Connecticut Sales and Use Tax Guide: Rates, Nexus, Exemptions & Compliance Tips

Sales and Use Tax Basics in Connecticut

Sales Tax

In Connecticut, taxable persons are required to register for, collect, and remit sales tax if they sell, rent, or lease goods, sell taxable services, or operate a hotel, motel, lodging house, or bed and breakfast property. Additionally, those who sell at flea markets, craft shows, trade shows, antique shows, fairs, and similar events are also required to obtain a Sales and Use Tax Permit from the Connecticut Department of Revenue Services (DRS)

Use Tax

Connecticut imposes use tax on the storage, acceptance, consumption, or other use in the state of goods or certain services purchased from any retailer, including goods manufactured or processed from purchased materials. However, the burden of remitting use tax lies on consumers who use such goods or services in Connecticut.

Connecticut Sales and Use Tax Rates

General sales and use tax in Connecticut is set at 6.35%. Even though there are no local sales and use tax rates, several special rates apply to specific goods and services. First, a 1% rate applies to business-purchased computer and data processing services and specific electronically accessed software for business use. However, software for personal use or transferred with tangible goods remains subject to a 6.35% tax.

A 2.99% rate applies to vessels, motors, trailers for transporting vessels, and dyed diesel fuel sold exclusively for marine purposes. Notably, non-resident armed forces members purchasing a motor vehicle pay 4.5%. Furthermore, meals and certain beverages are taxed at 7.35%. In contrast, most high-value motor vehicles, jewelry valued at over USD 5,000, and clothing, footwear, or accessories valued at over USD 1,000 are taxed at 7.75%. Short-term vehicle rentals, meaning those up to 30 days, are taxed at 9.35%. 

Tax-Exempt Transactions

Tax exemptions are provided for specific areas, including agriculture, biotechnology, commercial fishing, medical equipment and supplies, manufacturing, printing, solar and geothermal systems, utility usage, and certain sales to educational, healthcare, and telecommunications entities. Notably, to be exempt, purchasers must provide a specific certificate or permit to document eligibility.

Also, exceptions are provided for certain specific everyday items such as bicycle helmets, child car seats, breast pumps, certain food products, newspapers, and vending machine items under 50 cents. Furthermore, high-value items used by persons with disabilities, commercial vehicles, aircraft, vessels, and rare or antique coins are tax-exempt. 

Nexus Rules in Connecticut

Connecticut is one of the few US states that, in addition to having rules for physical, economic, and marketplace nexus, also maintains click-through and affiliate nexus rules. 

Physical Nexus

Businesses and individuals with a physical presence in the state must register, collect, and remit sales and use tax. This physical nexus is established by having a retail store, warehouse, inventory, or the regular presence of traveling salespeople or representatives within the state borders. Even attending a trade show in Connecticut to take orders or make sales may establish the physical nexus.

Economic Nexus

The economic nexus rules for remote sellers were introduced in 2018, when the economic nexus threshold was set at USD 250,000 and 200 transactions. However, the threshold changed in 2019, when the DRS reduced it to USD 100,000. Therefore, since July 1, 2019, remote sellers with gross receipts of USD 100,000 and 200 transactions within the 12-month period ending on September 30 are liable for sales tax.

Marketplace Nexus

The marketplace nexus had the same implementation path as the economic nexus. Therefore, it was initially set at USD 250,000 and 200 transactions in December 2018, and was amended six months later to the current USD 100,000 and 200 transactions.

Click-Through and Affiliate Nexus

Connecticut implemented the click-through and affiliate nexus rules in 2011. Initially, the retailer was considered to have a click-through nexus if it agreed with a person or business located in Connecticut who referred potential customers to the retailer, such as through a website link or other referral method, in exchange for a commission or other compensation. For a click-through nexus to be established, a retailer’s cumulative gross receipts from these referred sales to Connecticut customers had to exceed USD 2,000 over the previous four calendar quarters. 

Notably, the click-through nexus rules were amended twice following the implementation of the economic nexus rules and subsequent changes to those rules. Therefore, in 2018, Connecticut raised the click-through nexus threshold from USD 2,000 to USD 250,000 in gross receipts. Since the economic nexus threshold was reduced in 2019, the click-through nexus threshold also decreased to USD 100,000.

Affiliate nexus, on the other hand, is established when a business or individual in Connecticut is owned or controlled, directly or indirectly, by a retailer doing business in the state, or when both entities are owned or controlled by the same interests and operate in similar lines of business.

