Connecticut enacts economic nexus and marketplace seller legislation


Matthew DiDonato
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Art Burkard
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Rob Michaelis
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Michael Cronin
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Nick Caputi
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Jamie C. Yesnowitz
Washington, DC
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Chuck Jones
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Lori Stolly
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On June 14, 2018, Connecticut Gov. Dannel Malloy signed legislation imposing sales tax collection responsibilities on retailers and marketplace facilitators meeting certain requirements.1 Public Act No. 18-152 expands and clarifies the term “retailer” to include persons making retail sales from outside the state via the Internet, provided such person has gross receipts of at least $250,000 and made 200 or more retail sales during a 12-month period. The Act also imposes collection and remittance requirements on marketplace facilitators meeting the same thresholds to collect and remit sales tax, and new notice requirements on referrers. These provisions generally are effective December 1, 2018, unless otherwise specified.

Definitions of ‘retailer’ and ‘engaged in business’ Effective Dec. 1, 2018, the new legislation expands the definition of “retailer” to include every person making retail sales from outside the state to a destination in Connecticut to include persons selling tangible personal property over the Internet with gross revenue of at least $250,000 and 200 or more separate retail sales during the 12-month period ending on the Sept. 30 immediately preceding the applicable monthly or quarterly reporting period.2 The term “retailer” also is expanded to include a “marketplace facilitator.”3

The new legislation clarifies the term “engaged in business in the state” in several ways. First, with respect to all of the activities described in the definition, Connecticut has provided language limiting application to the extent inclusion in the definition is not prohibited by the U.S. Constitution.4 The legislation also adds the above economic threshold language as a condition for considering solicitors of tangible personal property via the Internet to be engaged in business in Connecticut.5 Further, the legislation clarifies the application to referral arrangements with Connecticut residents, under which the cumulative gross receipts threshold is increased from $2,000 to $250,000 “during the four preceding four quarterly periods ending on the last day of March, June, September and December.”6

Marketplace facilitator The Act creates a new section addressing marketplace facilitators that will become operative Dec. 1, 2018. Specifically, a marketplace facilitator is defined to include any person who facilitates retail sales of at least $250,000 during the prior 12-month period by marketplace sellers by providing a forum listing or advertising tangible personal property subject to tax or taxable services, including digital goods, for sale. The sales may be made directly or indirectly through agreements or arrangements with third parties, with the marketplace facilitator collecting receipts from the customer and remitting payments to the marketplace sellers and receiving compensation for such services.7

Each marketplace facilitator must collect and remit sales tax on its sales and is generally responsible for all sales tax obligations as if the marketplace facilitator were the retailer. As such, the facilitator is required to keep the necessary records to ensure proper collection and remittance of the tax.8 A marketplace seller who is a retailer with a valid permit is not required to collect sales tax and will not include the receipts from its sales through the marketplace as taxable receipts if it can demonstrate that: (i) the sale was facilitated by a marketplace facilitator (a) with whom the marketplace seller has a contract that explicitly provides that the marketplace facilitator will collect and remit sales tax on all taxable sales it facilitates for the seller, or (b) from whom the seller requested and received in good faith a properly executed certificate of collection certifying that the facilitator is registered to collect sales tax and will collect sales tax on all taxable sales by the seller facilitated by the facilitator; or (ii) any failure of the facilitator to collect the proper amount of tax was not because the seller provided the facilitator with incorrect information.9

Further, for a taxable sale between Dec. 1, 2018, and Dec. 31, 2019, if a marketplace facilitator incurs liability for failure to collect the sales tax due, the commissioner may limit the facilitator’s liability under certain circumstances. To qualify for this limitation, the facilitator must demonstrate that: (i) the facilitator and the marketplace seller whose sale resulted in liability are not affiliated persons; (ii) the failure to collect sales tax due was not due to an error in sourcing the sale; and (iii) the sale occurred on or before Dec. 31, 2019.10 In such instances, the commissioner may reduce the total amount of tax and corresponding interest due by 5% and waive any associated penalties. 11Similar relief provisions are provided to marketplace sellers incurring liability on sales made through a marketplace facilitator.12

Referrer notice requirements Effective Dec. 1, 2018, the legislation requires referrers to provide specific notices to both their customers and sellers. First, they must post a conspicuous notice in their medium (i.e., Internet Web site) that informs customers: (i) that sales or use tax is due from Connecticut purchasers on certain purchases; (ii) that the seller might not collect and remit sales tax on a purchase; (iii) that Connecticut requires Connecticut purchasers to file a use tax return if sales tax is not imposed at the time of the sale by the seller; (iv) of the instructions for obtaining additional information from the Connecticut Department of Revenue Services regarding the remittance of sales and use taxes on purchases made by Connecticut purchasers; and (v) that such notice is being provided pursuant to this law.13

