Connecticut amends economic nexus law, taxes marketplace facilitators

Connecticut is the latest state to broaden its sales tax laws in order to capture more revenue from remote sales. Senate Bill 417, which became law May 25, 2018, modifies the state’s existing economic nexus and click-through nexus provisions, and imposes a tax collection obligation on certain marketplace facilitators. The changes take effect December 1, 2018.

Economic nexus

Under the expanded economic nexus provision, an out-of-state business is considered to be engaged in business in Connecticut if it:

• Regularly or systematically solicits the sale of tangible personal property in Connecticut via the internet (or other means); and
• Has at least $250,000 in Connecticut gross receipts from retail sales from outside Connecticut to destinations within the state during the 12-month period ending September 30, 2018; and
• Has 200 or more retail sales from outside Connecticut to destinations within the state during the 12-month period ending September 30, 2018.

Prior to the enactment of SB 417, Connecticut law didn’t reference soliciting sales over the internet, though it did list many other means of solicitation, including “by mail, telegraphy, telephone, computer data base, cable, optic, and microwave.” Furthermore, the law had no dollar threshold and a transaction threshold of 100 rather than 200.

Click-through nexus

A click-through nexus provision adopted in Connecticut in 2011 had a de minimus threshold of $2,000. The new law dramatically increases the threshold to $250,000.

Marketplace facilitators

SB 417 requires certain marketplace facilitators (e.g., Amazon, eBay, Etsy) to collect and remit tax on behalf of their marketplace sellers.

A marketplace facilitator is defined as a person who facilitates retail sales of at least $250,000 during the prior 12-month period by providing a forum that lists or advertises taxable tangible personal property for sale by marketplace sellers; directly or indirectly collects receipts from the customer and remits payments to the marketplace seller; and is compensated for such services.

Connecticut is in step with a growing number of states that have enacted laws requiring marketplace facilitators to either assume tax collection responsibilities for their third-party sellers, or comply with use tax notice and reporting requirements. Learn more about the efforts of other states, including Alabama, Minnesota, Oklahoma, Pennsylvania, Rhode Island, and Washington here.

New obligations for referrers

The new law also defines and imposes new obligations on “referrers.” Referrers must post a conspicuous notice that includes the following information:

• Sales or use tax is due from Connecticut purchasers on certain purchases
• The seller might not collect and remit sales tax
• Connecticut requires Connecticut purchasers to file a use tax return if sales tax is not imposed at the time of the sale by the seller
• Instructions on how to obtain additional information from the Department of Revenue Services (DRS)

In addition, by July 1, 2019, a referrer must “send a quarterly notice to each seller to whom such referrer transferred during the previous calendar year a potential purchaser located in this state.” The notice must include the following:

• A statement that Connecticut imposes a sales or use tax on sales made to Connecticut purchasers
• A statement that a seller making sales to Connecticut purchasers must collect and remit sales and use taxes to the DRS
• Instructions for obtaining additional information from the DRS regarding the remittance of sales and use taxes on purchases made by Connecticut purchasers

Finally, referrers must send an annual notice to the Commissioner of Revenue Services by January 31, 2020, (and annually thereafter) that includes:

• The name and address of each seller who received a quarterly notice in the immediately preceding calendar year
• The name and address of each seller that the referrer knows listed or advertised tangible personal property on/in the referrer's medium, and collected and remitted Connecticut sales and use taxes

Additional details about all of the above changes can be found in the text of SB 417 and at the Connecticut Department of Revenue Services.

Connecticut actively pursuing remote sales and use tax revenue

Connecticut has taken an aggressive approach toward taxing remote retailers since it first adopted economic nexus in 1989 (here’s a timeline of Connecticut’s efforts), but it’s upped the ante in 2018.

In March, the DRS started cracking down on non-collecting sellers and their customers. Commissioner of Revenue Services Kevin Sullivan announced that “the state is stepping up its effort to collect sales taxes not paid by on-line and other out-of-state retailers with a significant volume of sales into Connecticut.” These efforts seem to be working: Online retailer Newegg agreed to collect and remit Connecticut sales tax starting July 1, 2018.

If the DRS can use SB 417 to enhance its efforts, it likely will. However, the measure doesn’t give the department as many new teeth as it could have. The original version of the bill stated that economic nexus could apply to a retailer “not maintaining a place of business in this state,” but this was struck from the final version.

Learn more about economic nexus and state efforts to tax remote sales.