Presented by: Doug Joseph and Tony Switajewski BlumShapiro & Company, P.C. West Hartford, CT CBIA’s 2012 Connecticut Tax Conference June 1, 2012

Connecticut Sales and Use Taxation of

Services

Presented by:

Doug Joseph and Tony Switajewski

BlumShapiro & Company, P.C.

West Hartford, CT

CBIA’s 2012 Connecticut Tax Conference

June 1, 2012

Agenda

Requirement to Collect Sales Tax (Nexus) Basics of Sales and Use Taxation Taxation of Services and Sourcing Specific Services Discussed

Advertising Business and Human Resource Management Computer and Data Processing Personnel Real Property

Key Points to Keep in Mind Action Steps

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Disclosure

Under U.S. Treasury Department guidelines, we hereby inform you that (1) any tax advice contained in this communication is not intended or written to be used, and cannot be used by you, for the purpose of avoiding penalties that may be imposed on you by the Internal Revenue Service or State Tax Authorities, (2) no part of any tax advice contained in this communication is intended to be used, and cannot be used, by any party to market or promote any transaction or matter addressed herein without the express and written consent of Blum Shapiro & Company, P.C., (3) Blum Shapiro & Company, P.C. imposes no limitation on any recipient of this tax advice on the disclosure of the tax treatment or tax strategies or tax structuring described herein, and (4) any fees otherwise payable to Blum Shapiro & Company, P.C. in connection with this written tax advice are not refundable or contingent on your realization of tax benefits from the advice contained herein.

This presentation is intended to provide general information and no tax advice is intended to be given.

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Sales Tax Nexus

Nexus for service providers: Generally, “physical presence” in a state by a service provider is

required:▪ Property in a state (e.g., office, inventory)▪ Sales personnel or independent representatives visit customers

▪ Scholastic Book Clubs, Inc.

▪ Performing services within a state▪ Attribution nexus (e.g., click-through nexus)

▪ “Amazon.com” Use Tax Collection Legislation

Once a business has nexus in a state for sales or use tax collection responsibilities, it is likely subject to other state taxation.

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Services Subject to Tax

The Basics of CT Sales Taxation on Services Only listed taxable services are taxable

(“enumerated services”) Sales tax is legally imposed on the retailer (seller)

▪ Retailer is to collect the tax from the consumer and it is a debt from the consumer to the retailer when added to the sales price.

▪ Seller must pay sales tax to CT whether or not it collected the tax from its customer.

▪ What happens when you should have charged sales tax but didn’t – can you go after your customer for the tax?

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Listing of Taxable Services (not all inclusive)

Advertising Credit information and reporting Computer and data processing Employment agencies and personnel services Private investigation, protection, patrol work, watchman,

armored car Telephone answering Services to industrial, commercial or income-producing

real property Business analysis, management, management consulting Public relations Miscellaneous personal services Repair and maintenance service to tangible personal property Producing, fabricating, processing, printing or imprinting of TPP Telecommunication

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Reimbursable Expenses

Reimbursable expenses are taxable when the service is taxable

Separately stated reimbursed expenses are still taxable if related to taxable service

Reimbursed expenses generally become part of the gross receipts of the sale

Sourcing of Services

Sourcing of services: Sourcing is very important because CT taxes many

services not taxed by other states CT DRS position has always been “where the benefit of the

service is enjoyed” is where the service is taxable Easy when service is to real property, e.g., because

it is stationary (service to CT real estate is taxable in CT) Difficulty is when services cross state lines or service benefit is

received outside CT and “brought back” to CT Multiple points of use

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Important Service Exemptions

Services to Identically Owned Affiliates Applies to any types of business organizations (was once only applicable

to corporations)

Services Rendered to Qualifying Exempt Organizations State of Connecticut and municipalities U.S. Government 501(c)(3) or (13) Organizations Nonprofit Charitable Hospitals

Resale of Services Buying a taxable service that you will resell - must be an integral and inseparable

component part of a service to be resold to an end consumer (often seen in the construction industry).

