Q & A on Sales and Use Taxes for a New Business
This Informational Publication has been modified and superseded by IP 92(1.4)
Although most Connecticut residents are familiar with the fact that the state has a sales tax, very few people know much about the tax. Lack of knowledge can be costly for the owner of a small business. State law requires businesses to collect sales tax in exchange for the privilege of doing business in Connecticut. A firm that fails to collect the tax can lose its permit to do business in Connecticut. Basic information is provided in this publication to help firms avoid the most obvious and potentially costly errors.
WHAT IS THE SALES TAX?
The sales tax is a levy imposed on the sale, rental or lease of most goods and services at a rate of 6%. The tax is collected by the vendor 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;
- Amusement and recreation services;
- Business analysis, management, management consulting and public relations services;
- Cable television services;
- Car washing services;
- Computer and data processing;
- Credit information and reporting;
- Employment and personnel services;
- Exterminating services;
- Flight instruction and chartering by a certificated air carrier;
- Furniture reupholstering and repair services;
- Health and athletic club services;
- Janitorial services;
- Landscaping and horticulture services;
- Lobbying or consulting services;
- Locksmith services;
- Maintenance services;
- Miscellaneous personal services;
- 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 or renovation services to residential real property; 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;
- Services to repair or renovate industrial, commercial and income-producing real property;
- Sign painting and lettering;
- Stenographic services;
- Storage or mooring of any noncommercial vessel on land or in the water;
- Swimming pool cleaning and maintenance services;
- Tax preparation services;
- Transportation of passengers by limousine;
- Telecommunications services;
- Telephone answering services;
- Parking services, except metered space
- Warranty and service contracts for any item of tangible personal property;
- Window cleaning services.
HOW DO I REGISTER MY BUSINESS?
You can register either by mail or in person at the Department of Revenue Services, 25 Sigourney Street, Hartford, CT 06106. You can also register at DRS field offices located in Bridgeport, Hamden, Waterbury and Norwich. Check the blue pages of your telephone book for the address of the office nearest to you.
Use Form REG-1 (Application For Tax Registration Number) to register for:
- Sales and Use Tax
- Room occupancy tax
- Cigarette tax (over the counter retail)
- Admission, Dues and Cabaret Tax
- Unrelated Business Income Tax
- State Income Tax Withholding
- Corporation Business Tax
- Tourism Fund Surcharge on the Rental or Leasing of Passenger Motor Vehicles
- Business Use Tax
FOR WHAT STATE OTHER TAXES IS A BUSINESS BE LIABLE FOR?
A business may be liable for state taxes administered by another state agency or for federal taxes.
Please request a copy of IP 92(6.1), Business Taxes, from this Department for information about state taxes administered by other state agencies. See "For Further Information' on page 4 of this publication for ordering information.
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.
ONCE I HAVE A SELLER'S PERMIT, WILL I EVER NEED TO GET ANOTHER ONE?
Each new business location must have its own seller's 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 example, if a sole proprietorship becomes a partnership or corporation), a new permit is required.
A permit is issued for two years and may be renewed without an additional fee.
I PERFORM A TAXABLE SERVICE AND SELL TAXABLE GOODS FROM THE SAME LOCATION. DO I NEED MORE THAN ONE SALES AND USE TAX PERMIT?
No. Only one sales and use tax permit is required; it allows you to collect tax for sales of goods and services, rentals and leases made at the same location.
WHAT IF MY BUSINESS IS LOCATED OUT-OF-STATE AND I INTEND TO MAKE SALES INTO CONNECTICUT (FOR EXAMPLE, THROUGH THE MAIL OR BY COMMON CARRIER)?
You may register to collect Connecticut Use Tax on your sales in this state. If you wish to register, complete Form REG-7, (Application For Authority To Collect Connecticut Use Tax).
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 a Form REG-1. You will be issued a Seller's Permit and will be required to collect Connecticut sales tax.
HOW DO I OBTAIN A NEW COPY OF SELLER'S PERMIT IF I CHANGE MY ADDRESS OR LOSE THE PERMIT?
Notify DRS in writing at the following address:
Department of Revenue Services
25 Sigourney Street
Hartford Connecticut 06106
There is no fee for this service.
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 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 due dates are as follows:
|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 must 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 ?
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 selling price (not your cost) of the taxable goods, rental, lease or service. The tax must be computed one of two ways:
1. Tax included, in which case the bill must be marked "tax included,"
2. The tax is added to the sales price, and separately stated on the bill.
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.
|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 taxable good and 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 TAX 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 Taxpayer Services 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 Taxes Resale Certificate, and give it to the vendor from whom you make a purchase of goods or services which you intend to resell.
