Connecticut has enacted legislation that increases the sales and use tax rate on digital goods and software delivered electronically from the previously reduced rate of 1% to the full rate of 6.35%, effective October 1, 2019. The legislation expands the state’s definition of tangible personal property to include:
“Digital goods” are defined as audio works, visual works, audio-visual works, reading materials, or ring tones, that are electronically accessed or transferred. Examples of items that will now incur the standard sales tax rate are music, audiobooks, podcasts, stock photographs and artwork, clip art, greeting cards, movies, videos, entertainment programs, magazines and books. The following products will not be subject to tax at the 6.35% rate: Sales of newspapers, and sales of magazines by subscription, whether sold as physical copies or electronically accessed or transferred. Such sales are exempt under Conn. Gen. Stat. §12-412(114); Sales of college textbooks whether sold in hard copy, or electronically accessed or transferred. Such sales are exempt under Conn. Gen. Stat. §12-412(109); and Charges for access to an online professional or academic research database, which will continue to be taxable at the 1% rate for computer and data processing services.
Electronically accessed or transferred canned or prewritten software, and any additional content related to such software, that is sold to a business for use by the business remains taxable at the 1% rate as computer and data processing services. However, if the software is provided with any tangible personal property (such as a box, plastic container, or CD), even if such tangible personal property only authorizes the electronic access or transfer of the software, the sale is of tangible personal property and is taxable at the 6.35% rate. To claim the reduced tax rate of 1%, a business purchasing electronically accessed or transferred canned or prewritten software, and any additional content related to such software, must provide information to the retailer that identifies its name, address, the name and title of the person placing the order, and the fact that the purchaser is a business. For enterprise-level software, the contract or purchase order will generally be sufficient.
The new legislation also specifies when the sale of digital goods can be considered as a sale for resale. Digital goods that are subsequently sold, licensed, broadcasted, transmitted, or distributed, in whole or in part, as an integral, inseparable component part of the digital good or service by the purchaser of the digital goods to an ultimate consumer are considered a sale for resale. (H.B. 7424, Laws 2019, effective October 1, 2019)