This month, we travel to the Southern part of New England, Connecticut. The “Constitution State” is the third smallest state according to land size, but its population is actually bigger than 20 other states. The has a mix of coastal cities and rural areas dotted with small towns. Mystic is famed for its Seaport Museum filled with centuries-old ships, and the beluga whale exhibits at Mystic Aquarium. On Long Island Sound, the city of New Haven is known as the home of Yale University and its acclaimed Peabody Museum of Natural History.
Business Climate
The state’s key industries include finance, insurance and real estate. Major financial industry employers include The Hartford, Travelers, Cigna, Aetna, Mass Mutual, People’s United Financial, Bank of America, Realogy, Bridgewater Associates, GE Capital, William Raveis Real Estate and Berkshire Hathaway.
Manufacturing is a huge sector contributing to the state’s GDP. Raytheon Technologies and its subsidiaries, Pratt & Whitney and Collins Aerospace, is the state’s leading manufacturer. Lockheed Martin subsidiary, Sikorsky Aircraft operates Connecticut’s single largest manufacturing plant in Stratford, where it makes helicopters. Other major manufacturers include the Electric Boat division of General Dynamics, which makes submarines, Boehringer Ingelheim, a pharmaceuticals manufacturer and ASML, which makes precision lithography machines used to create circuitry on semiconductors and flat-screen displays.
Over half of the state’s agricultural production is the result of nursery stock production. Connecticut’s agricultural products include milk, eggs, vegetables, fruit, tobacco and shellfish.
Tax Climate
The top individual income tax rate is 6.99% and the top corporate income tax rate is 7.5%.
Apportionment: Connecticut taxpayers apportion income tax using a sales formula.
Connecticut sources services using destination-based sourcing.
Sales Tax Structure
The state sales tax rate is 6.35% and the highest combined rate is also 6.35%.
Generally, sales of digital products in Connecticut are taxable. Sales of prewritten computer programs delivered electronically are subject to sales and use tax, but with exceptions. Effective Oct. 1, 2019, sales of prewritten computer software delivered electronically are considered sales of tangible personal property and are subject to the state’s standard rate. However, if prewritten computer software delivered electronically is purchased by a business for use by such business it is taxable at the 1% rate for computer and data processing services, which is reduced from the regular state rate for sales tax. Sales of custom computer programs delivered electronically are not subject to sales and use tax. Connecticut imposes sales and use tax on sales of software as a service. How products are produced, sold and delivered is critical to determining the tax status.
Connecticut has an economic nexus law where if an out of state seller sells $100,000 and comprises 200 transactions into the state, sellers need to collect and remit sales tax on those transactions. This threshold applies to all transactions within the 12-month period ending on September 30 immediately preceding the monthly or quarterly period when liability is established. Transactions that are included in the threshold include gross receipts from tangible personal property (including digital products and SaaS) sold into the state, exempt sales and exempt services. Transactions that are excluded from the threshold include services, sales for resale and sales through a marketplace. This legislation went into effect on July 1, 2019.
Marketplace facilitators that facilitated retail sales of at least $250,000 during the prior 12-month period are required to collect and remit sales tax on behalf of their marketplace sellers. A marketplace facilitator is defined as anyone that provides a forum that lists or advertises taxable tangible personal property for sales by marketplace sellers; directly or indirectly collects receipts from the customer and remits payments to the marketplace seller; and is compensated for such services. This legislation was enacted on December 1, 2018.
Many states have annual sales tax holidays, during which certain items the state wants to promote the purchase of (like school supplies emergency preparedness supplies, or energy efficient appliances) can be purchased sales tax free. Connecticut had a sales tax holiday from the from Sunday, April 10 to Saturday, April 16, 2022. During this week, certain gas taxes and sales and use taxes on certain clothing and allocating funds for free public bus services were subject to the tax exemption. For more information on the sales tax free week, click here.
Our team at Miles Consulting Group is always available to discuss the specifics of your situation, whether in Connecticut or other U.S. States, and help you navigate the complex tax structures arising from multistate operations. Call us to help you achieve the best tax efficiencies.
Random Facts
- Connecticut and Rhode Island never ratified the 18th Amendment (Prohibition).
- Connecticut is home to the oldest U.S. newspaper still being published: The Hartford Courant, established in 1764.
- The first speed limit ever set was passed into law in Connecticut in 1901, a neck breaking limit of 12 miles per hour.
- Connecticut was the first state to have permanent license plates, starting in 1937.
- Cattle branding in the United States began in Connecticut when farmers were required by law to mark all of their pigs.
- The first lollipop-making machine opened for business in New Haven in 1908. George Smith named the treat after a popular racehorse.
- The inventor of the process of vulcanization, Charles Goodyear, was born in New Haven. Goodyear was a self taught chemist and engineer.
- Noah Webster, of Webster’s dictionary, was born on October 16, 1758, in the West Division of Hartford, CT (now West Hartford). He attended college at Yale in New Haven. His first edition of his dictionary was published in 1806.
- Eli Whitney was famed for inventing the cotton gin, was from New Haven, CT.
