Q&A on Direct Payment Permits
Traditionally, businesses pay sales tax to their vendors when purchasing taxable goods or services. The vendors then remit the tax to the Connecticut Department of Revenue Services (DRS) by filing sales and use tax returns. However, the taxability of purchases by certain businesses may not always be determinable at the time of the transaction. For instance, purchases of certain items by a manufacturing company may fall under three possible sales and use tax rates; 6.35%, 3% or totally exempt from tax. A determination of the proper rate of tax is dependent on the type of item purchased and how and where the manufacturer will use it. The concept of a direct payment permit evolved in order to help with this complex tax situation. A direct payment permit allows a business to purchase taxable goods and services without paying tax to the vendor and to remit the correct use tax directly to the DRS. This process allows businesses the necessary time to accurately determine how much tax to assess on their purchases.
Taxpayers interested in applying for a direct payment permit must meet all of the following criteria:
- The collection of sales and use taxes will not be jeopardized if a direct payment permit is issued.
- The business's accounting system will clearly indicate the amount of sales and use tax owed.
- The business is regularly audited by the DRS.
- The business will remit sales and use taxes using EFT (Electronic Funds Transfers) technology.
- The business agrees that its name may be published as a direct payment permit holder on the DRS web site and in any other related publication.
The taxpayer must complete a Direct Payment Permit Application and remit the $20 permit fee to the DRS. Within 120 days from the postmark date, the Commissioner will review the completed application. At the end of the review process, a letter of approval or denial will be sent to the taxpayer. The Commissioner retains sole discretion in the approval, denial and revocation of direct payment permits.
The qualifying taxpayer must purchase all goods and services without paying Connecticut sales and use tax, except those specifically listed below. The direct payment permit holder must provide the retailer with a copy of the direct payment permit at the time of each purchase.
- Tangible personal property incorporated into new construction to real property
- Meals or lodging
- Motor vehicles, vessels, aircraft and snowmobiles
- Telecommunications services
- Utilities (gas, electricity and heating fuel)
- Purchases made with Procurement Cards (P-Cards)
- Tangible personal property consumed or incorporated in the installation, maintenance, and repair of utility mains, lines, poles, pipes, and other facilities located within a public right-of-way.