Sweeping Changes to the Connecticut Sales and Use Tax Law

The Connecticut General Assembly passed sweeping changes to the CT sales and use tax law. The changes went into effect on July 1, 2011 with among other changes an increase in the general sales tax rate from 6% to 6.35%.

In addition, a rate of 7% will be applied to so called luxury purchases which are defined as:

• Motor vehicle with a sales price of more than $50,000
• Vessels with a sales price of more than $100,000
• Items of Jewelry with a sales price of more than $5,000
• Clothing, footwear, handbag, luggage, umbrella, wallet or watch with a sales price of more than $1,000

Certain other sales tax exemptions were also repealed such as:

• Clothing or footwear costing under $50
• Nonprescription drugs and medicines
• Smoking cessation products
• Cloth and fabric for non-commercial sewing

Contracts Entered into Before July, 1, 2011

For companies that have entered into binding contracts that do not have escalation clauses related to taxes, such as lump sum construction contracts, a grace period has been allowed for purchases of tangible property. The contract has to have been entered into prior to July 1, 2011 and delivery of the property under the contract must be made within 90 days after July 1, 2011. If these conditions have been met, then the new sales tax rates of 6.35% and 7% will not be applicable and the prior 6% rate will be used on those items.

The rules for sales of services are not so beneficial. They are:

• Payments made on or after May 4, 2011 for services provided before and after July 1, 2011, are not subject to additional tax
• Payment made after May 4, 2011, for services provided on or after July 1, 2011 are fully subject to the new tax rate
• Payment made after May 4, 2011, for services provided before and after July 1, 2011 are fully subject to the new tax rate
• Payments made at any time, including payments for past due charges, for services provided during periods before July 1, 2011, are subject to the applicable tax rate in effect during the period that the services were performed.

Should you have any questions related to this Tax Flash, contact your Marcum LLP tax professional.