With its historic charm and modern energy, Connecticut is a great place for businesses. Known for its beautiful towns, top universities, and strong maritime history, it offers a unique business environment. To do business here, it’s important to know the specific sales tax in CT laws that reflect the state’s unique economy and culture.
This guide breaks down everything you need to know about Connecticut’s sales tax, from determining the right sales tax rates to understanding exemptions and filing processes. By the end of this comprehensive guide, you’ll be equipped to handle Connecticut’s sales tax with confidence and ease.
Sales Tax Nexus in Connecticut
When a business creates either a physical or economic nexus, it is required to collect sales tax in CT.Physical Nexus
A physical nexus means having a significant physical presence or engaging in enough activities within a state to require collecting and paying sales tax. The factors that determine a physical nexus in Connecticut include:- Physical Location: This includes having an office, a place for distribution, sales, or showcasing products, a warehouse or storage facility, or any other place where you conduct business. This includes owning or leasing real or tangible personal property within the state.
- Inventory in the State: This covers situations where you store your products within the state, even if it’s done through a third-party fulfillment center or 3PL (like Amazon FBA) or an online marketplace.
- Employees, independent contractors, agents, or other representatives operating on your behalf.
- Affiliate Nexus or Click-through Nexus: If a business is owned or controlled by a retailer already operating in the state and is involved in a similar type of business, it’s subject to the same regulations. This also applies to businesses owned or controlled by the same group that owns a retailer doing similar business in Connecticut.
- Presence at Trade Show: To sell items at events like flea markets or craft shows in Connecticut, even for just one day, you need a Sales and Use Tax Permit from DRS, which should be clearly displayed at your booth or table.
Economic Nexus
States have established regulations to collect sales tax from out-of-state sellers who meet certain revenue and/or transaction thresholds. This rule is known as economic nexus. Beginning July 1, 2019, Connecticut’s threshold for economic nexus is $100,000 in gross revenue or 200 transactions during the 12-month period ending on September 30. While the nexus criteria mentioned above generally apply to most businesses, additional methods exist for establishing sales tax nexus. To access a comprehensive list of these rules, please refer to the governing laws for economic sales tax nexus requirements in Connecticut.
Connecticut Sales Tax on Goods and Services
One of the first things you need to know is whether the goods you’re selling or services you’re offering are taxable in Connecticut.Tangible Products
Almost all goods are taxable in Connecticut, including:- Cosmetics
- Electronics
- Clothing – A 7.75% tax rate is charged on jewelry over $5,000 and on clothing, footwear, handbags, luggage, umbrellas, wallets, or watches over $1,000.
- Furniture
- Jewelry
- Home Goods
- Personal Hygiene – Personal care items like shampoo, soap, shaving cream, cosmetics, and hair care products are taxed at 6%. However, they are tax-free if sold by exempt organizations, in exempt facilities, or in vending machines for less than 50 cents.
- Groceries – The tax exemption for groceries excludes meals, sodas, candy, and alcohol but covers candy and non-alcoholic drinks in schools and healthcare facilities, vending machine food, meals for the elderly or disabled, food assistance purchases, and vegetable seeds.
- Diapers
- Feminine Hygiene Products (i.e. pads, tampons, and menstrual cups)
- Prescription Medications
- Textbooks – College textbooks are tax-free if bought by full-time and part-time students who show a valid student ID at the time of purchase.
- Medical Devices
- Energy-efficient Appliances – Connecticut provides tax exemptions for products that promote energy efficiency.
- Agricultural Supplies: Seeds, fertilizers, and machinery used directly in farming are exempt
Services
In Connecticut, the majority of service-based transactions, such as medical services, and engineering are not subject to sales tax. However, there are specific situations where certain services are taxable. For instance, taxable services are:- Advertising or public relations services
- Computer and Data Processing
- Credit Information and Reporting
- Exterminating Services
- Dry Cleaning Services
- Management
Software-As-A-Service (SaaS)/Digital Products
SaaS is taxable in the state of Connecticut. Digital products (i.e., ebooks, downloadable video content, mobile apps) are also taxable. A rate of 1% applies to the sale of computer and data processing services. This includes digital downloads and streaming services.Shipping/Handling
Shipping and handling charges in the state of Connecticut are taxable. The tax applies only to shipping charges for taxable items and not to such charges for tax-exempt items.Sales Tax Permits and Licenses in Connecticut
Now that you’ve got a handle on when sales tax nexus applies and which products are taxable in Connecticut, the next important step is getting your Connecticut Seller’s Permit, also known as a sales tax permit.Seller’s Permit
You can register for a Connecticut sales tax permit online at MyConnectCT. Ensure you have specific information on hand when registering for a seller’s permit, including, but not limited to:- Business Identification Information (name, address, phone number, email address)
- Business Entity Structure (sole proprietorship, partnership, corporation, LLC, etc.)
