DRS: IP 92(1.5), Q & A on Sales and Use Taxes for a New Business

 

STATE OF CONNECTICUT
DEPARTMENT OF REVENUE SERVICES

450 Columbus Blvd
Hartford CT 06103
 
 
 
 
 
 

 
 

This Informational Publication has been modified and
superseded by IP 2000(24)

IP 92(1.5)

Q & A on Sales and Use Taxes for a New Business


INTRODUCTION: Although most Connecticut residents are familiar with the fact that the state has a sales tax, very few people understand when the tax is applied. State law requires businesses to register for a Sales and Use Tax Permit and to collect sales tax in exchange for the privilege of doing business in Connecticut. A retailer or service provider that fails to collect the tax can lose its permit to do business in Connecticut and can owe penalty and interest in addition to the tax. Basic information is provided in this publication to help businesses and individuals avoid the most obvious and potentially costly errors. For more detailed information, request IP 94(5.1), Getting Started in Business: Understanding Connecticut Taxes, (Not available on the DRS Web Site.) from the DRS Forms Unit.

REG-1, Application for Tax Registration Number (with instructions)


WHAT IS THE SALES TAX?

The sales tax is a levy imposed on the sale, rental or lease of most goods and certain services at a rate of 6% (6% Rate Chart). The tax is collected by the retailer and remitted directly to the state. There is also a 12% room occupancy tax on the rental of rooms in hotels, motels or lodging houses.


WHAT KINDS OF BUSINESSES MUST COLLECT THE SALES TAX?

A business that is selling, renting or leasing tangible personal property, which includes, but is not limited to, home appliances, automobiles, craft items, household furnishings, antiques, VCR's and tapes, jewelry, stereo and TV equipment, computers and computer software must collect the sales tax.

Some services are also taxable. Taxable services include, but are not limited to:

  • Advertising or public relations services;
  • Business analysis, management, management consulting and public relations services;
  • Cable television services;
  • Computer and data processing services (including but not limited to providing access to on-line computer services). The sales and use taxes on computer and data processing services are being phased out in six annual rate reductions.

The new rates are:

effective July 1, 1997 5%
effective July 1, 1998 4%
effective July 1, 1999 3%
effective July 1, 2000 2%
effective July 1, 2001 1%
effective July 1, 2002 0%
  • Credit information and reporting;
  • Employment and personnel services;
  • Exterminating services;
  • Flight instruction and chartering by a certificated air carrier;
  • Furniture reupholstering and repair services;
  • Janitorial services (including the cleaning of homes, offices and commercial property);
  • Landscaping and horticulture services;
  • Lobbying or consulting services;
  • Locksmith services;
  • Maintenance services;
  • Miscellaneous personal services (Request SN 91(4), Miscellaneous Personal Services, for a list of these taxable services.);
  • Motor vehicle parking, except metered space, in a lot having thirty or more spaces;
  • Motor vehicle repairs;
  • Photographic studio services;
  • Private investigation and security services;
  • Radio or television repair services;
  • Repair services to electrical or electronic devices;
  • Repair or maintenance services to tangible personal property;
  • Repair and maintenance service to vessels. The sales and use taxes on repair or maintenance services to vessels are being phased out in three rate reductions.; The new rates and their effective dates are:
July 1, 1997 4%
July 1, 1998 2%
July 1, 1999 0%
  • Repair or renovation services to industrial, commercial and income-producing real property;
  • Repair or renovation services to residential real property, limited to: paving, painting or staining, wallpapering, roofing, siding and exterior sheet metal work;
  • Sales agent services for selling tangible personal property, excluding the services of a consignee selling works of art or clothing;
  • Sign painting and lettering;
  • Stenographic services;
  • Storage or mooring of any noncommercial vessel on land or in the water, except the off-season (November 1 through April 30) dry or wet storage or mooring of noncommercial vessels;
  • Swimming pool cleaning and maintenance services;
  • Telecommunications services;
  • Telephone answering services;
  • Warranty and service contracts for any item of tangible personal property;
  • Window cleaning services.

