Q & A on the Connecticut Use Tax for Businesses and Professions
This Informational Publication has been superseded by IP 2001(15)
INTRODUCTION: This pamphlet addresses the Connecticut use tax and answers commonly asked questions about the tax. Understanding the use tax provisions is important because failure to comply can result in large audit assessments and the payment of interest and penalties.
1. WHAT IS USE TAX?
When you make a retail purchase in this state, you will usually pay sales tax to the seller who, in turn, pays the tax to the Department of Revenue Services (DRS). There are some instances where Connecticut sales tax is not paid to the retailer. In these situations, the use tax must be paid by the purchaser directly to DRS. The use tax, like the sales tax, has been in effect since 1947.
2. WHO MUST PAY THE TAX?
The use tax applies to any purchases of taxable goods or services for use in this state, except purchases made for the purpose of resale. Anyone who purchases taxable goods or services for use in Connecticut and does not pay Connecticut sales tax must pay the use tax.
3. ARE THERE ANY EXEMPTIONS FROM THE USE TAX?
Generally, any purchase or lease of goods or services which would not be subject to Connecticut sales tax if purchased in Connecticut is not subject to use tax.
4. WHAT ARE EXAMPLES OF PURCHASES MADE BY CONNECTICUT BUSINESSES TO WHICH USE TAX APPLIES?
Use tax applies to the purchase or lease of assets such as furniture, equipment, machines, instruments and computers. It also applies to the purchase of goods such as office supplies, paper, stationery items, certain publications, packaged software, and books which are used by the business. In addition, the use tax also applies to the purchase of taxable services including automobile maintenance or repair services, janitorial services, telephone answering services, business analysis services, stenography/word processing services, and data processing services.
5. HOW WOULD A BUSINESS THAT OWES USE TAX REMIT THESE TAXES TO THE STATE?
If purchases were made in connection with carrying on a trade, occupation, business or profession, the purchaser must be registered with the DRS for business use tax and must report taxable purchases on a sales and use taxes return for the monthly or quarterly period in which the taxable purchase was made.
6. WHAT IF A CONNECTICUT RETAILER DOESN'T COLLECT TAX FROM A BUSINESS CUSTOMER ON A SALE OF TAXABLE GOODS OR SERVICES?
The business customer must file Form OS-114, Sales and Use Tax Return, and pay the tax.
7. WHAT IF A BUSINESS PURCHASES TAXABLE GOODS FOR ITS OWN USE FROM AN OUT-OF-STATE MAIL-ORDER COMPANY AND NO CONNECTICUT TAX IS CHARGED BY THE RETAILER?
The business must report the purchase on Form OS-114, Sales and Use Tax Return, and pay any tax that is due. In the event that the mail-order house is registered with DRS to collect use tax, the mail-order house will collect the tax at the time of purchase and remit the tax to DRS.
8. WHAT IF THE BUSINESS BUYS IN ANOTHER STATE AND PAYS THE SALES TAX OF THAT OTHER STATE?
If the goods or services were purchased for use in Connecticut and if the tax paid to the other state is less than the Connecticut tax, then the customer must file a use tax return. The tax due would be the difference between Connecticut tax and the tax paid to the other state.
Example: Suppose that you purchased a $1,000 computer in another state and paid a $50 tax to that state. If that computer was purchased for use in Connecticut, then a Connecticut use tax is owed. The Connecticut tax of $60 is reduced to $10, after allowance of $50 credit. If no tax was paid to the other state, however, the Connecticut use tax is $60.
9. CAN A BUSINESS BE REGISTERED JUST FOR BUSINESS USE TAX?
Yes, a business that is not required to register for sales tax should be registered for use tax. If purchases were made in connection with carrying on a trade, occupation, business or profession, the purchaser must register for business use tax by completing Form REG-1, Application for Tax Registration Number, and must report taxable purchases on Form OS-114, Sales and Use Tax Return, for the reporting period in which the taxable purchase was made.
10. MAY A CONNECTICUT BUSINESS USE A RESALE CERTIFICATE TO PURCHASE GOODS AND SERVICES FOR THE USE OF THE BUSINESS?
No. A resale certificate may only be used to purchase goods or services which are intended for resale in the regular course of business. Goods and services which are used in carrying on business are being consumed by the business, and the tax must be reported and paid on them. (See Question 4 for examples of goods and services used by a business and, therefore, subject to the sales and use taxes.)
11. WHEN MAY THE USE OF A RESALE CERTIFICATE RESULT IN A LATER USE TAX LIABILITY FOR BUSINESS?
Use of a resale certificate may lead to a later use tax liability if:
(a) A business purchases inventory for resale and subsequently consumes or uses it in the business. For example, a computer distributor may take a computer from inventory to do billing for the business. The business owes use tax on the price it paid for the computer.
(b) A business takes items purchased for resale and, subsequently, gives them away in a promotion. For instance, a distributor of office supplies may send out pens and pencils as part of its advertising. The business owes use tax on the price it paid for the pens and pencils.
(c) A contractor uses a resale certificate to purchase goods and services used in fulfilling a construction contract. In general, these purchases may not be made with a resale certificate.
Example, the lease of trucks, heavy equipment, and scaffolding, or the purchase of lumber, nails, tools or security services are taxable to the contractor and may not be purchased with a resale certificate. The contractor owes use tax on the purchases and leases.
12. WHAT ARE OTHER COMMON ERRORS BY BUSINESSES THAT LEAD TO USE TAX LIABILITY?
The improper use of other exemption certificates can lead to use tax liability. For example, non-manufacturing companies may not use manufacturer's exemption certificates for the purchase of machinery, or for the purchase of materials, fuel and tools. Likewise, nonprofit organizations may not purchase goods or services exempt from tax unless the goods or services are for the exclusive use of the organization.
13. HOW DOES THE DEPARTMENT OF REVENUE SERVICES DISCOVER USE TAX LIABILITIES?
DRS periodically audits businesses. In addition, Connecticut has reciprocal agreements with numerous states. These agreements enable Connecticut to obtain information on purchases subject to use tax and to share such information with other states.
14. WHAT ARE THE PENALTIES FOR LATE PAYMENT OR UNDERPAYMENT OF THE USE TAX?
The penalty is 15% of the tax due or $50, whichever is greater. Interest is charged at the rate of 1% per month from the due date of the tax return. There are also criminal sanctions for willful failure to file a tax return.
RELATED FORMS AND PUBLICATIONS:
For related publications, please request:
IP 92(1.5) Q & A On Sales And Use Taxes For A New Business
IP 92(6.3) Business Taxes
IP 94(5.1) Getting Started in Business: Understanding Connecticut Taxes
EFFECT ON OTHER DOCUMENTS: IP 93(3.1) modifies and supersedes IP 93(3) issued 3/22/93 which can no longer be relied on after the date of issuance of this publication.
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 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 3 from a touch-tone phone;
- Internet: preview and download forms from the DRS Web Site: http://www.ct.gov/drs
Replaces: IP 93(3) issued 3/22/93