AN ACT CONCERNING THE DEFINITION OF "RETAILER" FOR PURPOSES OF THE SALES AND USE TAX.

AN ACT CONCERNING THE DEFINITION OF "RETAILER" FOR PURPOSES OF THE SALES AND USE TAX.

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 and is required to collect Connecticut sales tax, the retailer is said to have “nexus” here.

This bill presumes a company is a retailer with sales tax nexus in the state if it sells more than $ 2,000 worth of taxable items or services annually in Connecticut through certain agreements with Connecticut residents. The agreements must provide that, in return for the resident referring potential customers to the company, he or she will receive a commission or other compensation from that company. Under the bill, the referrals can be direct or indirect and can be made by any means, including a link on an Internet website. By extending Connecticut sales tax nexus to companies that have such agreements, the bill requires them to collect Connecticut sales tax on all their taxable sales in Connecticut, not just on items sold through the referrals.

The bill applies to any company that earned more than $ 2,000 annually in gross revenue from sales in the state under such referral agreements in the preceding four quarters ending on the last days of March, June, September, and December. It establishes a presumption that such a company is soliciting business in Connecticut through the independent contractors or representatives. The company can rebut the presumption by proving that the resident with whom it has an agreement did not solicit business in Connecticut in a manner that would satisfy the federal constitutional nexus requirement (see BACKGROUND).

By law, if a retailer does not collect and remit to the Department of Revenue Services (DRS) the 6% sales tax on a taxable item or service, a person who buys it for use in Connecticut must pay 6% use tax on that purchase directly to DRS.

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 substantial nexus with the taxing state, is fairly apportioned, does not discriminate against interstate commerce, and is fairly related to the services provided by the state” (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. Department of Revenue, 386 U. S. 753 (1967)). But the Court has also found that the physical presence requirement is met if an out-of-state company has contracts with state residents who, for a sales commission or other compensation, solicit orders on its behalf (Scripto v. Carson, 362 U. S. 207 (1960)).

Amazon. com filed suit against a 2008 New York law that is similar to this bill, alleging that New York's law violates (1) the U. S. Constitution's Commerce Clause by taxing out-of-state entities that have no substantial nexus with New York, (2) the U. S. and New York constitutions' due process clauses by effectively creating an irrebuttable presumption of “solicitation” and being overly broad, and (3) both constitutions' equal protection clauses by intentionally targeting Amazon. The New York court dismissed all three complaints on the grounds that, even if all Amazon's alleged facts are accepted as true, “there is no basis on which the company can prevail. ” (Amazon. com LLC v. New York State Department of Tax and Finance, Supreme Court of the State of New York, Eileen Bransten, J. , Index No. 601247/08, 2009 NY Slip Op. 29007; 2009 N. Y. Misc. Lexis 28, January 12, 2009. ) Amazon appealed the decision to the New York Court of Appeals on February 27, 2009.

Yea

Nay

(03/24/2009)