CTSB00417
AN ACT CONCERNING THE DEPARTMENT OF REVENUE SERVICES' RECOMMENDATIONS REGARDING STATE TAXATION AND COLLECTION.
Status: 5/9/2018 : In Concurrence

Connecticut Legislation provided by Legicrawler © 2018

AN ACT CONCERNING THE DEPARTMENT OF REVENUE SERVICES' RECOMMENDATIONS REGARDING STATE TAXATION AND COLLECTION.

Connecticut Seal

General Assembly

File No. 627

    February Session, 2018

Senate Bill No. 417

Senate, April 23, 2018

The Committee on Finance, Revenue and Bonding reported through SEN. FONFARA of the 1st Dist. and SEN. FRANTZ, L. of the 36th Dist., Chairpersons of the Committee on the part of the Senate, that the bill ought to pass.

AN ACT CONCERNING THE DEPARTMENT OF REVENUE SERVICES' RECOMMENDATIONS REGARDING STATE TAXATION AND COLLECTION.

Be it enacted by the Senate and House of Representatives in General Assembly convened:

Section 1. (NEW) (Effective July 1, 2018) (a) The Commissioner of Revenue Services may charge fees sufficient to cover the reasonable expenses incurred by the Department of Revenue Services in the performance of an administrative function, including, but not limited to, preparing an account reconstruction, preparing a letter of good standing, preparing a certified copy of a tax return and certifying a software program or a software provider. No such fee shall exceed one hundred dollars for the performance of a given administrative function.

(b) Any person subject to a fee imposed under subsection (a) of this section may request, in writing, that the commissioner waive such fee. The commissioner may waive such fee if the commissioner finds, based on information provided by such person, that imposition of the fee would result in undue hardship for such person. The commissioner shall promptly inform such person of the granting or rejection of such requested waiver. The decision of the commissioner shall be final and not subject to further review or appeal.

Sec. 2. Subdivision (12) of subsection (a) of section 12-407 of the 2018 supplement to the general statutes is repealed and the following is substituted in lieu thereof (Effective from passage):

(12) "Retailer" includes: (A) Every person engaged in the business of making sales at retail or in the business of making retail sales at auction of tangible personal property owned by the person or others; (B) every person engaged in the business of making sales for storage, use or other consumption or in the business of making sales at auction of tangible personal property owned by the person or others for storage, use or other consumption; (C) every operator, as defined in subdivision (18) of this subsection; (D) every seller rendering any service described in subdivision (2) of this subsection; (E) every person under whom any salesman, representative, peddler or canvasser operates in this state, or from whom such salesman, representative, peddler or canvasser obtains the tangible personal property that is sold; (F) every person with whose assistance any seller is enabled to solicit orders within this state; (G) every person making retail sales from outside this state to a destination within this state and not maintaining a place of business in this state who engages in regular or systematic solicitation of sales of tangible personal property in this state (i) by the display of advertisements on billboards or other outdoor advertising in this state, (ii) by the distribution of catalogs, periodicals, advertising flyers or other advertising by means of print, radio or television media, an Internet web site, software or any other form of electronic delivery, or (iii) by mail, telegraphy, telephone, computer data base, cable, optic, microwave, Internet or any other form of communication, [system,] for the purpose of effecting retail sales of tangible personal property, provided such person has gross receipts of at least two hundred fifty thousand dollars or made [one] two hundred or more retail sales from outside this state to destinations within this state during the twelve-month period ended on the September thirtieth immediately preceding the monthly or quarterly period with respect to which such person's liability for tax under this chapter is determined; (H) any person owned or controlled, either directly or indirectly, by a retailer engaged in business in this state which is the same as or similar to the line of business in which such person so owned or controlled is engaged; (I) any person owned or controlled, either directly or indirectly, by the same interests that own or control, either directly or indirectly, a retailer engaged in business in this state which is the same as or similar to the line of business in which such person so owned or controlled is engaged; (J) any assignee of a person engaged in the business of leasing tangible personal property to others, where leased property of such person which is subject to taxation under this chapter is situated within this state and such assignee has a security interest, as defined in subdivision (35) of subsection (b) of section 42a-1-201, in such property; (K) every person making retail sales of items of tangible personal property from outside this state to a destination within this state and not maintaining a place of business in this state who repairs or services such items, under a warranty, in this state, either directly or indirectly through an agent, independent contractor or subsidiary; and (L) every person making sales of tangible personal property or services through an agreement with another person located in this state under which such person located in this state, for a commission or other consideration that is based upon the sale of tangible personal property or services by the retailer, directly or indirectly refers potential customers, whether by a link on an Internet web site or otherwise, to the retailer, provided the cumulative gross receipts from sales by the retailer to customers in the state who are referred to the retailer by all such persons with this type of an agreement with the retailer, is in excess of two thousand dollars during the preceding four quarterly periods ending on the last day of March, June, September and December.

