Connecticut, “the Nutmeg state” is the third smallest state by area (only 5,543 square miles), 29th most populous (3,596,677), and the fourth most densely populated (739 per square mile) of the 50 United States. By the way the official state nickname is the ‘Constitution State’ but it seems on a historical basis a majority of residents have preferred the reference to Nutmeg.
Editor's note: Subsequent to original publication, an error was detected in the 'Sales Tax Facts section' of this article, a strike through has been made regarding a specific portion of a bullet point, and a supplement has been added near the end of this article for clarification. We here at IA and at Avalara regret the error and any confusion this may have created.
Connecticut happens to have the 3rd highest median household income in the United States at $68,595; you can bet that the Connecticut Department of Revenue Services (CDORS) is doing their best to collect sales tax as every dollar of that income is spent on goods and taxable services. Connecticut’s new business tax guide makes it very clear “If you sell goods or taxable services in Connecticut, you are required by law to charge and collect Connecticut sales tax.” They also go on to say that ‘any individual or business purchasing taxable goods or services for use in Connecticut without paying Connecticut sales tax must pay use tax.”
When I first looked at a map of all the towns and jurisdictions in Connecticut I was scared out of my wits to think about all the potential different tax rates that might come into play, but to my surprise Avalara told me that there are no sales taxes imposed by any local jurisdictions in Connecticut, only the state sales taxes.
So what’s the deal with this ‘Nutmeg state’ business; I mean Nutmeg is a somewhat sweet and delicate spice grated from the seed of a tree that grows in Indonesia. I myself like to add it to pumpkin when I bake a pie, but what does that have to do with Connecticut? Well it all began back in the 18th century when sailors would bring ‘nutmeg’ back to the state from their voyages. Over time some industrious (in other words ‘crooked’) merchants decided they could sell ‘fake nutmegs’ carved out of local wood (“yuck, wood chips in my pumpkin pie, no thank you”). Today those ‘fake nutmegs’ would be taxable in Connecticut because the CDORS would consider them as ‘souvenir trinkets’.
About Sales Taxes and this series:
Thanks to Avalara, the 'tax people', this article is one in a 50 part series covering sales tax issues associated with each and every state tax jurisdiction in the United States. Intuitive Accountant will be publishing "Sales Tax Tuesday" over the entire year of 2015.
Sales tax provides critical revenue for states. Other than property and income tax, sales tax is the largest source of tax revenue in the majority of the 46 states that collect it. From a government perspective, making sure every sales tax dollar is collected, through random-checks, audits, fines, penalties rates and rules, is an exercise for income. It’s easy to be lured into a false sense of compliance when it comes to sales tax, this series is intended to insure that you are aware of the key sales tax facts for YOUR state.
For sales tax definitions and essentials check out the opening article to this series.
Connecticut Sales Tax facts1:
- Sales and Use tax managed by the Department of Revenue Services.
- Connecticut has only one sales tax jurisdiction. The state rate at 6.35%.
- Sales tax is sourced at the destination address.
- Some common nexus creating activities are: sales solicitation, contract workers, preforming services, various forms of physical advertising (billboards, print, and even television), selling at a tradeshow, craft show, or flea market.
- Affiliate relationships with retailers in excess of $2,000 in the previous year will create nexus. This includes, links on a website that drive traffic to your website (click-through nexus).
- Connecticut has a 1% rate that is charged on most technology related products instead of the 6.35% rate. This includes data processing, digital goods (books, audio, and video), downloadable software, SAAS, software implementation and support.
- Connecticut completely exempts sales tax on the following products and services:
clothing and apparel(see note below), medical goods, magazine subscriptions, college textbooks, weatherization products, shoe repair services, and antique coins.
- Exemptions certificates are valid for the following business: non-profits, farmers, commercial fisherman, and for purposes of resale.
- When initially registering with Connecticut returns are required on a monthly basis, and then downgraded to quarterly or annual filing depending on sales for the first 12 month period.
Note: This paragraph was added after the article was originally published in order to clarily and correct the above noted error. As of the original date of publication of this article, 'clothing and apparel' should not have been listed as completely exempt (in the bullet point above). Connecticut tax provisions are in fact changing during 2015 and have already been published listing 'clothing and apparel' as having an exemption; however, pursuant to Special Notice 2013(3) of 2014 Legislative Changes to the Sales and Use Tax code only exempts those items to wit: "Articles of clothing and footwear costing under $50 will be exempt for sales occurring on and after July 1, 2015."
Thus far in this series I have been giving you some stories of how states take some extraordinary steps at collecting sales taxes, as well as the extremes they go to in order to insure that sales taxes are collected, but today I am going to give you a little different story. Since 1949, the U.S. has observed ‘Flag Day’ every June 14th, and as it turns out Connecticut, along with 13 other states, have ‘special exemptions’ that preclude the collection of Sales Taxes on ‘Old Glory’. In Connecticut that exemption comes as a result of Connecticut General Statute § 12-412(23). For the most part flag exemptions are in fact very specific, they refer to American Flags designed to ‘be displayed as flags’, they don’t include flag images printed on tablecloths, or on neckties, or handkerchiefs or other decorations. I personally can think of no better ‘sales tax exemption’ that one on the ‘Stars and Stripes.’ And of course it seems fittingly appropriate in Connecticut, the ‘Constitutional State.' (Murph)
No matter what state you are in, manual sales and use tax management is subject to a lot of interpretation and errors. It also consumes a lot of your valuable time in passing-through dollars to the State rather than generating revenue for your own business. Avalara can provide you with the right solution for sales tax automation, including tax calculation, exemption certificate management, returns processing and 1099 filing and reporting. When you automate your sales and use tax via Avalara your business
1 - State by State Sales Tax - Connecticut, Patrick Neu, Avalara - January, 2015
Disclosure: This article and the information contained therein is published for informational purposes only. You should consult a tax attorney or accountant licensed in your state (including the State of Washington) should you have questions or require interpretation of your state sales or use tax.