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Sales of Services for Resale

Who May Issue a Resale Certificate for Services Intend to resell the service To resell a service it must be enumerated in

Conn. Gen. Stat §12-407(a)(37) and become an integral and inseparable part of services enumerated under Conn. Gen. Stat. §12-407(a)(37)

When to Report a Sale

Accrual basis — general rule (when services are rendered)

Cash basis — exception for sellers of services filing Federal income tax returns on cash basis.

Handling bad debts

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Calculating Sales and Use Taxes

Tax Added vs. Tax Included Tax Added

▪ Separately stated in tax line or box▪ Amount stated must be remitted

▪ “Unjust Enrichment”

Tax Included▪ Must be notated on invoices

▪ Mention in contract not enough▪ Divide invoice x 1.0635

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Use Tax

Taxable purchases made where sales tax was not collected

Services that are not subject to Connecticut Sales tax are not subject to the use tax

Pay use tax on Form OS-114, Sales and Use Tax Return

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Advertising Or Public Relations Services

NOT RELATED TO THE DEVELOPMENT OF MEDIA ADVERTISING OR COOPERATIVE DIRECT MAIL

ADVERTISING CT is highly unusual to tax advertising services What Advertising is taxable?

Non-media advertising ▪ Creation, preparation, production, dissemination▪ Consulting and advice▪ Layout, art direction, graphic design, mechanical preparation,

production supervision▪ Does not include marketing▪ Does not include cooperative direct mail advertising

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Advertising or Public Relations (continued)

Marketing is excluded. What is Marketing? Testing, research or analysis of existing or

potential consumer markets in connection with the development of particular products, property, goods or services

Includes consulting in connection with marketing

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Advertising or Public Relations(continued)

What is Media Advertising (per SN 2003(6))? Sale of time or space In or on pre-existing medium For broadcast or dissemination to all or segment of public Examples of media:

• Newspapers, including advertising inserts and coupon inserts distributed inside newspapers

• Magazines• Radio, TV, Cable TV• Billboards, Buses, Taxis• Trade or Campus Directories• Restaurant Placemats• Cash Register Tapes

Does not include ads devoted to one particular advertiser▪ Catalogs▪ Flyers▪ Brochures▪ Posters

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When taxable, what charges are taxable? Hourly Fees Vendor Costs Commissions Markups Reimbursable Expenses, including mailing

services and postage Collateral items (e.g., printed materials) are

sales of tangible personal property

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Resales of Services by Ad Agencies Writing, copywriting Layouts Art Direction Graphic Designs Mechanical Preparation Typeset Copy Production Supervision Placement Models

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Ad agency is consumer of tangible personal property and services Paint, tools supplies, etc. Original photos, artwork, video and audio tapes are

considered non-taxable intangibles if fee is only for right to change, reproduce or market design▪ May also be taxable component if separately stated

fee for services of graphic designer and if related to taxable advertising services

▪ If fees are not separately stated, entire charge is presumed to be taxable


Advertising sourced to where campaign occurs or where materials are disseminated May need to be allocated between states if multistate

campaign For printed materials, allocation of service charge is

based on the circulation data for the print media or publication.▪ Printed materials themselves follow this same

allocation approach. Printed materials exemption certificate may be required.

▪ May result in use taxes in other states where the service provider has nexus, even if advertising services are exempt.

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Business Management Services

Includes: Business Analysis

▪ Examination of data, making of recommendations Business Management

▪ Provision of general or specialized day-to-day management Business Management Consulting

▪ Furnishing of advice or assistance on matters pertaining to management

Business Public Relations▪ Preparation of materials designed to influence the general

public or other groups by promoting interests of service recipient

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Business Management Services(continued)

Does Not Include: Valuation or appraisal of property (unless in

connection with business analysis services) Insurance services Investment Banking—see PS 92(9) Environmental Consulting Marketing

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Business Management Services (continued)

It’s not what the services are “called” that determines whether or not taxable Reg. Sec. 12-407(2)(i)(J)-1(c)(1)