Taxable Goods and Services in Connecticut

In Connecticut, sales, rentals, or leases of tangible personal property, or goods, and specified taxable services, are subject to sales and use tax. The term tangible personal property refers to any physical item that can be seen, touched, measured, weighed, or otherwise perceived by the senses. However, the definition goes beyond traditional physical goods to include certain digital goods.

Regarding services, in Connecticut, sales and use tax applies to a wide range of business, personal, and professional services, including, among others, advertising and public relations, management consulting, data processing, janitorial, landscaping, maintenance, telecommunications, and repair services. Additionally, services related to personal care, such as spas, manicures, and pet grooming, are taxable, alongside various property- and transportation-related services.

E-Commerce Framework

While most US states have an economic nexus of USD 100,000 in gross receipts or 200 or more transactions, Connecticut is one of the rare US states that set an economic nexus threshold at USD 100,000 and 200 transactions. The difference is significant, since to establish a nexus in Connecticut, remote sellers must exceed both the amount and transaction thresholds. Once the threshold is exceeded, remote sellers are liable for sales tax on any sale to local consumers.

Notably, the gross receipts represent the total monetary value of all retail transactions conducted by a retailer, without deductions for costs or expenses, including full sales price from the sale of tangible goods, services, or property rentals, the total rent received from room occupancies, and payments from leases of tangible goods. Additionally, Connecticut implemented rules for remote sellers who offer and sell goods and services through marketplaces. 

Marketplace Rules

Marketplace sellers who have made 200 or more transactions and have at least USD 100,000 in gross receipts must register for sales tax in Connecticut, even if they sell only through a marketplace facilitator that collects and remits on their behalf. In this case, complete the registration process, but declare that they only make sales through a marketplace facilitator. The DRS still requires an annual tax return from these marketplace sellers. 

Digital Goods and Services

Since the definition of tangible personal property was broadened to include digital goods, as of October 2019, they are taxable under the Connecticut legislation. Previously taxed at 1% as computer and data processing services, digital goods, such as music, movies, e-books, audiobooks, and apps, are uniformly taxed, regardless of format, at the same rate as tangible goods when purchased individually, by subscription, or through in-app transactions. 

Additionally, canned or prewritten software purchased for non-business use is taxable at 6.35%, while software acquired by businesses for internal use remains taxable at 1%, provided proper documentation is maintained.

Digital Marketplace

A marketplace facilitator is any individual or business that enables marketplace sellers to sell at least USD 100,000 and complete 200 or more transactions annually through a physical or digital platform, such as a website, app, or catalog. In addition, marketplace facilitators must handle payment processing, collect payments from customers and pass them to sellers, and receive compensation for providing the service.

In addition to this, the relevant legislation also defines the term “forum”, which is a physical or electronic place, including, but not limited to, a store, a booth, an Internet website, a catalog, or a dedicated sales software application, where tangible goods or taxable services are offered for sale. Therefore, those operating in the state should consider this term as well when determining the sales and use tax applicable rules. 

Digital Platform Operator

Those who meet the requirements of marketplace facilitators are treated as retailers for all sales they facilitate on behalf of marketplace sellers. Therefore, facilitators are legally responsible for collecting and remitting Connecticut sales and use tax on all taxable sales delivered to a Connecticut address. Furthermore, facilitators must also comply with all the state’s tax obligations as if it were the retailer itself, including filing returns on time and maintaining detailed records required by the DRS.

Importantly, to avoid double taxation or any uncertainty, facilitators must either enter into a contract with their sellers that states they will handle all tax collection and remittance or issue a Certificate of Collection to each seller.

Filing and Payment Requirements in Connecticut

The filing and payment frequency for sales and use taxes depends on the taxable person’s annual tax liability. Generally, monthly tax returns and payments are due. However, taxable persons whose total tax liability for the preceding 12 months ending June 30 is less than USD 1,000 file and pay annually, while those with a liability between USD 1,000 and USD 4,000 file and pay quarterly. 

In some instances, the DRS may require non-compliant taxable persons to remit taxes weekly to ensure compliance. Weekly filers must deposit collected tax into a dedicated trust account or remit it through a certified service provider, with payments due by the Wednesday following the weekly period. These taxable persons are referred to as delinquents, and despite weekly remittance, must also file their regular monthly or quarterly returns.

Penalties for Non-Compliance with Sales and Use Tax Requirements

Connecticut imposes a 1% per month, or part of the month, interest rate on any late filing and payment, calculated from the original due date until full payment is made, based on the amount that should have been remitted on time. In addition to interest, a 15% penalty of the unpaid tax, to USD, whichever is greater, applies for failure to pay or for late payment of sales and use tax.