Connecticut sales tax guide

Sales tax is a tax paid to a governing body (state or local) on the sale of certain goods and services. Connecticut first adopted a general state sales tax in 1947, and since that time, the rate has risen to 6.35 percent. In many states, localities are able to impose local sales taxes on top of the state sales tax. However, as of June 2019, there are no local sales taxes in Connecticut.

As a business owner selling taxable goods or services, you act as an agent of the state of Connecticut by collecting tax from purchasers and passing it along to the appropriate tax authority. Sales and use tax in Connecticut is administered by the Department of Revenue Services (DRS).

Any sales tax collected from customers belongs to the state of Connecticut, not you. It’s your responsibility to manage the taxes you collect to remain in compliance with state and local laws. Failure to do so can lead to penalties and interest charges.

When you need to collect Connecticut sales tax

In Connecticut, sales tax is levied on the sale of tangible goods and some services. The tax is collected by the seller and remitted to state tax authorities. The seller acts as a de facto collector.

To help you determine whether you need to collect sales tax in Connecticut, start by answering these three questions:

1. Do you have nexus in Connecticut?
2. Are you selling taxable goods or services to Connecticut residents?
3. Are your buyers required to pay sales tax?

If the answer to all three questions is yes, you’re required to register with the state tax authority, collect the correct amount of sales tax per sale, file returns, and remit to the state.

Failure to collect Connecticut sales tax

If you meet the criteria for collecting sales tax and choose not to, you’ll be held responsible for the tax due, plus applicable penalties and interest.

It’s extremely important to set up tax collection at the point of sale — it’s near impossible to collect sales tax from customers after a transaction is complete.

The need to collect sales tax in Connecticut is predicated on having a significant connection with the state. This is a concept known as nexus. Nexus is a Latin word that means "to bind or tie," and it’s the deciding factor for whether the state has the legal authority to require your business to collect, file, and remit sales tax.

Nexus triggers

Sales tax nexus in all states used to be limited to physical presence: A state could require a business to register and collect and remit sales tax only if it had a physical presence in the state, such as employees or an office, retail store, or warehouse.

In June 2018, the Supreme Court of the United States overruled the physical presence rule with its decision in South Dakota v. Wayfair, Inc. States are now free to tax businesses based on their economic and virtual connections to the state, or economic nexus.

While physical presence still triggers a sales tax collection obligation in Connecticut, it’s now possible for out-of-state sellers to have sales tax nexus with Connecticut.

Out-of-state sellers

Out-of-state sellers with no physical presence in a state may establish sales tax nexus in the following ways:

Affiliate nexus: Having ties to businesses or affiliates in Connecticut. This includes, but isn’t limited to, the design and development of tangible personal property (goods) sold by the remote retailer, or solicitation of sales of goods on behalf of the retailer.

Click-through nexus: Having an agreement to reward a person(s) in the state for directly or indirectly referring potential purchasers of goods through an internet link, website, or otherwise, and cumulative gross receipts from such referrals to the retailer exceed $100,000 during the four preceding quarterly periods. (The threshold was $250,000 through June 30, 2019.)

Economic nexus: Having a certain amount of economic activity in the state. For sales made on and after December 1, 2018, a remote seller must register with the state then collect and remit Connecticut sales tax if the remote seller meets all of the following criteria (the economic thresholds):

• Gross receipts of at least $250,000 from retail sales of property; and
• 200 separate retail sales into the state; and
• regular or systematic solicitation of Connecticut sales during the preceding 12-month period.

Inventory in the state: Storing property for sale in the state. This includes merchandise owned by Fulfillment by Amazon (FBA) merchants and stored in Connecticut in a warehouse owned or operated by Amazon.

Marketplace sales: Making sales through a marketplace. Effective December 1, 2018, marketplace facilitators are responsible for collecting and remitting sales tax on behalf of marketplace sellers in Connecticut.

Trade shows: Attending conventions or trade shows in Connecticut. You may be liable for collecting and remitting Connecticut use tax on orders taken or sales made during Connecticut conventions or trade shows. However, you generally would not have nexus if all the following are true:

• You’re in the state solely to engage in convention or trade show activities; and
• You or your representatives don’t engage in convention and trade show activities for more than 14 days in Connecticut during your retail year; and
• Your activity at such trade shows is limited to displaying goods or promoting services, no sales are made, any orders received are sent outside Connecticut for acceptance or rejection, and orders are filled from outside the state.

If you have sales tax nexus in Connecticut, you’re required to register with the DRS and to charge, collect, and remit the appropriate tax to the state.

For more information, see 2011 Legislative Changes Affecting Sales and Use Tax; Chapter 219, Section 12-407(12); Legislative summary of S.B. 417; SN 2005(4); Public Act 19-117, and Sales and Use Taxes – Nexus.