▪ Look at nature of services rendered Message Center Management, Inc. v. Commissioner,

affirmed by CT Supreme Court 6/19/07▪ Management in the service provider’s name plus

management agreements with clients but services were held nontaxable

Good idea not to mislabel services to avoid confusion

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Must be rendered to service recipient’s Core business activities Human resources management activities

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Business Management Services(continued)

Core business activities—activities directly related to service recipient’s lines of business, its capital structure, its budgeting and strategic planning

Non-Core Business Activities Administration of:

▪ Payroll▪ Employee insurance claims▪ Pension funds▪ Food service operations▪ Employee health services▪ Mailroom delivery functions▪ Plants & grounds maintenance▪ Insurance claims against service recipient in capacity as insurer▪ Self-insured claims

Investment advice Particular interests of service recipient’s members, shareholders or

partners

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Human Resource management activities Hiring Development Job-related Training Compensation Personnel Management Employee Relations Design & Implementation of Employee Benefit

Plans

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Exclusions Separately stated compensation, fringe

benefits, workers compensation, and payroll taxes paid to or on behalf of employees of service provider who has contracted to manage a service recipient’s property or business premise

Employees must perform services solely at recipient’s premises

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Exclusions (continued) General Partner Services Rendered To A Limited Partnership:

C.G.S. §12-407(a)(37)(DD) ▪ Provides that services are only taxable if:

▪ 1. Compensation is other than via distributive share of partnership profits

▪ 2. General partner (or affiliate) offers such management services to others, including any other partnership.

▪ Presumably, otherwise, general partner management services for LP’s are nontaxable

▪ Caveat: does not necessarily apply to LLC’s!

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Personnel Training Services

PS 2000(4) Falls under Business Management Consulting Services Pertains to Human Resource Management Activities Applies to job-related training DRS longstanding position has been that services are

sourced to where employee is based rather than where training occurs▪ See discussion re Key Air decision

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Personnel Training Services (continued)

Topics must be directly related to employee’s job skills Indirectly related and unrelated are non taxable

Courses provided by institution of higher education licensed or accredited by Connecticut Board of Governors are non taxable

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Personnel Training Services(continued)

General education seminars are non- taxable Refresher courses Courses on current developments in particular field Courses for continuing education credits

Service provider is consumer of course materials and meals included in training price

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Computer & Data Processing Services (“CDP”)

Connecticut Policy Statements2006(8) and 2004(2)

PS2004(2) – Internet access and online sales of goods and services Internet access is fully exempt

▪ However…ASP’s don’t come under exemption Internet access is sourced to home base of

purchaser’s computer terminal Electronically delivered software or digitized property

is CDP taxed at 1%--must separately state from any associated TPP

True object is always key Creation and maintenance of websites is non-taxable

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Computer & Data Processing Services (continued)

PS2006(8) – Computer-related services and sales of tangible personal property CDP Includes:

▪ Programming, code writing and modification of existing programs

▪ Implementation of software in connection with development, creation, production of canned or custom software or license of custom software

▪ Providing computer time, storing and filing information, retrieving or providing access to information

▪ Data scanning, creating custom software, computer training, and online access to information

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PS2006(8) – Computer-related services and sales of tangible personal property (continued) Taxed at 1% Hardware and other tangible personal property is taxed at

6.35%▪ Separately state or unbundle. Otherwise everything is

taxed at 6.35% Separately stated hardware installation is exempt (unless

hardware is leased rather than sold/purchased) Repair and maintenance of hardware taxed at 6.35% Canned software is tangible personal property taxed at

6.35% (unless delivered electronically-taxed as CDP @1%)

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Custom Software▪ For particular needs of a customer▪ Must bear little resemblance to any but basic

functions of canned software on which it was based▪ Taxed as CDP service at 1%▪ License fees for mere use and possession of

custom software are not taxed if separately stated

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Software installation, maintenance, support and upgrades Regardless of whether canned or custom Software maintenance and warranty contracts are CDP

whether canned or custom Upgrades of canned software

▪ Sale of tangible personal property – 6.35%▪ Delivered electronically – CDP service – 1%

