, and threat detection.
- SaaS - Storage: SaaS offerings that primarily provide storage solutions over the internet. Examples include cloud storage services like Dropbox and Google Drive.
- SaaS - With downloadable app or SDK: SaaS that comes with a downloadable application or Software Development Kit (SDK) for additional functionality or integration with other software.
- Software delivered through load & leave: This refers to software loaded onto a system or device that does not require an ongoing internet connection.
However, sales tax laws change frequently, so it is vital to remain up-to-date with the latest regulations on the sales tax of Connecticut for digital goods. Checkout our latest blog to learn more about SaaS sales tax.
What is the deadline to obtain a Connecticut sales tax permit after establishing a nexus?
If a business has a physical nexus in Connecticut, it must obtain a sales tax permit from the Department of Revenue Services and start collecting sales tax on transactions as on the date of establishing the physical nexus. Businesses that establish an economic nexus in Connecticut need to obtain a sales tax permit and start collecting taxes, latest by upcoming October 1, from the date they establish the economic nexus.
It is important to obtain the sales tax permit and start collecting taxes as per the deadlines mentioned above, in order to avoid back taxes and penalties.
How can one get a Connecticut sales tax permit?
To obtain a sales tax permit in Connecticut, businesses need to register with the Department of Revenue Services. This process is streamlined and can be completed online through the online portal provided by Department of Revenue Services. To comply with Connecticut's sales tax laws, businesses need to get a tax permit.
To get a sales tax permit in Connecticut, you need to provide detailed information about the business, such as the type of business, FEIN, personal details of the owner, business registration, nature of business activities, and several others on the Department of Revenue Services website. You will then get a sales tax number. This number is important for collecting, reporting, and paying the sales tax to the state government.
For detailed instructions and guidance on the registration process, connect with the experts at Galvix.
How should a business collect sales tax in Connecticut?
Businesses in Connecticut must collect sales tax from customers on relevant transactions. The collected tax must align with the Connecticut sales tax rate, which varies by location. Enterprises should regularly verify the sales tax rates to ensure accurate collection. To learn the best practices, explore our sales tax compliance guide.
Where can I file my Connecticut sales tax return?
You can file the Connecticut sales tax return by visiting the online portal provided by the Department of Revenue Services at: https://drs.ct.gov/eservices/_/.
When should a business file Connecticut sales tax return?
Businesses in Connecticut must file state sales tax returns periodically. The frequency, i.e., monthly, quarterly, or annually, is determined by the state based on the tax liability.
Typically, sales tax and use taxes is due monthly, with returns and remittances filed on or before the last day of the following month for the previous month’s sales. However, businesses can request a different filing status based on their annual tax liability.
In general, the following are the filing deadlines for Connecticut, based on the assigned filing frequency to you by the state:
- Monthly Filing: last day of the following month
- Quarterly Filing: last day of the following month after quarter end
- Yearly Filing: last day of the following month after year end
It’s crucial to adhere to the assigned schedule to avoid penalties.
How does Connecticut determine the sales tax filing frequency for my business?
The Department of Revenue Services will assign you a filing frequency. Typically, this is determined by the size or sales volume of your business. State governments generally ask larger businesses to file more frequently.
Are there any benefits if a business files Connecticut sales tax on time?
Numerous states promote the prompt or early submission of sales and use tax returns by offering timely filing discounts or incentives.
However, it's worth noting that as of now, the Department of Revenue Services does not provide any discount or incentive to sales tax filers.
What penalty is applicable if a business fails to file Connecticut sales tax?
Penalties are applicable if a business fails to file and pay sales tax before the due date in Connecticut. Connecticut charges interest at a rate of 1% per month or a fraction of a month, based on the tax amount that's in shortfall, from the date it became due till it is paid. The penalty for late payment or non-payment is 15% of the tax due, with a minimum penalty of $50.
Graduated penalties apply for failure to remit payments electronically. For the first offense, a penalty of 10% is applied on the tax due, capped at $2,500. For the second offence, there is a penalty of 10%, not exceeding $10,000 and for any subsequently offense the penalty is applied at a flat rate of 10%. More details about this can be found here.
What are the key things to remember while filing sales tax in Connecticut?
While filing taxes in Connecticut, businesses must remember to account for sales tax holidays and potential tax discounts. Sales tax holidays offer temporary tax exemptions on specific items, and tax discounts may be available for timely filings during the reporting period. Staying updated on these can maximize compliance efficiency.
What is the sales tax on shipping in Connecticut?
Shipping and Delivery charges incurred by a retailer in connection with the sale of a taxable product are subject to sales tax, regardless of whether the charges are itemized separately and irrespective of whether the seller or a third party facilitates the shipping or delivery. The tax rate aligns with the Connecticut state sales tax rate applicable to the goods sold. Businesses should levy sales tax on shipping accurately for compliance. More details about this can be found here.