Sec. 3. Subdivision (15) of subsection (a) of section 12-407 of the 2018 supplement to the general statutes is repealed and the following is substituted in lieu thereof (Effective July 1, 2018):

(15) (A) "Engaged in business in the state" means and includes but shall not be limited to the following acts or methods of transacting business: (i) Selling in this state, or any activity in this state in connection with selling in this state, tangible personal property for use, storage or consumption within the state; (ii) engaging in the transfer for a consideration of the occupancy of any room or rooms in a hotel, lodging house or bed and breakfast establishment for a period of thirty consecutive calendar days or less; (iii) rendering in this state any service described in any of the subparagraphs of subdivision (2) of this subsection; (iv) maintaining, occupying or using, permanently or temporarily, directly or indirectly, through a subsidiary or agent, by whatever name called, any office, place of distribution, sales or sample room or place, warehouse or storage point or other place of business or having any representative, agent, salesman, canvasser or solicitor operating in this state for the purpose of selling, delivering or taking orders; (v) notwithstanding the fact that retail sales are made from outside this state to a destination within this state and that a place of business is not maintained in this state, engaging in regular or systematic solicitation of sales of tangible personal property in this state by the display of advertisements on billboards or other outdoor advertising in this state, by the distribution of catalogs, periodicals, advertising flyers or other advertising by means of print, radio or television media, an Internet web site, software or any other form of electronic delivery, or by mail, telegraphy, telephone, computer data base, cable, optic, microwave, Internet or any other form of communication, [system,] for the purpose of effecting retail sales of tangible personal property, provided [one] at least two hundred fifty thousand dollars of gross receipts are received or two hundred or more retail sales from outside this state to destinations within this state are made during the twelve-month period ended on the September thirtieth immediately preceding the monthly or quarterly period with respect to which liability for tax under this chapter is determined; (vi) being owned or controlled, either directly or indirectly, by a retailer engaged in business in this state which is the same as or similar to the line of business in which the retailer so owned or controlled is engaged; (vii) being owned or controlled, either directly or indirectly, by the same interests that own or control, either directly or indirectly, a retailer engaged in business in this state which is the same as or similar to the line of business in which the retailer so owned or controlled is engaged; (viii) being the assignee of a person engaged in the business of leasing tangible personal property to others, where leased property of such person is situated within this state and such assignee has a security interest, as defined in subdivision (35) of subsection (b) of section 42a-1-201, in such property; (ix) notwithstanding the fact that retail sales of items of tangible personal property are made from outside this state to a destination within this state and that a place of business is not maintained in this state, repairing or servicing such items, under a warranty, in this state, either directly or indirectly through an agent, independent contractor or subsidiary; and (x) selling tangible personal property or services through an agreement with a person located in this state, under which such person located in this state, for a commission or other consideration that is based upon the sale of tangible personal property or services by the retailer, directly or indirectly refers potential customers, whether by a link on an Internet web site or otherwise, to the retailer, provided the cumulative gross receipts from sales by the retailer to customers in the state who are referred to the retailer by all such persons with this type of agreement with the retailer is in excess of two thousand dollars during the four preceding four quarterly periods ending on the last day of March, June, September and December.

(B) A retailer who has contracted with a commercial printer for printing and distribution of printed material shall not be deemed to be engaged in business in this state because of the ownership or leasing by the retailer of tangible or intangible personal property located at the premises of the commercial printer in this state, the sale by the retailer of property of any kind produced or processed at and shipped or distributed from the premises of the commercial printer in this state, the activities of the retailer's employees or agents at the premises of the commercial printer in this state, which activities relate to quality control, distribution or printing services performed by the printer, or the activities of any kind performed by the commercial printer in this state for or on behalf of the retailer.