Maintenance and warranty contracts providing for phone support and tangible personal property upgrades are taxable at 6% unless charges separately stated

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Computer Training▪ If job related, taxable at 6.35%▪ If not job related (e.g., attorneys learning how to use

e-mail), taxable as CDP service at 1%

Computer personnel services taxable at 6.35%. See following slides and PS 2007(7) for details of personnel services rules


Software as a service (SaaS) - Cloud ▪ Connecticut – Taxable (1%)▪ New York – May be Taxable▪ Massachusetts – May be Taxable

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Employment Agencies and Agencies Providing Personnel Services

PS 2007(7) Employment Agencies – Brings together an employer

and employee for a fee or commission▪ Doesn’t apply to procurement of jobs on one-time or

short-term basis for independent contractors▪ Service is taxable at 6.35%

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Employment Agencies and Agencies Providing Personnel Services (continued)

Personnel Agencies – Furnish temporary or part-time help Agency is employer Any business can be considered a “Personnel Agency”,

even a related entity▪ Doesn’t have to be in business of furnishing help

Service recipient controls work of agency’s employee▪ Similar to employee – independent contractor analysis▪ Degree of prearrangement of services by agency is key▪ If no prearrangement, will be personnel service

All gross receipts are taxable at 6.35%, not just agency’s commission

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Leased Employees Exception

▪ Defined by IRC Section 414▪ Employee works substantially full-time for service recipient for

at least one year▪ Must be agreement between service provider and service

recipient▪ Services must be of type historically performed by employees▪ If 75% of agency employees under contract meet definition at

commencement, all employees under contract qualify for exclusion, including those that are subsequently added to workforce

▪ Exclusion is for all compensation and employment related expenses of leased employees

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Similar exclusion (to that for leased employees) applies to worksite employees under professional employer agreement between professional employer organization (“PEO”) and service recipient

Also, similar exclusion for a “media payroll services company”▪ Relates to CT’s initiative to attract production companies to CT

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Services to Real Property

A contractor’s labor (or service) is subject to tax when the service is to: Existing commercial real property; Existing industrial real property; Existing income-producing real property

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Services to Real Property (continued)

A contractor’s labor (or service) is not subject to tax when the service is to: New construction; Owner-occupied residential property; Charitable or religious organizations; Qualifying governmental agencies or their agents; Real property owned by federally recognized Indian tribes

when the service is performed in federally recognized Indian country;

Low and moderate-income housing; Contracts performed out-of-state; Hospitals and certain other exempt entities; or Real property located within a public right-of-way.

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Services to Real Property(continued)

Contractors are the consumers of materials and supplies used in fulfilling their construction contracts.

Contractor pays tax on purchases of physically incorporated materials.

Generally, a resale certificate cannot be used when contractor purchases materials.

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A contractor’s service (labor) charge, is determined by subtracting the cost of materials (including tax paid on materials) from the total contract price.

Every cent above the contractor’s cost of materials that are physically incorporated into the real property AND already-taxed subcontractor services, plus the tax paid on those materials and services, is considered the service charge.

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The charge for labor (or service) includes: The actual labor charge; Any markup or profit on labor; Any markup or profit on materials; Overhead expenses; Tool or equipment purchase or rental, including tax paid on

the rental; and Reimbursed expenses incorporated into the bill (whether or

not the charges are separately stated).

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Tax Held in Trust It has been the incorrect practice of some contractors to

reimburse themselves for tax they paid on materials out of the tax they collect from their customers. Conn. Gen. Stat. §12-408(2) provides that tax collected by a retailer is held in trust for the state, and the entire amount of tax collected must be remitted to DRS or refunded to the customer.▪ DRS calls this “unjust enrichment” when contractors follow

this erroneous practice.


