PS 98(5)

Sales and Use Tax Refund Policy

This Policy Statement has been cited in PS 2001(1)

PURPOSE: The purpose of this Policy Statement is to explain the Department’s policies on issuing refunds of sales and use taxes.

EFFECTIVE DATE: Effective upon issuance and applicable to all open tax periods, except that the procedures for filing protests of refund disallowances are applicable to refund claims filed on or after July 1, 1997.

STATUTORY AUTHORITY: Conn. Gen. Stat. §12-39s; §12-415; §12-418; §12-425, as amended by 1997 Conn. Pub. Acts 243, §56; and Conn. Gen. Stat. §12-431, as amended by 1997 Conn. Pub. Acts 243, §31.

RELEVANT LAW:

Conn. Gen. Stat. §12-39s(b) provides that if the Commissioner of Revenue Services determines that any tax, penalty or interest has been paid more than once or has been erroneously or illegally collected or computed, the Commissioner may either credit the amount against tax amounts then due and payable, or may refund it. The statute provides further that if a person is required to collect tax from another person and has collected the tax from the other person, any amount credited or refunded by the Commissioner shall be credited or refunded to the other person.

Conn. Gen. Stat. §12-425 sets out the specific procedures and requirements for refunds of sales and use taxes. No refund or credit will be allowed unless a claim is filed with the Commissioner within three years from the last day of the month next succeeding the period for which the overpayment was made. However, if the refund or credit relates to tax paid for an assessment made under §12-415 or §12-416, the refund claim must be made within six months after the assessment becomes final. Every claim must be in writing and must state the specific grounds on which the claim is founded.

Thus, a written refund claim that is timely and that states the specific legal and factual reasons for the claim will be considered properly filed for purposes of the statute. However, the Department will require additional documentation to substantiate a refund claim. These additional requirements are described in this Policy Statement.

There is no statutory provision for interest to be paid by the Department on sales and use tax refunds. 

WHO MAY SUBMIT SALES AND USE TAX REFUND CLAIMS:

• The Department will accept refund claims filed by retailers on behalf of their purchasers, when the retailers can prove that they have collected the tax from the purchasers and remitted it to the Department, and when the retailers refund the tax to their purchasers as provided in this Policy Statement.
• The Department will accept refund claims filed by purchasers: (a) when purchasers have self-assessed use tax and have not paid sales tax to retailers or (b) when purchasers have paid sales tax to retailers and have receipts for tax paid and submit copies of Form AU-524, Assignment of Retailer’s Rights for Refund, signed by retailers to which they paid tax, certifying that tax was collected from the purchasers and remitted to the Department, and that the retailers waive their right to claim refunds of the same amounts.

REFUND CLAIMS BY RETAILERS: Retailers may submit refund claims on behalf of purchasers using the following procedures:

A. When the Retailer is not Under Audit.

1. Required Documentation.

• The retailer must provide proof that it collected the sales tax from its purchasers and remitted the tax to the Department. Proof will consist of copies of invoices to purchasers showing that tax was charged, and information satisfactory to the Department showing that the sales tax charged was reported on the retailer’s sales and use tax returns and that the tax was paid to the Department.
• The retailer must submit amended sales and use tax returns for the periods with respect to which the refund is claimed.
• The retailer must prove that the sales were not subject to sales and use taxes or that sales tax was otherwise paid in error. This proof may consist of properly completed exemption certificates, where appropriate.

2. Refunds by Retailers to Purchasers. If the Department determines that a retailer’s documentation is adequate, and that a refund claim should be allowed:

• The retailer must prove that it has refunded the tax to its purchasers before the Department will issue a refund or credit to the retailer. This proof will consist of canceled checks from the retailer or receipts showing that the refund amounts have been credited to the purchasers’ accounts against amounts currently due and payable by the purchasers to the retailer.
• Alternatively, the retailer must provide the Department with copies of letters or memoranda issued to its purchasers in which it promises either to refund the tax to them; or, for current, active customers of the retailer, to credit the refund amounts against amounts due from the purchasers.
• If the retailer has not refunded the tax to its purchasers before the Department issues the refund to the retailer, then within 120 days after the Department issues the refund the retailer must prove that it has refunded or credited the refund amounts to its purchasers. This proof will consist of canceled checks from the retailer to the purchasers, or receipts showing that the refund amounts have been credited to the purchasers’ accounts against amounts currently due and payable by the purchasers to the retailer.
• A retailer must immediately return to the Department any amounts not refunded or credited to the retailer’s purchasers within 120 days after the Department issues a refund. Retailers are subject to audit, and will be assessed under Conn. Gen. Stat. §12-415 for amounts not properly refunded to purchasers or returned to the Department.