WHAT ITEMS ARE NOT SUBJECT TO SALES TAX?

There are several exemptions from the sales tax including items of clothing under $50, food products, fuel for home heating. A complete list of exemptions can be found in Conn. Gen. Stat. §12-412.


MUST I MAKE A MINIMUM AMOUNT OF SALES BEFORE I AM REQUIRED TO REGISTER FOR COLLECTION OF SALES TAX?

No. You are required to register before you start your business.


HOW DO I REGISTER MY BUSINESS?

You can register for a Sales and Use Tax Permit either by mail or in person at the Department of Revenue Services, 25 Sigourney Street, Hartford, CT 06106-5032. You can also register at DRS regional offices located in Bridgeport, Hamden, Waterbury and Norwich.

Use Form REG-1, Application For Tax Registration Number, to register for a Sales and Use Tax Permit as well as to register for:

  • Room occupancy tax
  • Cigarette tax (over-the-counter retail)
  • Admissions, dues and cabaret tax
  • Unrelated business income tax
  • Connecticut income tax withholding
  • Corporation business tax
  • Tourism account surcharge on the rental or leasing of passenger motor vehicles
  • Business use tax
  • Dry cleaning establishment surcharge

FOR WHAT OTHER TAXES MAY A BUSINESS BE LIABLE?

A business may be liable for state taxes administered by another state agency or for federal taxes. See IP 92(6.3), Business Taxes, for information about state taxes administered by other state agencies.

The Internal Revenue Service (IRS) should also be contacted to determine your federal tax requirements. The Internal Revenue Service telephone number is 1-800-829-1040. Walk-in assistance is available at the IRS office at 135 High Street in Hartford and other locations throughout Connecticut. Check the blue pages of your telephone book.


ONCE I HAVE A SELLER'S PERMIT, WILL I EVER NEED TO GET ANOTHER ONE?

A seller’s Sales and Use Tax Permit is issued for two years for a fee of $20. The permit may be renewed at the end of that period without an additional fee.

Each new business location must have its own Sales and Use Tax Permit. If your business expands and you open a second location, you must obtain a new permit for the new location.

Also, if the ownership or structure of the business changes for federal tax purposes (for example, if a sole proprietorship becomes a partnership or corporation), a new permit must be obtained for which there is a $20 fee.


I PERFORM A TAXABLE SERVICE AND SELL TAXABLE GOODS FROM THE SAME LOCATION. DO I NEED MORE THAN ONE SELLER'S PERMIT?

No. Only one permit is required. It allows you to collect tax for sales of goods and services, as well as rentals and leases made at the same business location.


WHAT IF MY BUSINESS IS LOCATED OUT-OF-STATE AND I INTEND TO MAKE SALES INTO CONNECTICUT THROUGH THE MAIL OR BY COMMON CARRIER?

You may register to collect Connecticut use tax on your sales in this state. See SN 92(19), Effect of Quill Corp. v. North Dakota on the Collection of Use Tax by Retailers Who Engage in Business in Connecticut Only by Selling Items Through Mail Order Catalogs with Delivery by Common Carrier, for further information concerning sales by mail order companies. If you wish to register, complete Form REG-7, Application for Authority To Collect Connecticut Use Tax. However, if you come into Connecticut to conduct business or you have a business location in this state, you must obtain a Connecticut Sales and Use Tax Permit.


WHAT IF MY BUSINESS IS LOCATED OUT-OF-STATE BUT I INTEND TO COME INTO CONNECTICUT AND SELL (FOR EXAMPLE, AT A CRAFT SHOW OR FLEA MARKET)?

You must complete Form REG-1. You will be issued a Connecticut Sales and Use Tax Permit and will be required to collect Connecticut sales tax. You must obtain a Connecticut Sales and Use Tax Permit if you will perform any taxable services in this state.


HOW DO I OBTAIN A NEW COPY OF MY SALES AND USE TAX PERMIT IF I CHANGE MY ADDRESS OR LOSE THE PERMIT?