Tax held in trust (cont.)Example: Contractor buys materials for $100 plus $6.35 CT sales tax. Contractor performs taxable services to customer’s real property and charges $1,000 for labor and materials (either in lump sum or with materials and labor shown separately) and adds $63.50 of sales tax. To avoid “double taxation”on the $100 of purchased materials and to tax only the labor portion of the job, contractor deducts $6.35 of materials tax on sales tax worksheet and remits $57.15.

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Tax Held in Trust (continued) What is wrong with this?

▪ Contractor MUST remit what he charges as “tax” (i.e., $63.50).

▪ Correct approach: Contractor bills $1,000 plus $56.75 of sales tax ($1,000 less materials cost of $106.35 x 6.35%).

▪ Can show the $1,000 as lump sum or could show materials cost as $106.35 plus labor charge of $893.65 plus sales tax on services of $56.75.

▪ Under “erroneous” approach, customer could apply for refund for being taxed on materials.

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EQUIPMENT RENTAL OR SERVICE CONTRACT?

The rental of equipment is a taxable transaction, whereas only certain services are taxable.

The terms of the contract, not the billing method, determine if the transaction is for equipment rental or for a service.

Service Contract A contract is for service if the equipment owner:

▪ Is hired to do a specific job;▪ Maintains complete control over the equipment; and▪ Retains discretion over how and when to perform the job.

Equipment Rental When the owner is merely supplying equipment, with or without operators, to a

certain site, and the customer controls how and when to perform the contract, the contract is for the rental of equipment.

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Purchasing Services

When a contractor purchases a service while engaged in a contract, the contractor must determine if the service will be consumed or resold.

Do not assume a contract with an exempt entity means all services can be bought exempt from tax. Only those services resold by the contractor can be purchased exempt from tax.

To purchase services for resale, contractor must issue a resale certificate to the service provider.

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Purchasing Services (continued)

Services can only be resold if they become an integral and inseparable component of the service being resold

Services consumed by the contractor cannot be purchased for resale.

If the contractor is purchasing and consuming a taxable service, the contractor must pay tax to the seller of the service.

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SN 2012(2): 2011 Legislative Changes to the Procedures Governing Nonresident Contractors

Two classes of NRC’s

Verified—no bonding or holdback required

Unverified—subject to bonding or holdback if contract price for entire project is $250K or more.

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REQUIREMENTS OF NONRESIDENT CONTRACTORS SN 2012(2) Verified contractor means a nonresident contractor or subcontractor who:

Is registered for all applicable taxes with DRS; Has filed all required tax returns with DRS; Has no outstanding tax liabilities to DRS; and Has submitted a Form AU-960, Nonresident Contractor Request for

Verified Contractor Status, and has been verified by DRS to meet the above requirements, plus either:▪ Has been registered for all applicable taxes with DRS for at least

three years preceding the contract; or▪ Posts with DRS a good and valid verification bond using Form AU-

961, Verification Bond.

Unverified contractor means a nonresident contractor or subcontractor who is not a verified contractor.

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REQUIREMENTS OF NONRESIDENT CONTRACTORS SN 2012(2)

Certificate of compliance means a certificate issued to an unverified subcontractor by DRS, exonerating the subcontractor from sales or use taxes owed by the subcontractor and any income tax withholding owed by the subcontractor, but only to the extent that these taxes arise from the activities of the subcontractor on the project for which the certificate was required.

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REQUIREMENTS OF NONRESIDENT CONTRACTORS (continued)

Nonresident contractor means a contractor who does not maintain a regular place of business in Connecticut.

Person doing business with a nonresident contractor means any person who enters into a contract with a nonresident contractor, and includes, but is not limited to, property owners, governmental, charitable or religious entities, and resident or nonresident general contractors or subcontractors.