By July 1, 2019, referrers must also provide a quarterly notice to each seller to whom they transferred a potential Connecticut purchaser during the previous calendar year. The notice must include: (i) a statement that Connecticut imposes a sales or use tax on sales made to Connecticut purchasers; (ii) a statement that a seller making sales to Connecticut purchasers must collect and remit sales and use taxes to the Department; and (iii) instructions for obtaining additional information regarding the Connecticut sales and use taxes from the Department.14 Finally, the referrer is required to submit an electronic report by January 31, 2020, and annually thereafter, to the Department containing: (i) the name and address of each seller who received a notice in the immediately preceding calendar year; and (ii) the name and address of each seller for which the referrer knows that the seller (a) listed or advertised the seller’s tangible personal property on or in the referrer’s medium, and (b) collected and remitted Connecticut sales and use taxes.15

Commentary With the enactment of this legislation close in time to the Wayfair16 decision, it is important to consider how Connecticut’s take on economic nexus standards compares to the South Dakota standards ($100,000 in gross receipts or 200 or more separate transactions) that were at issue and were endorsed in Wayfair. Perhaps in consideration of a larger available marketplace in Connecticut than in South Dakota, the Connecticut $250,000 gross receipts threshold is substantially higher, and the 200 transaction threshold was raised from 100 transactions. In addition, to be subject to the Connecticut collection and remittance requirements, both the gross receipts and transactional thresholds must be met, rather than the alternative tests laid out by South Dakota. These differences, along with language referencing constitutional requirements, may serve to further inoculate Connecticut’s economic nexus thresholds from future challenges.

While Connecticut joins a growing number of states which have added specific requirements for marketplace sellers and referrers, it should be noted that such requirements were not included in the South Dakota sales tax legislation at issue in Wayfair. Accordingly, even if the economic nexus provisions endorsed in Wayfair are used as a template by the states, there is still a level of uncertainty regarding whether the rules in Wayfair can be applied to marketplace sellers and referrers. The revised standards, combined with the new notice
requirements for referrers, were added to implement the Department’s recommendations regarding state taxation and collection.17 As was the case with other states implementing similar requirements, the rules are intended to capture sales/use tax revenue that may not currently be collected and remitted as a result of online sales.

1 Act 18-152 (S.B. 417), Laws 2018.
2 CONN. GEN. STAT. § 12-402(a)(12)(G).
3 CONN. GEN. STAT. § 12-402(a)(12)(M).
4 CONN. GEN. STAT. § 12-407(a)(15)(A).
5 CONN. GEN. STAT. § 12-407(a)(15)(A)(v).
6 CONN. GEN. STAT. § 12-407(a)(15)(A)(x).
7 Act 18-152 (S.B. 417), § 4(a)(1). A “marketplace seller” means any person who has an agreement with a marketplace facilitator regarding retail sales of such person. “Forum” means a physical or electronic place, including, but not limited to, a store, a booth, an Internet Web site, a catalog or a dedicated sales software application, where tangible personal property or taxable services are offered for sale.
8 Act 18-152 (S.B. 417), § 4(b).
9 Act 18-152 (S.B. 417), § 4(c).
10 Act 18-152 (S.B. 417), § 5(b). The commissioner is required to prescribe the form and manner in which a marketplace facilitator may request the relief.
11 Act 18-152 (S.B. 417), § 5(c)(1).
12 Act 18-152 (S.B. 417), § 5(c)(2).
13 Act 18-152 (S.B. 417), § 6(b)(1). “Referrer” includes any person who contracts or otherwise agrees with a seller to list or advertise for sale one or more items of tangible personal property by any means (if such listing or advertisement includes the seller’s shipping terms or a statement of whether the seller collects sales tax), offers a comparison of similar products offered by multiple sellers, receives commissions or other consideration of more than $125,000 during the prior 12-month period, refers, including via the Internet, a potential customer to a seller, and does not collect payments from the customer for the seller. Act 18-152 (S.B. 417), § 6(a)(2).
14 Act 18-152 (S.B. 417), § 6(b)(2).
15 Act 18-152 (S.B. 417), § 6(c).
16 South Dakota v. Wayfair, Inc., U.S. Supreme Court No. 17-494, June 21, 2018. For a discussion of this case, see GT SALT Alert: Wayfair Ruling Overturns Quill Physical Presence Requirement.
17 Connecticut General Assembly, S.B. 417.

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