Notify DRS in writing at the following address:

Department of Revenue Services
Registration Section
25 Sigourney Street
Hartford Connecticut 06106-5032

There is no fee to replace a permit.


HOW OFTEN ARE SALES AND USE TAX RETURNS FILED?

Generally, sales and use tax returns must be filed on a quarterly basis. The quarterly periods and return due dates are as follows:

Periods Due Dates
January 1 - March 31 April 30
April 1 - June 30 July 31
July 1 - September 30 October 31
October 1 - December 31 January 31

If your sales and use tax liability exceeds $4,000 per year, you may be required to file monthly. Monthly returns are due at the end of the following month. You may request to file on an annual basis if your sales and use tax liability is less than $1,000 per year.


SHOULD I FILE A RETURN IF I HAVE MADE NO SALES DURING THE REPORTING PERIOD?

Yes. The return must be completed by showing zero sales and zero taxes due.


ON WHAT PRICE DO I COMPUTE THE SALES TAX?

The tax is computed on the gross receipts of the sale, rental or lease (not your cost) of the goods or service. The tax must be billed to your customers in one of two ways:

  1. tax included, in which case the bill must be marked tax included, or
  2. the tax is added to the sales price, and separately stated on the bill.

If you bill your customers tax included, you must keep records for the business showing the cost of the goods or services and the tax charged.


IF I BILL MY CUSTOMERS TAX INCLUDED, HOW DO I REPORT MY GROSS RECEIPTS ON LINE 1 OF THE SALES AND USE TAX RETURN?

Multiply the amount you billed your customer by 94.3% (.943). The result is your gross receipts, which must be reported on the gross receipts line of your tax return.

Example:

Billed amount (tax included) $100.00
Multiplication factor (94.3%) x 0.943
Gross receipts (Line 1) $ 94.30

WHEN DO I REPORT SALES THAT I MAKE?

In general, sellers of goods and taxable services must report sales on the accrual basis. This means that all sales you make must be reported during the filing period in which the sale is made, not when the customer renders payment.


WHEN MAY A SELLER REPORT SALES ON THE CASH BASIS?

Sellers of certain services who file with the IRS on the cash basis may be able to file sales and use tax returns on the cash basis. Contact the DRS Taxpayer Services Division for further information on those who may file on the cash basis.


HOW DO I PURCHASE MY INVENTORY OR GOODS FOR RESALE WITHOUT PAYING SALES TAX?

Complete a Connecticut Sales and Use Tax Resale Certificate (Regulation 1 & 23), and give it to the vendor from whom you make a purchase of goods or services which you intend to resell in the regular course of business. For further information, see IP 93(4.2), Notice to Retailers Regarding Sales and Use Tax Resale Certificate.

A certificate may not be used to purchase items for use by yourself or your business, such as office supplies, furniture and fixtures. Such purchases are subject to use tax if you do not pay Connecticut sales tax. See IP 93(3.1), Q & A on Use Tax for Businesses and Professions, for further information.


WHAT MUST MY CUSTOMERS PROVIDE TO ME TO DEMONSTRATE THAT THEY ARE EXEMPT FROM PAYING SALES TAX?

The customer must give you a completed Connecticut Sales and Use Tax Resale Certificate (Regulation 1 & 23) or other approved exemption certificate. Retailers making sales in Connecticut should not accept exemption certificates issued by other states. See IP 94(5.1), Getting Started in Business: Understanding Connecticut Taxes, (Not available on the DRS Web Site.) for a list of exemptions and certificates. If you have a question about the validity of an exemption claimed by a customer, contact DRS Taxpayer Services.


IF I MAKE A SALE AND DELIVER THE GOODS OUTSIDE CONNECTICUT, SHOULD I COLLECT CONNECTICUT SALES TAX?