(C) A retailer not otherwise a retailer engaged in business in the state who purchases fulfillment services carried on in this state by a person other than an affiliated person, or who owns tangible personal property located on the premises of an unaffiliated person performing fulfillment services for such retailer shall not be deemed to be engaged in business in the state. For purposes of this subparagraph, persons are affiliated persons with respect to each other where one of such persons has an ownership interest of more than five per cent, whether direct or indirect, in the other, or where an ownership interest of more than five per cent, whether direct or indirect, is held in each of such persons by another person or by a group of other persons who are affiliated persons with respect to each other. For purposes of this subparagraph, "fulfillment services" means services that are performed by a person on its premises on behalf of a purchaser of such services and that involve the receipt of orders from the purchaser of such services or an agent thereof, which orders are to be filled by the person from an inventory of products that are offered for sale by the purchaser of such services, and the shipment of such orders outside this state to customers of the purchaser of such services.

(D) A retailer not otherwise a retailer engaged in business in this state that participates in a trade show or shows at the convention center, as defined in subdivision (3) of section 32-600, shall not be deemed to be engaged in business in this state, regardless of whether the retailer has employees or other staff present at such trade shows, provided the retailer's activity at such trade shows is limited to displaying goods or promoting services, no sales are made, any orders received are sent outside this state for acceptance or rejection and are filled from outside this state, and provided further that such participation is not more than fourteen days, or part thereof, in the aggregate during the retailer's income year for federal income tax purposes.

Sec. 4. Subsection (a) of section 12-829 of the general statutes is repealed and the following is substituted in lieu thereof (Effective July 1, 2018):

(a) (1) On or after January 1, 2012, but prior to July 1, 2018, when any person redeems a winning lottery ticket worth five thousand dollars or more at the central office of the Connecticut Lottery Corporation, the Connecticut Lottery Corporation shall check the name and other identifying information of such person against a list of taxpayers who are delinquent, supplied by the Commissioner of Revenue Services.

(2) On or after July 1, 2018, when any person redeems a winning lottery ticket worth two thousand dollars or more at the central office of the Connecticut Lottery Corporation, the Connecticut Lottery Corporation shall check the name and other identifying information of such person against a list of taxpayers who are delinquent, supplied by the Commissioner of Revenue Services.

This act shall take effect as follows and shall amend the following sections:

Section 1

July 1, 2018

New section

Sec. 2

from passage

12-407(a)(12)

Sec. 3

July 1, 2018

12-407(a)(15)

Sec. 4

July 1, 2018

12-829(a)

FIN

Joint Favorable

 

The following Fiscal Impact Statement and Bill Analysis are prepared for the benefit of the members of the General Assembly, solely for purposes of information, summarization and explanation and do not represent the intent of the General Assembly or either chamber thereof for any purpose. In general, fiscal impacts are based upon a variety of informational sources, including the analyst's professional knowledge. Whenever applicable, agency data is consulted as part of the analysis, however final products do not necessarily reflect an assessment from any specific department.


OFA Fiscal Note

State Impact:

Agency Affected

Fund-Effect

FY 19 $

FY 20 $

Department of Revenue Services

GF - Revenue Gain

At least 300,000

At least 300,000

Connecticut Lottery Corporation

Lottery Enterprise Fund - Cost

Approx. 100,000

Approx. 100,000

Note: GF=General Fund

Municipal Impact: None

Explanation

The bill makes a number of changes relating to the Department of Revenue Services' policies and procedures which are outlined in detail below:

Section 1 authorizes the Commissioner of Revenue Services to charge a fee of up to $100 to cover reasonable expenses incurred in the performance of various agency functions. This is anticipated to result in a revenue gain of less than $50,000 annually.

Sections 2 & 3 amend various definitions related to Sales and Use Tax collections. To the extent this increases sales tax compliance, this results in a revenue gain.

Section 4 lowers the threshold for Connecticut Lottery Corporation (CLC) offsets for delinquent taxes from $5,000 in winnings to $2,000. This results in an estimated revenue gain of $300,000 annually to the General Fund beginning in FY 19, as well as an ongoing annual cost to the CLC of approximately $100,000 beginning in FY 19 for salary and fringe costs.1

The Out Years

The annualized ongoing fiscal impact identified above would continue into the future subject to inflation.

Sources:

Connecticut Lottery Corporation Testimony

OLR Bill Analysis

SB 417

AN ACT CONCERNING THE DEPARTMENT OF REVENUE SERVICES' RECOMMENDATIONS REGARDING STATE TAXATION AND COLLECTION.

SUMMARY

This bill:

    1. expands the conditions under which certain out-of-state retailers must collect and remit Connecticut sales tax;

    2. authorizes the Department of Revenue Services (DRS) commissioner to charge fees of up to $100 that are sufficient to cover the reasonable expenses the agency incurs in performing administrative functions and authorizes him to waive the fee under certain conditions;

    3. decreases, from $5,000 to $2,000, the value of lottery prize claims above which the Connecticut Lottery Corporation (CLC) must deduct and withhold delinquent taxes.