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Regular place of business: Any bona fide office, factory, warehouse, or other

space in Connecticut at which a contractor is doing business in its own name in a regular and systematic manner; and

Which place is continuously maintained, occupied , and used by the contractor in carrying on its business through its employees regularly in attendance to carry on the contractor’s business in the contractor’s own name

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A regular place of business does not include: A place of business for a statutory agent for service of

process or a temporary office whether or not it is located at the site of construction;

Locations used by the contractor only for the duration of the contract, such as short-term leased offices, warehouses, storage facilities, or facilities that do not have full time staff with regular business hours; or

An office maintained, occupied, and used by a person affiliated with a contractor is not considered a regular place of business of the contractor

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Commencement of the contract:▪ The time when the nonresident contractor signs the

contract, but no later than when the work actually starts. If a change order is made after the commencement of the original contract, it commences when it is signed by the nonresident contractor, but no later than when the work under the change order actually starts

Completion of the contract: ▪ The time when the nonresident contractor makes the

final periodic billing for the contract. Note that the final periodic billing may be due before payment of any retainage becomes due. If a change order is made after the final periodic billing for the original contract, the change order is complete when the nonresident contractor bills for the change order

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Customer of an Unverified Prime or General Contractor: The customer of an unverified prime or general contractor must obtain proof that the contractor has posted a surety bond with DRS. Failure to do so leaves the customer liable for payment of any sales and use taxes and any income tax withholding owed by the unverified contractor arising from the activities of the contractor on the project, up to 5% of the contract price required to be paid to the unverified contractor.

However, compliance does not relieve the customer of the customer’s liability for use taxes due on purchases of services from the unverified contractor.


REQUIREMENTS OF NONRESIDENT CONTRACTORS (continued) Unverified Prime or General Contractor Must File a Bond: An

unverified prime or general contractor must file a surety bond with DRS in an amount equal to 5% of the contract price. DRS has issued Form AU-964, Surety Bond and Release, which must be used to post that bond.

DRS will release the surety bond once the contract is complete and the unverified prime or general contractor establishes that it has paid all taxes it owes in connection with the contract and that its unverified subcontractors have paid all of the taxes that they owe in connection with the contract.

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REQUIREMENTS OF NONRESIDENT CONTRACTORS (continued) Otherwise, DRS will release the surety bond once the contract is complete

and the unverified prime or general contractor establishes that it has: Paid all taxes it owes in connection with the contract; Held back an amount equal to 5% of the payments being made

by the contractor in connection with the contract to its unverified subcontractors; and

Paid over amounts held back from unverified contractors to the extent that DRS has issued certificates of compliance for full or partial release of such amounts, and remitted to DRS any amounts held back that have not been authorized by DRS to be released to the unverified contractors.


REQUIREMENTS OF NONRESIDENT CONTRACTORS (continued) Hold Backs Required by All Prime or General Contractors from

Payments to Unverified Subcontractors: Prime or general contractors, whether resident, verified, or unverified, doing business with unverified subcontractors on projects over $250,000 must hold back an amount equal to 5% of the payments required to be made to the subcontractor until the subcontractor provides a Certificate of Compliance authorizing full or partial release of the amount held back.

The prime or general contractor must provide notice of the requirement to hold back to the unverified subcontractor not later than the time of commencement of work under the contract by the subcontractor.

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REQUIREMENTS OF NONRESIDENT CONTRACTORS (continued) The amount held back from unverified subcontractors is

deemed to be held in a special fund in trust for the state. An unverified subcontractor does not have any right of action against a prime or general contractor with respect to any amount held back in compliance or intended compliance with NRC rules.

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REQUIREMENTS OF NONRESIDENT CONTRACTORS (continued) Release or Remittance of Amounts Held Back: When all work is

completed under a contract, the amount held back will be released to the unverified subcontractor or remitted to DRS depending on the following: Unverified subcontractor DOES submit Form AU-967, Request

for Certificate of Compliance, to DRS:

An unverified subcontractor requests DRS to issue Form AU-968 by submitting Form AU-967. DRS will review the request in the context of generally accepted construction industry cost guidelines for the scope and type of construction project. DRS will issue one of the following not later than 120 days after Form AU-967 and all required documents are received:



Certificate of Compliance (AU-968):

If DRS issues Form AU-968, to the unverified subcontractor and the prime or general contractor authorizing full or partial release of held back amounts, the prime or general contractor must pay over the released amount to the subcontractor and must remit any unreleased amount to DRS. The prime or general contractor remits the unreleased amount on its first SUT return due after the issuance of the Certificate of Compliance.

