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: Connecticut law may establish nexus for certain out-of-state retailers that compensate Connecticut residents or businesses for referring customers through links, websites, or other solicitation arrangements.
However, economic nexus and marketplace facilitator laws now govern most remote seller sales tax obligations. Businesses should review current Connecticut DRS guidance to determine whether separate affiliate or referral nexus rules apply to their activities.
Economic nexus: A remote seller is generally required to register for Connecticut sales and use tax and collect tax on taxable sales into the state if, during the previous 12-month period, the seller:
- has more than $100,000 in gross retail sales delivered into Connecticut; and
- makes 200 or more retail transactions into the state.
Remote sellers that meet these economic nexus thresholds are generally considered retailers engaged in business in Connecticut and must comply with the state’s sales and use tax laws.
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: Marketplace facilitators that facilitate taxable retail sales into Connecticut are generally responsible for collecting and remitting Connecticut sales tax on behalf of marketplace sellers. As a result, many marketplace sellers are not required to separately collect Connecticut sales tax on sales processed through a marketplace facilitator. However, marketplace sellers may still have separate registration or filing obligations depending on their activities in the state.
Trade shows: Attending conventions, trade shows, or similar events in Connecticut may create sales tax nexus depending on the nature and extent of the business activities conducted in the state.
You may not establish nexus if all the following are true:
- Your activities in Connecticut are limited to convention or trade show participation;
- Your activities are limited to displaying products or soliciting orders;
- Orders are approved and fulfilled from outside Connecticut; and
- You do not otherwise engage in business activities in the state that create nexus.
If you have sales tax nexus in Connecticut, you’re generally required to register with the Connecticut Department of Revenue Services (DRS) and charge, collect, and remit the appropriate tax to the state.
For more information, see the Connecticut State Department of Revenue Service - Sales and Use Tax Information webpage.
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. See the Connecticut State Department of Revenue Service - Sales and Use Tax Information webpage for more information.
Trailing nexus
Sales tax nexus can continue even after a business ceases the activities that originally created nexus in the state. This concept is commonly referred to as trailing nexus. Connecticut does not currently impose a specifically defined trailing nexus period for sales tax purposes. However, businesses that previously established nexus may continue to have filing obligations until their Connecticut sales tax account is formally closed with DRS.
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 and sourcing rules are based on the seller’s location (origin-based sourcing). In others, sales tax is based on the purchaser’s location and where the product is delivered (destination-based sourcing).
Connecticut is generally a destination-based sourcing state. This means sellers are generally responsible for applying the sales tax rate based on the delivery location of the taxable product or service. For shipped goods, sellers generally apply the applicable Connecticut sales tax rate using the customer’s delivery address.