Today marks the first day of the new fiscal year, a date the Department of Revenue Services and businesses across the state have spent weeks preparing for as they struggle to implement a host of tax increases.
The changes are part of a $2.6 billion tax package that will help support the $40.11 billion two-year state budget passed earlier this year. Included in the package is an increase in the sales tax from 6 percent to 6.35 percent.
At DRS, employees have been interpreting new laws concerning sales tax increases and the elimination of certain tax exemptions and then trying to identify businesses that the changes apply to, said Sarah Kaufman, the department’s communications director. Then they’ve sent direct mailers to some businesses, informing them of the changes, she said.
To help get the word out, the department has reached out to several business organizations including the Connecticut Business and Industry Association and the Connecticut Retail Merchants Association, she said. They have also engaged more specific groups who represent industries that may be unaware their tax exemption no longer exist or their rates are increasing.
The department has enlisted the help of groups representing tow truck drivers, who are no longer exempt, and pharmacists, whose nonprescription drug exemption has also ceased to exist. They’ve contacted veterinarians, hoping they would pass on to their clients news that pet grooming services are now taxed, Kaufman said.
They have plenty of industries to inform. Other services that will be taxed include valet parking at airports; packing and crating; manicures and pedicures; cosmetic medical procedures; motor vehicle storage; and intrastate transportation via limousine or community car.
Among those items once exempt from sales tax, smoking cessation products will come with a sales tax starting Friday, the same day cigarette tax will increase from $3 to $3.40 per pack.
Kaufman is even using Twitter, @CTDRS, to help get the word out.
“There’s been a real effort to get the information out there,” she said. “Everybody has been working really diligently.”
And the phones have been ringing.
Employees have been fielding calls as people contact them with questions and seek to clarify how a new tax may affect them, she said. For instance, a lot of people want to know what constitutes an internet transaction in light of the new “Amazon Tax,” which requires online retailers to collect tax from sales referred by Connecticut websites, she said.
Kaufman said people haven’t been happy about the new taxes but most are glad to know.
“We understand this has been a real hardship for people,” she said. “But these taxes are effective July 1.”
The DRS effort is not just an educational one, however. Members of the department’s 11 member special investigations unit will be on the road dropping into stores and conducting spot checks, she said. One of the many things they will be checking is whether the price of cigarette packs reflect the new increase, she said.
While the state tries to inform and enforce the new laws, businesses are struggling to comply and gauge their impact.
Cindy Marshall, manager of Saybrook Yarn, believes the taxes on yarn may not dissuade customers from coming to the shop, but may discourage businesses from coming to the state.
“The jobs aren’t here, so many have been outsourced,” said Marshall. “Now with all these new taxes going into effect I don’t see the incentive for businesses to come to the state.”
Marshall has been working with owner Glenda Sohl to update the cash register system to make yarn a taxable item in their system, which she said has been frustrating.
Saybrook Yarn was warning customers of the approaching tax, suggesting they buy certain supplies before July 1 in order to avoid taxes.
Kristen Wold, business manager of West Hartford Yoga, said she was concerned that removing the sales tax exemption on yoga studios will adversely affect ill students who use yoga as a form of treatment.
“Yoga was taxed several years ago and we worked hard to have that repealed,” said Wold. “We were disappointed when that was passed, and we are going to work hard again to have it repealed.”
To promote customer retention West Hartford Yoga has offered 10 percent off classes, until June 30, according to Wold.
As the state broadens the scope of its sales tax, customers seeking services like spa treatments and pet grooming and boarding may also be surprised to see an additional 6.35 percent tax on their bills.
Chris Ragozzino, owner of The Crate Escape in Wallingford, believes the new taxes on pet grooming and boarding will not negatively affect her business because demand still remains.
“Well, people are still going to go on vacation,” said Ragozzino. “They have to leave their dogs somewhere.”
Ragozzino said customers may opt to have their pet groomed less frequently despite the necessity for long haired breeds.
She does not have to face the burden of changing her system over because her system already has the option for sales tax.
Dan Settani, director of Viso Bello Day Spa in Middlebury, has worked with his staff to let customers know their spa services will be taxed starting Friday.
“People on a tight budget may decide, you know what? I don’t need that facial anymore. Others will say okay, I’ll get the pedicure instead of the manicure and pedicure,” said Settani in an email earlier this week.
Hugh McQuaid contributed to this report.