In October, Massachusetts set a new law into effect imposing a sales tax on out-of-state internet vendors whose sales within the Commonwealth exceed $500,000 or 100 in-state transactions/deliveries. The new law expanded the definition of what a company’s “physical presence” means within the state to internet cookies and downloadable apps, arguing that these data files are stored on computers of residents who do business with these internet companies. It threw owners of online businesses into a tizzy, and set local brick-and-mortar businesses cheering.
Now, Connecticut has become the second state to expand its sales tax to online companies whose apps and internet cookies are used within the state.
Starting in early 2018, internet vendors whose sales reach $300,000 in Connecticut-based destinations will now be taxed if their apps and internet cookies are used by state residents. Currently, Connecticut requires that its top 500 online retailers (not taxed within the state) disclose their total past two years of annual Connecticut sales. Unless otherwise agreed upon, those retailers are then liable for backpay of Connecticut sales tax.
With Massachusetts’s set in motion, people following activities of Connecticut’s Department of Revenue Services (DRS) weren’t surprised with the new Connecticut tax.
In a March press release, Commissioner of Revenue Services Kevin Sullivan had indicated the state’s intent to collect sales taxes not paid by on-line and other out-of-state retailers noting that DRS had estimated that at least $70 million in state sales tax was being evaded annually. In that same press release, Tim Phelan, President of the Connecticut Retail Merchants Association, stated: “All that our main street retailers expect is a chance to compete fairly. That’s not happening when out-of-state on-line retailers and other sellers of goods operate tax free online.”
Massachusetts and Connecticut are setting the bar higher by expanding their sales taxes to sales of online retailers whose apps and cookies are used by residents within their respective states. Will other states take notice?