If the title to the goods transfers to the purchaser outside Connecticut, Connecticut sales tax does not apply. For example, Connecticut sales tax would not apply if your company ships the goods or arranges to have the goods shipped to a customer outside Connecticut. (However, depending upon your company’s activities in the other state, you may be required to register and collect sales tax for that state.)

Connecticut sales tax does apply if title to the goods transfers in Connecticut, even if the buyer lives in another state. For example, if the customer comes to a Connecticut location and takes actual possession of the goods, Connecticut tax applies, even if the customer takes the goods in his own vehicle to an out-of-state location or arranges to have the goods picked up from the Connecticut location and delivered to an out-of-state location. In addition, if you make a sale outside of Connecticut but you deliver the goods into Connecticut in a vehicle owned or leased by your company, you are also required to collect Connecticut sales tax.

NOTE: Connecticut and New York businesses may elect to collect tax on behalf of the other state if they participate in the New York/Connecticut Sales Tax Agreement. Contact the DRS Taxpayer Services Division for information about this agreement.


WHAT ARE THE PENALTIES AND INTEREST FOR LATE FILING OF A SALES AND USE TAXES RETURN?

There is a penalty of $50 or 15% of the tax due (whichever is greater) for the late payment of the tax. Interest of 1% per month or fraction of a month is calculated on the underpayment of tax.


WHAT RECORDS MUST I KEEP TO VERIFY THE FIGURES ON MY SALES AND USE TAXES RETURN?

The following records must be kept at least three years:

  • Sales receipts
  • Purchase invoices
  • Cash register tapes
  • State and federal tax returns
  • Documents that show price changes
  • Exemption certificates

Under certain circumstances, you may be required to produce records for more than three years.


I AM CLOSING MY BUSINESS. WHAT SHOULD I DO?

You must cancel your Sales and Use Tax Permit by doing the following:

  1. File your monthly, quarterly or annual return and enter the last business date in the block provided;
  2. Write the word "FINAL" prominently across the top of the return; and
  3. Complete the back of the permit and enclose your permit card with the return.

IF I PURCHASE A BUSINESS, AM I OBLIGATED FOR THE PREVIOUS OWNER'S SALES TAX LIABILITY?

Yes. To avoid this, obtain a Sales Tax Certificate of Clearance by calling DRS Sales Tax Office Audit Unit at 860-541-3253 prior to paying the purchase price to the seller.

The purchaser of a business is liable for the taxes of the previous owner to the extent of the purchase price unless a Sales Tax Certificate of Clearance is obtained from this Department.


EFFECT OF THIS DOCUMENT: An Informational Publication (IP) is a document that addresses frequently-asked questions about a current Department position, policy or practice, usually in a less technical, question-and-answer format.


EFFECT ON OTHER DOCUMENTS: IP 92(1.5) modifies and supersedes IP 92(1.4) which may no longer be relied upon after this date.


RELATED FORMS AND PUBLICATIONS: You may request the most current edition of:

  • IP 92(6.3), Business Taxes
  • IP 93(3.1), Q & A on Connecticut Use Tax for Businesses and Professions
  • IP 93(4.2), Notice to Retailers Regarding Sales and Use Tax Resale Certificate
  • Form REG -1, Application for Tax Registration Number
  • Form REG - 7, Application for Authority to Collect Connecticut Use Tax

FOR FURTHER INFORMATION: If you have questions about Connecticut taxes, please call the Department of Revenue Services during business hours, Monday through Friday:

  • 860-297-5962 (Hartford calling area or from out-of-state); or
  • 1-800-382-9463 (toll-free from within Connecticut)

Telecommunications Device for the Deaf (TDD/TT) users only, please call 860-297-4911 during business hours.


FORMS AND PUBLICATIONS:

You may obtain forms and publications at any hour, seven days a week:

  • Telephone: use the phone numbers listed above and select Option 2 from a touch-tone phone;
  • Internet: preview and download forms from the DRS Web site: http://www.ct.gov/drs

IP 92(1.5)
Sales and Use Taxes
Issued: 3/4/98
Replaces IP 92 (1.4), (Issued 1/23/97)