- Federal Employer Identification Number (EIN or FEIN)
- Owner/Partner/Officer Information
- Business Activity Details (description of products or services sold, sales volume, date of the first sale or the expected date to start dates)
Resale Certificate
A resale certificate is a document that allows businesses to buy products without paying sales tax on them, as long as they plan to resell those items to customers, who will then pay the tax. As a seller, you can also accept resale certificates from others looking to buy for resale. In Connecticut, sellers use resale certificates to buy goods from their suppliers that they intend to resell. The issuance of the certificates is always done in good faith that the seller would report tax on the final sale of the items. You can fill out the Connecticut Sales and Use Tax Resale Certificate provided by Connecticut after you receive your sales tax permit. If you don’t want the hassle of registering, sign up for our all-inclusive service that includes sales tax registration.Streamlined Sales Tax (SST)
The Streamlined Sales Tax (SST) is an initiative to simplify and standardize sales tax regulations across multiple states. However, Connecticut is not a party to this program, meaning it does not follow the uniform rules and definitions established by SST but has its own sales tax regulations.Calculating and Collecting Sales Tax in Connecticut
Sales Tax Computation
To figure out the total sales tax for your calculation, you’ll need to add up the rates for the state, county, and city (if applicable) where your transaction occurs. Use TaxHero’s Connecticut Tax Calculator to compute for sales tax. Here’s an example. Suppose an out-of-state seller satisfies the economic nexus criteria in Connecticut and sells to a customer in Bridgeport, CT, with a ZIP code of 06604. In that case, the seller has to charge the customer a total sales tax, which can be broken down as follows:
|
|||||||||||||||||||
Origin-based vs. Destination-based
When making in-state sales, it is important to determine if you are located in an origin-based or destination-based state to figure out what rate to charge for sales tax. Connecticut is destination-based, meaning sales tax is determined based on the buyer’s location. That means for a Connecticut-based seller, sales tax is generally based on the location of the buyer when selling within the state. For out-of-state or remote sellers, the sales tax rate is always determined by the buyer’s location. For instance, if you’re selling a product from Ohio to a customer in Bridgeport, Connecticut, where you have nexus, you’d apply Bridegeport’s sales tax rate to that sale. To make life easier, consider using sales tax software or consulting a tax professional, like TaxHero, to ensure accurate tax calculations and collections. Understanding these tax rules helps you stay compliant, whether you’re in-state or out-of-state.Filing and Remitting Sales Tax Returns in Connecticut
The next step after collection is filing and remitting your Connecticut sales tax returns. Filing and remittance can vary in frequency, typically monthly, quarterly, or annually. It’s crucial to keep accurate records of your sales and tax collections and adhere to the filing schedule set by the state to remain compliant with Connecticut’s sales tax regulations.Due Dates
In Connecticut, the due date falls on or before the last day of the following month. For instance, sales tax collected in January is due by February 28th (or 29th if it’s a leap year) for monthly filers. However, if this day is a holiday, weekend, or in the rare occurrence of a natural disaster, the deadline is typically extended to the next business day. For instance, if you’re a monthly filer and filing sales tax for the month of April, and the May 31st deadline falls on a holiday or weekend, you’ll have until June 1st, the following business day, to submit.Filing Sales Tax Returns
To file your sales tax return for Connecticut, a few options are available:- Fill in Form OS‑114 and submit it online through myconneCT.
- File with TaxHero – Let TaxHero take care of it so you don’t have to worry about missing a payment or return.
Sales Tax Holiday
Currently, for 2023 – 2024, the planned sales tax holidays in Connecticut are:- Back To School Sales Tax Holiday – Sales Tax-Free Week in Connecticut starts on the third Sunday of August and lasts until the next Saturday. During this time, clothing and footwear priced below $100 are exempt from sales tax, but this does not include athletic/protective gear and accessories such as jewelry, handbags, and watches.
Connecticut Sales Tax Penalties
Like in most states, sales tax is a big part of how Connecticut generates revenue. Thus, maintaining compliance with sales tax regulations is of utmost importance. Failure to do so can lead to consequences and sales tax penalties. Therefore, it is crucial always to ensure you are up-to-date in filing, collecting, and remitting sales tax to the state. Here are the specific penalties for non-compliance with sales tax regulations in Connecticut:- Late or nonpayment of tax: 15% of due tax or $50, whichever is higher.
- Not paying electronically:
- 1st offense – 10% penalty, max $2,500.
- 2nd offense – 10% penalty, max $10,000.
- 3rd offenses – 10% penalty.
| Questions? Connect with TaxHero today for a free sales tax consultation about your business in Connecticut or any state! |