B. When the Retailer is Under Audit. A retailer that is under audit must file its refund claim in writing with the Audit Division’s Revenue Examiner assigned to the audit.

1. Required Documentation.

• The refund claim must be filed before the Department issues Form AU-100, Tax Determination Report. Any refund claim filed after the Department issues Form AU-100 will not be considered by the Revenue Examiner, and must be filed in writing with the Refunds, Clearance and Adjustments Unit of the Audit Division.
• A retailer under audit must submit to the Revenue Examiner the same information and documentation required of retailers not under audit (see above). However, the retailer need not file amended sales and use tax returns, since the refund, if allowed, will be incorporated into the audit.

2. Refunds by Retailers to Purchasers. If the Revenue Examiner determines that a retailer’s documentation is adequate, and that a refund should be allowed:

• The retailer must provide to the Revenue Examiner the same documentation and proof that tax has or will be refunded or credited to purchasers that is required of retailers not under audit (see above).
• No audit projections for retailers. Refund claims filed by retailers on behalf of purchasers must be accompanied by fully detailed documentation with respect to every sale. The Department will not project or otherwise estimate such refunds using sampling methods.
• No interest offsets for retailers. The Department will not use refunds issued to retailers on behalf of purchasers to offset audit assessments for purposes of reducing interest or penalties on such assessments.

C. Calculation Errors. A retailer may sometimes make calculation errors or otherwise erroneously overpay tax, where the retailer has not incorrectly charged tax to its purchasers. If this occurs, the retailer should amend its sales and use tax returns, and if the Department confirms that errors were made, sales tax will be refunded to the retailer. If the retailer has claimed the refund during an audit, a refund of tax overpaid because of a calculation error may be used to offset the audit assessment for purposes of reducing the interest or penalty on the assessment.

REFUND CLAIMS BY PURCHASERS: Purchasers may submit refund claims using the following procedures:

A. When the Purchaser is not Under Audit. A purchaser that is not under audit must file its refund claim in writing with the Audit Division, Refunds, Clearance and Adjustments Unit, 25 Sigourney Street, Hartford, CT 06106.

1. When the Purchaser has Paid Tax to a Retailer.

a. Required Documentation.

• The purchaser must prove that it paid tax to a retailer registered to collect Connecticut sales and use taxes. This proof will consist of receipts or invoices from retailers, canceled checks or other information satisfactory to the Department showing that the retailer billed and received the tax.
• The purchaser must prove that the purchases were not subject to sales and use taxes or that sales and use taxes were paid in error. This proof may consist of properly completed exemption certificates, where appropriate.
• The purchaser must prove that the retailer remitted the tax to the Department, and satisfy the Department that the retailer will not independently seek a refund of the same tax for which the purchaser is requesting a refund.

b. Certification Requirement. This proof will consist of a completed Form AU-524, Assignment of Retailer’s Rights for Refund, or subsequent form issued by the Department. Form AU-524 provides detailed information about the purchaser’s purchases from the retailer, and requires the retailer to certify under penalties of false statement (a) the accuracy of the information, (b) that the retailer paid the tax it collected to the Department, and (c) that the retailer disclaims any interest in the refund and assigns its right to the refund to the purchaser.

• The Department will not consider any claim for refund from a purchaser that paid tax to a retailer unless the purchaser provides a completed Form AU-524 from the retailer to which the purchaser paid the tax.
• The only exception to the requirement of a Form AU-524 from a retailer is if the retailer is out of business.

2. When the Purchaser has not Paid Tax to a Retailer.

• When the purchaser has not paid tax to a retailer, but has self-assessed use tax on purchases, the purchaser must prove that it paid tax to the Department. This proof will consist of copies of the purchaser’s tax returns and canceled checks, with invoices or receipts for the purchases and worksheets that correlate to the amount of use tax paid with the returns.
• The purchaser must prove that the purchases were not subject to sales and use taxes, or that use tax was otherwise paid in error.

B. When the Purchaser is Under Audit. A purchaser that is under audit must file its refund claim in writing with the Audit Division’s Revenue Examiner assigned to the audit.