Non-collecting seller use tax reporting

The Connecticut Department of Revenue Services requires non-collecting sellers to notify customers about their potential use tax liability, provide customers with an annual purchase summary, and provide the state with a customer information report. The precise nature of these requirements varies from state to state; for more state-specific information, see Connecticut General Statutes Section 12-426(4) and (5).

Trailing nexus

Sales tax nexus can linger even after a retailer ceases the activities that caused it to be “engaged in business” in the state. This is known as trailing nexus. As of June 2019, Connecticut does not have an explicitly defined trailing nexus policy.

Fulfillment by Amazon (FBA)

If you’re an active Amazon seller and you use Fulfillment by Amazon (FBA), you need to know where your inventory is stored and if its presence in a state will trigger nexus. FBA sellers can also download an Inventory Event Detail Report from Amazon Seller Central to identify inventory stored in Connecticut.

If you sell taxable goods to Connecticut residents and have inventory stored in the state, you likely have nexus and an obligation to collect and remit tax. To begin to understand your unique nexus obligations, check out our free economic nexus tool or consult with a trusted tax advisor.

Sourcing sales tax in Connecticut: which rate to collect

In some states, sales tax rates, rules, and regulations are based on the location of the seller and the origin of the sale (origin-based sourcing). In others, sales tax is based on the location of the buyer and the destination of the sale (destination-based sourcing).

Connecticut is a destination-based state. This means you’re responsible for applying the sales tax rate determined by the ship-to address on all taxable sales.

After determining you have sales tax nexus in Connecticut, you need to register with the proper state authority and collect, file, and remit sales tax to the state. We get a lot of questions about this and recognize it may be the most difficult hurdle for businesses to overcome. Avalara Licensing can help you obtain your Connecticut business license and sales tax registration.

How to register for a Connecticut seller's permit

You can register for a Connecticut seller’s permit online through the DRS. To apply, you’ll need to provide the DRS with certain information about your business, including but not limited to:

• Business name, address, and contact information
• Federal EIN number
• Date business activities began or will begin
• Projected monthly sales
• Projected monthly taxable sales
• Products to be sold

Cost of registering for a Connecticut seller's permit

The cost to register for a sales and use tax permit in Connecticut is $100. It expires every two years, but is automatically renewed and mailed to you at no cost by the Connecticut Department of Revenue Services, so long as your account is active.

Acquiring a registered business

You must register with the Department of Revenue Services if you acquire an existing business in Connecticut. The state requires all registered businesses to have the current business owner’s name and contact information on file.

Streamlined Sales Tax (SST)

The Streamlined Sales and Use Tax Agreement (SSUTA), or Streamlined Sales Tax (SST), is an effort by multiple states to simplify the administration and cost of sales and use tax for remote sellers. Remote sellers can register in multiple states at the same time through the Streamlined Sales Tax Registration System (SSTRS).

As of June 2019, Connecticut is not an SST member state.

Once you've successfully registered to collect Connecticut sales tax, you'll need to apply the correct rate to all taxable sales, remit sales tax, file timely returns with the Department of Revenue Services, and keep excellent records. Here’s what you need to know to keep everything organized and in check.

How you collect Connecticut sales tax is influenced by how you sell your goods:

Brick-and-mortar store: Have a physical store? Brick-and-mortar point-of-sale solutions allow users to set the sales tax rate associated with the store location. New tax groups can then be created to allow for specific product tax rules.

Hosted store: Hosted store solutions like Shopify and Squarespace offer integrated sales tax rate determination and collection. Hosted stores offer sellers a dashboard environment where Connecticut sales tax collection can be managed.

Marketplace: Marketplaces like Amazon and Etsy offer integrated sales tax rate determination and collection, usually for a fee. As with hosted stores, you can set things up from your seller dashboard and let your marketplace provider do most of the heavy lifting.

Mobile point of sale: Mobile point-of-sale systems like Square rely on GPS to determine sale location. The appropriate tax rate is then determined and applied to the order. Specific tax rules can be set within the system to allow for specific product tax rules.

Connecticut sales tax collection can be automated to make your life much easier. Avalara AvaTax seamlessly integrates with the business systems you already use to deliver sales and use tax calculations in real time.

Tax-exempt goods

Some goods are exempt from sales tax under Connecticut law. Examples include bicycle helmets, most non-prepared food items, medicines, and some medical devices and supplies.

We recommend businesses review the laws and rules put forth by the Department of Revenue Services to stay up to date on which goods are taxable and which are exempt, and under what conditions.

Some customers are exempt from paying sales tax under Connecticut law. Examples include government agencies, some nonprofit organizations, and merchants purchasing goods for resale.