A certificate may not be used to purchase items for 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. Request a copy of IP 93(3), 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 State of Connecticut Sales and Use Tax Resale Certificate or other approved exemption certificate. Some of the most common are:
If a customer is a charitable or religious organization, the customer must present a Connecticut Charitable and Religious Organizations Exemption Certificate. If the organization is purchasing meals or lodging, however, the customer must request an approval letter from this Department and present it to the retailer. (Connecticut retailers should not accept exemption certificates from other states.)
If the customer is a manufacturer or fabricator, the customer must present a Materials, Tools and Fuel Certificate (Form CERT-100) for tax exempt purchases of materials, tools, and fuel.
If the customer is a manufacturer, the customer must present a Manufacturing Machinery Certificate (Form CERT-101) for tax exempt purchases of machinery.
If the customer is a manufacturer, processor or fabricator, the customer may also be eligible for a reduced Sales tax exemption based on the Manufacturing Recovery Act. This reduction is obtained by the customer presenting:
Certificate of Exemption Under 1992 Conn. Pub. Acts, 193, §6: Materials, Tools and Fuels (CERT-108) for the purchase of materials, tools and fuels
Certificate of Exemption Under 1992 Conn. Pub. Acts 193, §6: Machinery and Equipment (CERT-109) for the purchase of machinery and equipment.
If the customer is a farmer, the customer present a copy of the Farmer Tax Exemption Permit (OR-248).
If the customer is the State of Connecticut, a Connecticut municipality, or the federal government, the customer may present a Governmental Agency Exemption Certificate. Purchases made by state or municipal governments from other states are subject to Connecticut sales tax.
Other certificates include:
Sales and Use Tax Exemption for Purchase of Gas and Electricity (manufacturers, fabricators or farmers)
Sales and Use Taxes Exemption Certificate for Purchases of Fuel for Heating Purposes (manufacturer, fabricator or farmer)
Certified Rehabilitation Certified For Certified Historic Structures (Form CERT-102) (owner or general contractor)
Residential Condominium Association Certificate (Form CERT-103) (condominium association)
New Construction Certificate (Form CERT-104) (owners of commercial, industrial or income producing property)
IF I MAKE A SALE AND DELIVER THE GOODS OUTSIDE CONNECTICUT, DO I COLLECT CONNECTICUT SALES TAX?
No. However, depending upon your activities in the other state, you may be required to register and collect sales tax for that state.
Connecticut businesses may elect to collect tax on behalf of New York State if they participate in the New York/Connecticut Sales Tax Agreement. Contact the Connecticut Department of Revenue Service's Taxpayer Services Division to learn more about the program.
However, a resident of another state making a purchase and taking possession of the item in Connecticut must pay Connecticut sales tax.
WHAT ARE THE PENALTIES AND INTEREST IF I FILE A SALES AND USE TAXES RETURN LATE?
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 2/3% per 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:
File your monthly or quarterly return and check the "Yes" box following the questions, "Are you out of business now?"
- Enter the last business date in the block provided.
- Also, write the word "FINAL" prominently across the top of the return.
- 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 Sales Tax Office Audit at (203) 566-8530 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 is a document that addresses issues frequently raised by taxpayers. It is less technical in nature than an Policy Statement, but may be referred to by individual taxpayers for guidance.
EFFECT ON OTHER DOCUMENTS: IP 92(1.3) modifies and supersedes IP 92(1.2), which can no longer be relied upon after this date.
RELATED FORMS AND PUBLICATIONS:
IP 92(6.1), Business Taxes
IP 92(8), Connecticut Circular CT (Employer's Withholding Tax Guide)
IP 93(3), Q & A on Connecticut Use Tax for Businesses and Professions
IP 93(4), Notice to Retailers Regarding SUT Resale Certificate
REG-1, Application for Tax Registration Number
REG-7, Application for Authority to Collect Connecticut Use Tax
FOR FURTHER INFORMATION: To order forms and publications or for further information, call the Department of Revenue Services at 860-297-5962 or 1-800-382-9463 (in-state). Forms and publications may be ordered through voice-mail 24-hours a day by choosing Option 3 on your touch tone telephone.
Electronic Delivery Options: You can also obtain tax forms and publications 24 hours a day from our site on the World Wide Web at http://www.ct.gov/drs. Telecommunications Device for the Deaf (TDD/TT) users only call 860-297-4911 during business hours.
Sales and Use Taxes
(Replaces IP 92(1.2), issued 9/25/92)