Connecticut’s unconventional and conventional tax relief programs

Connecticut recently adopted two tax relief measures: One unconventional, one traditional. Both stand to help certain taxpayers.

The unconventional sales tax relief program is for certain “sellers of meals.” For one week, and one week only, qualifying businesses may retain the sales tax they collect on sales of meals in the state.

Under Senate Bill 1202, any establishment that sells meals (as defined) and is included in Sector 72 of the North American Industrial Classification System (NAICS) (as defined) may retain 100% of the tax “attributable to the sales of meals by such establishment during one of the following weeks”:

• August 1–7, 2021
• December 12–18, 2021
• May 15–21, 2022

It’s an honor system: Each seller must determine whether it qualifies for the tax relief under Sector 72 of the NAICS. And it’s entirely up to each qualified seller to decide whether to take advantage of this provision, and if so, during which of the three date ranges listed above.

Businesses interested in keeping the sales tax collected during the August period weren’t given much time to prepare: Though the measure was signed into law in late June, the Connecticut Department of Revenue Services (DRS) didn’t issue a bulletin about this until July 29, 2021. Perhaps that’s less important than it seems. Sellers of meals are still required to collect the tax due on meals — SB 1202 simply allows them to keep the portion collected during the tax relief period they select.

Taxpayers that decide to take advantage of this tax relief measure are required to provide certain information about the sales of meals made during the applicable week on Form OS-114, Connecticut Sales and Use Tax Return. Exactly what information isn’t clear at this time. Affected businesses are advised to “monitor the DRS website” at portal.ct.gov/DRS.

Why this tax relief program is unconventional

This program stands out among other tax relief programs because it allows eligible businesses to keep tax dollars that consumers trust will be turned over to the state. Generally, sellers in Connecticut are liable for Connecticut sales tax even if they don’t collect it as required from customers. But to collect tax from a consumer then keep it? That’s virtually unheard of.

An assortment of state and local tax relief programs emerged during the early days of COVID-19. Legislators and tax authorities took particular care to help businesses and individuals heavily impacted by the pandemic — such as bars, hotels, and restaurants. Several allowed hard-hit businesses to hang on to sales tax collections for a time, to help them get over a bad spell. However, businesses were always required to remit the tax they collected eventually. It’s simply not theirs to keep.

But there’s a cost to all relief programs, and someone must pay it. Perhaps the diners of Connecticut won’t mind contributing a few extra dollars to their favorite restaurants, to help them weather the pandemic we can’t seem to shake.

A more traditional tax relief program will kick in this fall. From November 1, 2021, through January 31, 2022, Connecticut is offering a tax amnesty program.

The tax commissioner will provide more information as the date approaches. As of this writing, it’s not known who will qualify for amnesty or what tax periods amnesty will uncover. However, SB 1202 specifies the following: “Upon compliance with all requirements of the tax amnesty program, … an affected person whose application is granted by the commissioner shall be entitled to a 75% reduction in interest that would otherwise be owed” on the tax due.

Furthermore, the commissioner “shall not seek to collect any civil penalties that may be applicable and shall not seek criminal prosecution for any affected person for an affected taxable period for which amnesty has been granted.”

Look for more details about the upcoming Connecticut tax amnesty program in the Avalara blog; we’ll publish them when we have them.