If you own a business in Connecticut, you need to be aware of the state's tax laws. In particular, if you sell taxable goods or services, you need to collect and remit sales tax. Additionally, both businesses and individuals can face use tax liabilities in the "Constitution State".
You must register for a sales and use tax account if you sell, rent, or lease taxable goods, sell taxable services, or run a hotel, bed and breakfast, or lodging house. This includes manufacturers, wholesalers, retailers, building contractors, and subcontractors. Even if you are only going to be making sales for a single day--for example, at a flea market or craft fair—you must get a sales tax permit.
Connecticut does not require you to get a sales tax license for occasional sales by people who are not in business. For example, if you have an annual garage sale or you sell some old camping equipment through Facebook Marketplace, you don't need to get a sales tax permit. However, if you have a business that buys and sells used camping equipment, then you need a sales tax license.
You can register your business using myconneCT. Go to the DRS's eservices page and select New Business/Need a CT Registration Number under the Business header. You need the following:
If you need extra time to complete the application, you can save a draft, which will stay in the system for up to 30 days. You can also use this system to register for other state business taxes, including alcoholic beverages tax, dry cleaning establishment surcharge, highway use fee, motor vehicles fuel tax, rental surcharge, and many other business taxes.
If you don't get a sales tax permit as required, you can face a fine of up to $500 and/or imprisonment of up to three months for each offense. There is also a $250 civil penalty for the first day that you engage in sales without a permit and a $100 civil penalty for each following day.
You may be able to get the penalty waived if you can prove that your failure to get a permit was due to reasonable cause and not neglect or intentional disregard of the state's laws.
For most goods and taxable services, the sales tax rate is 6.35%. The state does not allow local jurisdictions to add any additional sales tax. There are a few exceptions. Take a look at the sales tax rates for the following items:
The only way a retailer can reduce CT sales tax for buyers is by reducing the price of the good or service being sold. Retailers cannot advertise that the sales tax will be paid by the retailer. They also cannot advertise that they won't assess sales tax on sale prices or that they will refund a portion of the sales tax. Violations can lead to a $500 fine.
For example, let's say a retailer sells an item for $100, that's subject to the state's standard 6.35% rate. The retailer cannot advertise that buyers only need to pay $100 and the business will cover the $6.35 in sales tax. However, if the business desired, they could reduce the price to $94.03. Then, when you apply the 6.35% sales tax, the final price becomes $100.
You must file sales tax returns online. Set up a myconneCT account and sign in to file your return. If you don't make any sales for the month, you still need to file a return. You can also pay online using your bank account or a credit card. There is a processing fee for paying CT taxes with a credit/debit card.
When filing, you will complete an electronic copy of Form OS-114 (Connecticut Sales and Use Tax Return). The return asks for gross receipts from goods, leases/rentals, and labor/services. It has you note the sales that apply at the general sales tax rate (6.35%), meals and beverage rate (7.35%), luxury rate (7.75%), or short-term passenger vehicle rentals rate (9.35%).
You also must note any goods, rentals/leases, or services purchased by your business that are subject to use tax. Then, you note your deductions, and you calculate the sales tax due based on the difference between your gross receipts plus your purchases subject to sales tax and your deductions.
If applicable, you can claim deductions for sales for resale and sales through registered marketplace facilitators--that applies to sales of goods, leases/rentals, and labor/services. There are also deductions for newspaper and subscription sales of magazines and puzzle magazines, trucks weighing over 26,000 pounds or used exclusively for interstate freight, food for human consumption, food sold from vending machines, and items purchased with food stamps.
There are also special deductions for utility and heating fuel companies, aviation fuel sellers, businesses that sell personal property with a Farmer Tax Exemption Permit, machinery companies, and businesses that sell items/fuel for commercial fishing.
In Connecticut, sales tax returns are due on the last day following the month of sales. For example, your June sales tax return is due July 31st. Your payment is due the same day. You can make advance payments through myconneCT. If you do so, just note the payment on the return when you file, and then pay the remainder.
The late payment penalty is 15% of the tax due or $50 if greater. For example, if your sales tax bill is $10,000, the late payment penalty is $1,500. If your sales tax bill is only $100, then the $50 minimum penalty applies.
The DRS also assesses interest at a rate of 1% for each month or fraction of a month that you are late. For instance, if you pay six and a half months late, you will incur 7% interest. If you amend your return and it shows more tax due, the DRS will backdate the interest on the additional payment to the due date.
If you don't pay electronically, you will incur a 10% penalty for the first offense, but it caps out at $2,500. The second offense also carries a 10% penalty, but it caps out at $10,000. Third and subsequent offenses cap out at 10%.
Sales tax applies to the sale of taxable goods or services. Use tax applies when an individual or business doesn't pay sales tax on an item that should be subject to sales tax. For instance, if you order an item online and don't pay sales tax, you need to report and pay use tax. This rule applies to both businesses and individuals.
If your business purchases a taxable item to use in CT and you don't pay sales tax, you must report the purchase and pay use tax. The use tax rate is the same as the sales tax rate in Connecticut.
Typically, this happens if you buy an item in another state or order an item from an online vendor not based in Connecticut. You will also incur use tax if you buy items with your resale certificate and then use them for the business or give them away to customers.
Note that you may have to register for a use tax permit, even if you don't need a sales tax permit. If you plan to buy anything online or out of state for your business, you should register.
