If a complicated sales-tax law is discouraging business investment in Connecticut, you would not know it from, sales-tax collections.
A year after imposing a higher sales tax of 6.35 percent and an additional levy on luxury items, in 2012 sales-tax collections are on pace to challenge the previous high of nearly $3.6 billion set in the fiscal year that ended in June 2007.
The reinvigorated sales tax collections are occurring even as a business tax task force assesses sales and use taxes in Connecticut, with a focus on the many exemptions Connecticut offers to promote certain industries; as well as the imposition of taxes on business management services that confound companies and auditors alike.
Connecticut is “unusual” in the sheer number of services it taxes, according to Louis Bucari, general counsel at the Connecticut Department of Revenue Services, who testified on the system to Gov. Dannel P. Malloy”™s Business Tax Policy Task Force.
“We are among the leaders in the number of services that we do tax,” Bucari said. “If you hire someone to manage your commercial properties, the fee that they charge you would be subject to sales tax.”
The business services tax would win out in any poll of DRS auditors on the most difficult Connecticut tax to interpret, Bucari continued.
“From a legal perspective, I”™m not sure that I”™ve ever seen a case where I couldn”™t argue (it) fit within business management services,” he said. “If you”™re having trouble sleeping, that regulation will do wonders. And ”¦ that regulation was not just crafted by (DRS) ”“ it was a collaborative effort with the department and the private sector, and with all the best intentions to come up with something that”™s workable. And all the participants at the end of the day really threw up their hands and said, ”˜Oh my goodness, it”™s not any better.”™”
Bucari added that the tax brings in about $40 million in revenue annually.
DRS Commissioner Kevin Sullivan said his own agency struggles with how to enforce the tax laws as drawn up by the Connecticut General Assembly.
“To ensure that circumcision was not covered (under cosmetic surgery sales tax) ”“ that was the better part of a week at the Department of Revenue Services,” Sullivan said.
The Tax Foundation and the Streamlined Sales Tax Governing Board have argued for states to align and simplify their sales taxes ”“ and eliminate gimmicks like sales tax “holidays” ”“ with the Washington, D.C.-based Tax Foundation citing the theory that incentives distort the actual economic landscape.
The commission is also addressing the issue of e-commerce taxes, a year after Amazon abruptly ended its relationships with in-state affiliates that sell products on its website, following a Connecticut bill that would have forced Amazon to collect and remit sales taxes on those transactions. Under the concept of “nexus,” Connecticut and other states to date have relied on the measure of a company having a physical presence in the state in order to collect sales taxes on any economic activity the company generates.
“We had a recent decision here in Connecticut on the nexus concept with regard to Scholastic Book Clubs, and whether or not the teachers who operate in Connecticut on their behalf were essentially the ”˜physical presence”™ necessary for them to charge and collect tax,” Bucari said. “Our Supreme Court affirmed (the department”™s) position that yes, they (were) and they were obligated to collect tax.
“We”™re waiting for a decision out of the state of New York, actually, as to how the law is interpreted,” Bucari said. “That probably will give guidance to a lot of other states.”