Sellers are required to collect a valid exemption or resale certificate from buyers to validate each exempt transaction.

Misplacing a sales tax exemption/resale certificate

Connecticut sales tax exemption and resale certificates are worth far more than the paper they’re written on. If you’re audited and cannot validate an exempt transaction, the Department of Revenue Services may hold you responsible for the uncollected sales tax. In some cases, late fees and interest will be applied and can result in large, unexpected bills.

Sales tax holidays

Sales tax holidays exempt specific products from sales and use tax for a limited period, usually a weekend or a week. Approximately 17 states offer sales tax holidays every year.

As of June 2019, Connecticut has the following tax holiday scheduled:

• Clothing and footwear, August 18–24, 2019

  • Qualifying items priced less than $100

You're registered with the Department of Revenue Services and you've begun collecting sales tax. Remember, those tax dollars don't belong to you. As an agent of the state of Connecticut, your role is that of intermediary to transfer tax dollars from consumers to the tax authorities.

How to file

Once you’ve collected sales tax, you’re required to remit it to the Department of Revenue Services by a certain date. The DRS will then distribute it appropriately.

Filing a Connecticut sales tax return is a two-step process comprised of submitting the required sales data (filing a return) and remitting the collected tax dollars (if any) to the DRS. The filing process forces you to detail your total sales in the state, the amount of sales tax collected, and the location of each sale.

Sales and use tax returns should be filed online through the Connecticut Taxpayer Service Center. A PDF version of form OS-114 can also be downloaded.

Filing frequency

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. See the filing due dates section for more information.

Connecticut sales tax returns and payments must be remitted at the same time; both have the same due date.

Online filing

You may file directly with the DRS by visiting their site and entering your transaction data manually. This is a free service, but preparing Connecticut sales tax returns can be time-consuming — especially for larger sellers.

Using a third party to file returns

To save time and avoid costly errors, many businesses outsource their sales and use tax filing to an accountant, bookkeeper, or sales tax automation company like Avalara. This is a normal business practice that can save business owners time and help them steer clear of costly mistakes due to inexperience and a lack of deep knowledge about Connecticut sales tax code.

Filing when there are no sales

Once you have a Connecticut seller's permit, you’re required to file returns at the completion of each assigned collection period regardless of whether any sales tax was collected. When no sales tax was collected, you must file a "zero return.”

Failure to submit a zero return can result in penalties and interest charges.

Closing a business

The DRS requires all businesses to "close their books" by filing a final sales tax return. This also holds true for business owners selling or otherwise transferring ownership of their business.

Timely filing discount

Many states encourage the timely or early filing of sales and use tax returns with a timely filing discount.

As of June 2019, the DRS does not offer sales tax filers a discount.

It's important to know the due dates associated with the filing frequency assigned to your business by the Department of Revenue Services. This way you'll be prepared and can plan accordingly. Failure to file by the assigned date can lead to late fines and interest charges.

The DRS requires all sales tax filing to be completed by the last day of the month following the tax period. Below, we've grouped Connecticut sales tax filing due dates by filing frequency for your convenience. Due dates falling on a weekend or holiday are adjusted to the following business day.

Filing a Connecticut sales tax return late may result in a late filing penalty as well as interest on any outstanding tax due. For more information, refer to our section on penalties and interest.

In the event a Connecticut sales tax filing deadline was missed due to circumstances beyond your control (e.g., weather, accident), the DRS may grant you an extension. However, you may be asked to provide evidence supporting your claim.

Hopefully you don't need to worry about this section because you're filing and remitting Connecticut sales tax on time and without incident. However, in the real world, mistakes happen.

If you miss a sales tax filing deadline, follow the saying, “better late than never,” and file your return as soon as possible. Failure to file returns and remit collected tax on time may result in penalties and interest charges, and the longer you wait to file, the greater the penalty and the greater the interest.

If you’re in the process of acquiring a business, it’s strongly recommended that you contact the DRS and inquire about the current status of the potential acquisition. Once you've purchased the business, you’ll be held responsible for all outstanding Connecticut sales and use tax liability.

If you’re collecting sales tax from Connecticut residents, you’ll need to consider how to handle taxes on shipping and handling charges.

Taxable and exempt shipping charges

Connecticut sales tax may apply to charges for shipping, handling, delivery, freight, and postage. Generally, if the sale is taxable, these charges are taxable even if separately stated; if the sale is tax-exempt, the shipping and handling charges are most likely exempt as well.

There are exceptions to almost every rule with sales tax, and the same is true for shipping and handling charges. Specific questions on shipping in Connecticut and sales tax should be taken directly to a tax professional familiar with Connecticut tax laws.

For additional information, see OLR Research Report 2005-R-0262.