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REQUIREMENTS OF NONRESIDENT CONTRACTORS (continued) Denial of Certificate of Compliance and Remittance of

Holdback (AU-970):

If DRS denies the request a Form AU-970, Denial of Certificate of Compliance and Remittance of Holdback, will be issued to the unverified subcontractor and the prime or general contractor. The prime or general contractor must remit the total amount held back to DRS on its first SUT return due after the issuance of the Denial of Certificate of Compliance and Remittance of Holdback.

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Unverified subcontractor DOES NOT submit Form AU-967 to DRS.If the unverified nonresident subcontractor does not submit Form AU-967 to the prime or general contractor for endorsement within 90 days of the completion date, then the prime or general contractor must remit the amount held back to DRS on its first SUT return due after the 90 day period following the completion of the contract.

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The calculation used to arrive at the amount to be included on Form OS-114, Line 6 is:

Amount Held Back

.0635

= Taxable Amount to be included on Line 6

Example: If the Total Contract Amount is $300,000, then the Amount Held Back is $15,000 (300,000 X .05). The amount to be included on Line 6 is $236,220.47 (15,000 / .0635).

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The prime or general contractor will not be liable for any claim by DRS for taxes of the unverified subcontractor arising from the activities of the subcontractor on the project when the prime or general contractor pays over to the subcontractor the amount authorized by the Form AU 968. Furthermore, when the prime or general contractor pays over to DRS the unreleased hold back amount, the prime or general contractor will not be liable for any claim by the subcontractor for the amount paid over to DRS.

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• The prime or general contractor doing business with the nonresident contractor must keep supporting documentation with the tax return on which it was reported. If the prime or general contractor fails to timely remit to DRS any amount that was unclaimed by, or not released by DRS to the unverified subcontractor, the prime or general contractor will be subject to applicable interest and penalties.

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Key Points to Keep in Mind

Not all services are taxable in CT, and within each type of taxable service there may be exemptions or exclusions (consider exemption certificate requirement).

It is the “nature of the service” and not what it is called that determines its taxability. Determine the “true-object.”

Sales tax is generally due to the state on the accrual basis (when the service is rendered) and not when the tax is collected from the customer.

Service contracts should address sales taxability and indemnification.

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Key Points to Keep in Mind (continued)

Consider unbundling taxable services from non-taxable services on the invoice as well as in service contracts.

Taxation of services occurs in CT if the benefit of the service is enjoyed in CT.

Determine if contractors are “non-resident.”

Consider whether you have nexus in states that would require you to register for use tax collection on taxable services that you render for a customer in that state.

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Action Steps

Review Your Nexus Footprint CT and other states (registration and compliance requirement)

Review Significant Service Contracts Not what is the service “named” but what is the service? Is sales tax specifically addressed in the contract?

Review Significant Invoices from Service Providers Is sales tax being properly charged (use tax being remitted)? Are non-taxable services separately stated from taxable services on

the invoice? Determine Sales and Use Tax Exposure

Consider voluntary disclosure agreements Determine Sales and Use Tax Overpayments

Consider claiming refunds

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For Further Information

Doug JosephBlumShapiro & Company, P.C.

29 South Main Street, PO Box 272000West Hartford, CT 06127-2000

Phone: 860-561-6829 Fax: 860-726-7729www.blumshapiro.com

[email protected]

http://www.blumshapiro.com/

mailto:[email protected]

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For Further Information

Tony SwitajewskiBlumShapiro & Company, P.C.

29 South Main Street, PO Box 272000West Hartford, CT 06127-2000

Phone: 860-561-6810 Fax: 860-726-7710www.blumshapiro.com

[email protected]



mailto:[email protected]

Documents

Presented by: Doug Joseph and Tony Switajewski BlumShapiro & Company, P.C. West Hartford, CT CBIA’s 2012 Connecticut Tax Conference June 1, 2012