Often, if you buy an item in another state, you will pay that state's sales tax. If the rate is the same or higher than Connecticut's, you don't have to pay any use tax. If the rate is lower, you must pay the difference.
For example, say you buy a taxable item for your business for $100, and the sales tax is 10%. Then, you don't owe any CT use tax because the rate is higher than CT's sales tax rate. In contrast, if you buy an item for $100 and pay just 3% in sales tax to another state, then you must pay 3.35% in CT use tax. That's the difference between the two states' sales tax rates.
When you use a resale certificate to buy items for resale, you don't have to pay sales tax. However, if you end up using the inventory in your business, you must report it and pay sales tax. For instance, let's say you run a computer store, and you buy 100 computers with your resale certificate for $500 each, but you decide to keep one of the computers to use for your bookkeeping. You must report the $500 computer on your Sales and Use Tax Return and pay use tax accordingly.
Similarly, if you buy an inventory item and give it to a customer, you must also report that on your return and pay use tax. To give you an example, imagine that you sell T-shirts that you buy for $10 each with your resale license. If you give away two shirts in a promotion, you must pay use tax on the $20 of merchandise you gave away.
Your business can also incur a use tax liability if you use your sales tax exemption certificate incorrectly. Generally, these certificates are only for goods that will be resold and/or materials that will be turned into goods to be sold. Thus, if you use the certificate for an item that your business should be paying sales tax on, you can incur a use tax liability.
Here's an example. Let's say you manufacture pillows. You get to buy the fabric, stuffing, and other materials for the pillows with your exemption certificate. But if you also buy machinery or other business items with that certificate, you will face use tax.
If you buy a taxable item out of state for use in Connecticut, you must pay use tax. The rate is the same as the sales tax rate. If you pay any sales tax to another state, you can reduce your CT use tax liability by that amount, but you cannot get a credit for paying extra sales tax.
You can pay use tax when you file your individual CT tax return with Form CT-1040 (Connecticut Resident Income Tax Return). If applicable, you can also report use tax with the amended return or the part-year resident return. If you don't have to file a CT income tax return, pay use tax with Form OP-186. Returns are due on April 15, but if you only need to file Form OP-186, you can file as soon as you like after making the purchase.
The penalty for not paying use tax or paying it late is the same as the late payment for sales tax. It is 15% of the tax liability. Interest is 1% for each month or fraction of a month.
The DRS can randomly select any return for an audit, or it may select returns based on discrepancies found in other audits or due to info from other tax returns or agencies. If you're selected for an audit, the state will notify you in writing.
Sales and use tax audits can happen through the mail or in person. The auditor will ask you to provide documents to back up the details on your tax return. Then, they will decide to accept your return as filed or make changes, which can lead to a tax bill or refund.
If you disagree with the audit, you can appeal by requesting a hearing with the Appellate Division. Send a formal letter to the DRS within 60 days of your audit decision and note your name, contact details, audit tax and period, why you want to appeal, and an explanation of why you disagree with each disputed item. An Appellate Officer will contact you and try to resolve your case.
After they issue a decision, you have one more chance to appeal. You must contact the superior court within a month of getting your Final Determination from the Appellate Division.
Note that interest will accrue on your tax debt as you appeal it. You can stop the interest by paying with a bond. Then, if you end up owing the money, you can allow the state to keep the funds, but if your appeal is successful, the state will give you a refund.
If you cannot afford to pay your sales tax liability, you can request a payment plan. The state does not publish details about the likelihood of a business getting payment plans on sales taxes, but it may be possible in certain situations.
The state also offers an offer in compromise where you can settle taxes for less than you owe. However, this option is generally not available to businesses with delinquent sales tax liabilities.
If your bill is high due to penalties, you may want to ask for penalty abatement. Then, at least, you can reduce the amount you owe.
Check out the DSR's website for a list of taxable items and services as well as exemptions. If you're unsure, reach out to a tax professional.
If the business was supposed to collect sales tax and it didn't, you (the consumer) should file a use tax return. Both businesses and individuals should follow this rule.
Businesses registered to pay sales tax should report and pay use tax when they file their monthly sales tax returns. Individuals should report and pay use tax with their annual CT state tax return.
Businesses that don't have a sales tax permit can register for the use tax with Form REG-1 (Business Taxes Registration Application), and then, they can pay the use tax by filing Form OS-114 which is the same form all businesses use to report and pay use tax. If an individual doesn't need to file a CT tax return, they can report and pay use tax with Form OS-114.
Yes, businesses can get exemptions if they are buying items for resale or materials to make products. You must get a sales tax exemption certificate. There are also industry-specific exemptions such as an exemption for items sold exclusively for use in agricultural production and certain items used in the biotechnology industry.
For consumers, the state exempts breast pumps for personal use, bicycle helmets, child car seats, college textbooks, US flags, CT flags, and firearm safety devices. Consumers also don't have to pay sales tax on food for human consumption, seeds for food for human consumption, and snacks in vending machines. However, there is sales tax on candy and carbonated beverages unless they're sold in a school or healthcare facility.
As of 2024, if your business is based in another state, you don't have to collect sales tax from your customers who live in Connecticut. However, your customers may need to file a use tax return.
Wondering about your sales tax obligations? Need help registering your business, filing your returns, or paying taxes? Behind on your sales tax returns or payments? Regardless of your problem, there is a tax professional who can help you get back on track. To learn more, use TaxCure to find a tax attorney, CPA, or enrolled agent who has experience with the CT DRS.
