HARTFORD, CT — Monday will be the last “Cyber Monday” before certain online out-of-state retailers who do business in Connecticut will start being required to add sales tax to every purchase.
Beginning on Dec. 1, marketplace facilitators like Amazon, eBay, and Etsy — who do more than $250,000 in business in Connecticut and have 200 separate transactions per year — will be required to start collecting and remitting sales taxes to the state Department of Revenue Services.
Amazon, because it already has a physical presence in the state, has been remitting sales taxes to Connecticut since 2013, but it also allows third-parties to sell items through its website. The law that begins on Dec. 1 is focused solely on third-party retailers.
The new law means more revenue for the state of Connecticut.
According to state officials, the new law and a Supreme Court decision that clears the way for Connecticut to enforce its economic nexus law, is expected to boost revenues by $35 million.
The new law, which was passed in May before the Supreme Court decision was handed down, means any online retailer that acts like a marketplace for third-party sellers will have to remit sales taxes to Connecticut on behalf of those sellers.
Other states who have enacted similar online marketplace laws include Alabama, Arizona, Iowa, Minnesota, Oklahoma, Pennsylvania, and Washington. The Supreme Court decision, however, did not specifically address the validity of these state laws.
The decision in Wayfair v. South Dakota found that retailers didn’t necessarily have to have a physical presence in a state in order to have an economic nexus.
The court ruled on June 21, 2018, that substantial nexus is established “when the taxpayer [or collector] ‘avails itself of the substantial privilege of carrying on business’ in that jurisdiction” and that this standard was satisfied in Wayfair based on the “economic and virtual contacts” remote sellers had with South Dakota.
The decision and the new law was good news for Connecticut retailers with brick-and-mortar locations, who were disadvantaged by online retailers ability to skip collecting sales taxes.
“Today’s Supreme Court ruling opens the door to allow states to tax virtually all internet sales, leveling the playing field between online retailers and brick-and-mortar businesses,” Senate Republican President Len Fasano said at the time.
Fasano said the ruling means Connecticut can “now further change our laws.”
It’s likely that is what will happen when a new General Assembly convenes in January 2019.
There’s currently an estimated $229 million gap between what is collectible and what is actually collected, but Connecticut has gotten more aggressive over the past few years in its enforcement of the law.
“Connecticut is extremely well-positioned, and is at the forefront of state efforts in this area,” Revenue Services Commissioner Scott D. Jackson, said Wednesday. “Thanks to new marketplace facilitator and seller legislation, the state is poised to see a substantial increase in sales tax collections from online transactions.”
As an early indication, Jackson said compliance initiatives leading up to the Dec. 1 effective date have already resulted in more than 600 businesses registering with the Department of Revenue Services and an additional $11 million in sales tax reported.