CT never offered a plan to collect more sales tax online
Connecticut, like many states, has been trying to capture more tax revenue from online sales since the U.S. Supreme Court opened the door in 2018.
But state auditors recently noted that Connecticut’s tax department never implemented a 2019 legislative directive designed to raise an additional $30 million from internet transactions.
Although some legislators are not ready to abandon it, it could be politically difficult to achieve these savings.
It all depends on whether Connecticut wants to overhaul its sales tax system.
“There’s likely to be a lot of money left on the table,” House Majority Leader Jason Rojas, D-East Hartford, said Friday.
“On my street alone, not a day goes by that I don’t hear trucks, whether it’s UPS, FedEx or Amazon” delivering packages, said Sen. John Fonfara, D-Hartford. “You see the activity every day.”
The Supreme Court recognized this activity in June 2018 when it upheld a South Dakota law that allowed it to collect taxes from out-of-state businesses that sell to South Dakota residents.
Prior to the ruling, states could only tax sellers with a physical presence — such as a store or warehouse — within their borders.
Many states have responded quickly with laws redefining which businesses must collect and remit sales tax. Connecticut requires out-of-state merchants to collect and remit sales tax if they conduct at least 200 transactions per year involving Connecticut residents and have at least $100,000 in gross sales to residents here.
But many businesses, especially smaller ones, are still not complying with these new tax rules, and Connecticut and other states are struggling to enforce their laws.
Twenty-four states have formed the Simplified Sales Tax Project to share information about online transactions and improve collections.
Connecticut is not a member, but the 2019 legislature tried to see if the state could take advantage of this collaborative approach. He specifically asked the Department of Tax Services to develop a list of “certified service providers” who could help increase out-of-state businesses’ compliance with Connecticut’s sales tax laws.
These vendors are agents certified by the Multi-State Coalition to help online businesses perform many of their sales tax functions, especially tax collection and remittance.
Connecticut lawmakers even assumed that $30 million in additional revenue would be collected each year starting in the 2020-21 fiscal year thanks to this initiative. Sales tax revenue from all sources totaled about $4.8 billion in the last fiscal year, according to the state’s Consensus Revenue Report.
But state public accounts auditors John Geragosian and Clark Chapin noted in a recent report that the tax department never prepared that list or reported to the legislature by February 2020, as originally requested. .
In a written response to the auditors, the tax administration wrote that “it should be noted for the record that the DRS was not seized by the General Assembly about the said public document”.
So why was the issue dropped?
Mark Boughton only became Tax Services Commissioner in December 2020, well past the February deadline.
But Boughton told the CT Mirror that lawmakers failed to realize Connecticut needed to make a bigger commitment if it was to piggyback on the multistate effort to collect more sales tax receipts on the scene in line. If the state wants to use the project’s certified service providers to collect more sales tax, it will likely need to join the coalition.
Members of the Simplified Sales Tax Project should have a simple system of sales tax rates and exemptions. Member States benefit from a general rate for most items and a second – usually lower – rate for food and medicines.
Connecticut has a hodgepodge system that includes a basic sales tax rate of 6.35%; a luxury rate of 7.75% on jewelry and high-priced motor vehicles; a 1% surcharge on restaurant meals; a rate of 2.99% on certain boats and boat engines; and dozens of exemptions.
Connecticut not only exempts food, medicine, much of the clothing and other items commonly exempt in other states, but it also waives sales tax on other goods and services that critics have called of non-essentials. These include amusement and recreation services, electrology services and winter storage of boats.
Governor Ned Lamont and the 2019 legislature eliminated a modest number of sales tax exemptions, but only after heated debate.
Boughton said his department is always ready to work with the legislature if members want to revisit this issue when the 2023 regular session begins in January. But the ball is in the lawmakers’ court.
“I’m intrigued by ‘a streamlined sales tax system,’ Boughton added, ‘but I understand the political landmines that exist in doing this.”
Many physical stores in Connecticut have added websites in recent years to compete with online-only businesses, said Tim Phelan, executive director of the Connecticut Retail Merchants Association.
Still, Connecticut merchants of all kinds largely comply with sales tax remittance laws, Phelan said, adding that out-of-state sellers who flout those rules continue to hold an unfair advantage.
“We support any effort to ensure these taxes are collected,” he said.