Connecticut Enacts Economic, Marketplace, Reporting Nexus Provisions

Effective Date: December 1, 2018

Threshold: $250,000 and 200 transactions through July 1, 2019; $100,000 and 200 transactions applicable to sales on or after July 1, 2019

Measurement Date: 12-month period ending on September 30

Includable Transactions: Retail sales; Marketplace sales included towards the threshold for individual sellers

When You Need to Register Once You Exceed the Threshold: October 1 of the year in which you cross the threshold on September 30

Connecticut has enacted legislation containing economic, marketplace and notice and reporting requirement provisions, effective December 1, 2018. Per the legislation out-of-state sellers are considered a retailer for Connecticut sales and use tax purposes provided that the seller has gross receipts of at least $250,000 and made 200 or more retail sales in Connecticut during the 12-month period ending on September 30 immediately preceding the monthly or quarterly period with respect to which such person’s liability for tax under this chapter is determined.

Additionally, marketplace facilitators are considered retailers for Connecticut sales and use tax purposes. “Marketplace facilitator” means any person who:

• facilitates retail sales of at least $250,000 during the prior 12-month period by marketplace sellers by providing a forum that lists or advertises tangible personal property subject to tax or taxable services, including digital goods, for sale by such marketplace sellers,
• directly or indirectly through agreements or arrangements with third parties, collects receipts from the customer and remits payments to the marketplace sellers, and
• receives compensation or other consideration for such services.

A marketplace facilitator will be considered the retailer of each sale it facilitates on its forum for a marketplace seller and will be required to collect and remit tax on the sales. For a taxable sale occurring on or after December 1, 2018, but on or before December 31, 2019, if a marketplace facilitator incurs liability for failure to collect the tax due on a taxable sale, the commissioner will limit the facilitator’s liability if the facilitator can show to the satisfaction of the Commissioner of Revenue Services that:

• such facilitator and the marketplace seller are not affiliated persons
• the failure to collect sales tax due was not due to an error in sourcing the sale, and
• such sale occurred on or before December 31, 2019

The legislation also enacts notice and reporting requirements for referrers. “Referrer” means any person who:

• contracts or otherwise agrees with a seller to list or advertise for sale one or more items of tangible personal property by any means, including an Internet web site and a catalog, provided such listing or advertisement includes the seller’s shipping terms or a statement of whether the seller collects sales tax,
• offers a comparison of similar products offered by multiple sellers,
• receives commissions, fees or other consideration in excess of $125,000 during the prior 12-month period from a seller or sellers for such listings or advertisements,
• refers, via telephone, Internet web site link or other means, a potential customer to a seller or an affiliated person of a seller, and
• does not collect payments from the customer for the seller.

Referrers are required to:

• Post a conspicuous notice on the referrer’s medium informing consumers of sales and use tax obligations
• Provide, not later than July 1, 2019, a quarterly notice to each seller to whom such referrer transferred during the previous calendar year a potential purchaser located in Connecticut of sales and use tax obligations
• Not later than January 31, 2020, and annually thereafter, submit a report electronically to the commissioner that contains the name and address of each seller who received a notice pursuant to this legislation in the immediately preceding calendar year, and the name and address of each seller for which the referrer knows that such seller listed or advertised such seller’s tangible personal property on or in such referrer’s medium, and collected and remitted Connecticut sales and use taxes.

Additionally, the legislation raises the threshold for Connecticut’s previously enacted click-through nexus legislation from $2,000 in gross receipts to $250,000. (S.B. 417, effective December 1, 2018)

UPDATE: Following the South Dakota v. Wayfair decision, Connecticut released a notice stating that definitions of “retailer” and “engaged in business in the state” have been clarified to include the Internet as a means by which retailers are considered to be soliciting sales in
Connecticut. The legislation changes the nexus standard, and remote retailers must collect and remit sales tax if (1) Their Connecticut sales exceed a threshold of 200 transactions during the preceding twelve month period (previously, the threshold was 100 sales); and (2) Their gross receipts are $250,000 or more during that twelve-month period. The legislation is still effective December 1, 2018.

UPDATE: The Connecticut Department of Revenue Services released a helpful publication regarding the responsibilities of marketplace facilitators and marketplace sellers. As of December 1, 2018, marketplace facilitators are required to collect and remit sales tax on behalf of their marketplace sellers. Read the Department’s publication for answers to common questions on registration responsibilities, reporting, and more.

UPDATE: Effective July 1, 2019 and applicable to sales on or after July 1, 2019, Connecticut has enacted legislation that lowers the state’s economic threshold to $100,000 in gross receipts (previously $250,000) and 200 transactions. Additionally, the legislation expands the economic nexus provision to also apply to sales of services (previously only tangible personal property). The legislation also eliminates the condition that such retailers must engage in regular or systematic solicitation of sales in Connecticut. The legislation also reduces the threshold for Connecticut’s click-through nexus provision. (Act 117 (H.B. 7424), Laws 2019)