EFFECTIVE DATE: July 1, 2018, except that the provision expanding the definition of a retailer is effective upon passage.

2 & 3 — SALES TAX NEXUS

Out-of-State Retailers Engaged in Business in Connecticut

State law requires “retailers” to collect Connecticut sales tax if they are “engaged in the business” of making retail sales in the state. If a retailer is engaged in business in Connecticut, it is said to have a significant presence (i.e., nexus) here (see BACKGROUND).

Under current law, out-of-state retailers that regularly or systematically solicit sales of tangible personal property in Connecticut by various means must collect and remit sales tax if their Connecticut sales exceed a threshold of 100 transactions during the preceding twelve-month period (ending September 30). The bill expands the means by which such retailers are considered to be soliciting sales in Connecticut to include regular or systematic solicitation by Internet websites or communication, software, or other forms of electronic delivery for the purpose of making sales of tangible personal property. It also replaces the current 100 transaction sales threshold with a threshold of at least (1) 200 transactions or (2) gross receipts of $250,000 or more during the twelve-month period.

As under existing law, such retailers are also considered to be soliciting sales in Connecticut if they regularly and systematically solicit sales by:

    1. displaying billboards or other outdoor advertisements;

    2. distributing catalogs, periodicals, advertising flyers, or other print, radio, or television media; or

    3. mail, telegraphy, telephone, computer database, cable, optic, microwave, or other communication.

Fulfillment House Exclusion

The bill limits the out-of-state retailers that are exempt from collecting and remitting state sales tax under the existing “fulfillment house exclusion.”

By law, an out-of-state retailer not otherwise engaged in business in Connecticut is not required to collect and remit Connecticut sales tax solely because it purchases fulfillment services from an unaffiliated in-state company or owns property stored on that company's premises.

Under current law, a company provides “fulfillment services” when it receives orders from a retailer or its agent, fills them from the retailer's inventory stored on its premises, and ships them to the retailer's customers. The bill limits the fulfillment services that qualify for this exclusion to those shipping orders outside of Connecticut.

1 — DRS ADMINISTRATIVE FEE

Under the bill, the DRS commissioner may impose a fee of up to $100 to cover the reasonable expenses the agency incurs in performing an administrative function, including preparing an account reconstruction, letter of good standing, or certified copy of a tax return or certifying a software program or provider.

Any person subject to the fee may submit a written request to the commissioner to waive the fee. The bill authorizes the commissioner to waive it if he finds, based on information the person provides, that imposing the fee would result in undue hardship for the person. He must promptly notify the person of his decision to grant or reject the waiver and his decision is final and not subject to further review or appeal.

4 — LOTTERY PRIZE TAX OFFSETS

Current law requires CLC to deduct and withhold delinquent taxes from any lottery prize claim of $5,000 or more that a delinquent taxpayer submits at CLC's central office. The bill decreases the value of lottery prizes subject to being offset for delinquent taxes to $2,000 for claims submitted on or after July 1, 2018, at CLC's central office.

By law, the offset is for state taxes, including penalties and interest, more than 30 days overdue that are not the subject of a timely filed (1) administrative appeal to the commissioner or (2) appeal pending before a court.

BACKGROUND

U.S. Supreme Court Decisions on Sales Tax Nexus

The U.S. Supreme Court has ruled that a state may require a company engaged in interstate commerce to collect taxes on its behalf if “the tax is applied to an activity with a substantial nexus with the taxing [s]tate, is fairly apportioned, does not discriminate against interstate commerce, and is fairly related to the services provided by the [s]tate” (Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279 (1977)).

The Court has ruled that a company does not have the required nexus if it has no physical presence in a state and its only connection with it is to solicit business there through catalogs, flyers, advertisements in national publications, or phone calls and to fulfill orders by delivering merchandise to customers by mail or common carrier (Quill Corp. v. North Dakota, 504 U.S. 298 (1992); National Bellas Hess, Inc. v. Illinois Department of Revenue, 386 U.S. 753 (1967)).

COMMITTEE ACTION

Finance, Revenue and Bonding Committee

Joint Favorable

Yea

45

Nay

6

(04/05/2018)

TOP

1 Based on current CLC claims statistics, it is estimated that the lower threshold will result in approximately 1,000 new claims each year at CLC headquarters.