Connecticut Use Tax Q & A
- Sep 7, 2015 | Gail Cole
Confusion persists around use tax in Connecticut and pretty much every other state. Stop a person on the street and ask him or her to define use tax and there’s a good chance you’ll be met with a blank stare. And yet states expect taxpayers to remit it when they owe it.
To help enlighten all who are in the dark about use tax, the Connecticut Department of Revenue Services (DRS) has created a Q & A on the Connecticut Individual Use Tax. It reflects the most recent legislative updates affecting use tax. This whiteboard, Consumer Use Tax Defined, is another excellent source of information.
What it is
Use tax applies to all goods and services that are subject to sales tax. Yet while sales tax is collected by the seller, who then remits it to the state, use tax is paid by the consumer. The sales tax rate and the use tax rate are the same (in Connecticut that's 6.35% for most goods and services; 7.75% for certain luxury goods; 1% for computer and data processing services; and 9.35% for the short-term rental or lease of passenger motor vehicles). Items that are exempt from sales tax are generally also exempt from use tax.
When it’s owed
You owe use tax when you purchase a taxable good or service and Connecticut sales tax was not collected at the time of sale. This typically occurs when items are purchased from Internet, catalog, or other remote sellers not required to collect Connecticut sales tax.
Use tax may also be due when you purchase an item valued more than $25 in another state and bring it to Connecticut for use or storage; if you paid another state’s sales tax and it was less than the rate in Connecticut, you owe the difference. If the other state's rate was the applicable Connecticut rate or above, no use tax is owed. Connecticut does not provide credit if you pay more than the Connecticut rate.
The DRS does audit for use tax, and individuals will be penalized 10% of the tax due for not paying use tax (plus interest).
Yet it is businesses that are most likely to be found liable for use tax on taxable items purchased tax-free or at a reduced rate. Penalties for failure to remit or late remittances range from 2% to 15% of the tax due. Please see DRS Informational Publication 2015(16) for additional information.
The simplest, most efficient way to deal with consumer use tax is to implement an automated solution. Learn more.