PS 98(2)

Sales and Use Taxes on Access to the Internet and
Other On-Line Sales of Goods and Services

This publication has been amplified by PS 98(6);

cited in PS 98(8) and IP 2000(26); and superseded by PS 2003(2)

See alert notice on computer and data processing phase out.

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PURPOSE: This Policy Statement describes the Department’s current policies regarding the application of certain sales and use tax statutes and regulations to purchases of access to computer networks such as the Internet or the World Wide Web, to sales and purchases of taxable services and tangible personal property by means of computers, and to the sales and use tax obligations of retailers that do business by means of computers. The Policy Statement also describes legislative changes that exclude from taxation the creation, development, hosting or maintenance of Website, and reduce the rate of tax for computer and data processing services.

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EFFECTIVE DATE: This Policy Statement is applicable to all open tax periods, except that the exclusion of web site services is effective for sales occurring on or after July 1, 1997, and the reduced rates of tax on computer and data processing services are effective as indicated herein.

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STATUTORY AND REGULATORY AUTHORITY: Conn. Gen. Stat. §12-407(2)(a); §12-407(2)(i)(A), as amended by 1997 Conn. Pub. Acts 316, §6; §12-408; §12-411, as amended by 1997 Conn. Pub. Acts 243, §19; and Conn. Agencies Regs. §12-426-27(b)(1).

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DEFINITIONS: As used in this Policy Statement, on-line access means access, or a link to access, to any type of computerized information or computer data base or network, whether the transmission of information is one-way or interactive, including but not limited to, any portion of the Internet, the World Wide Web, an Internet gateway, electronic mail, discussion groups or chat rooms, electronic publications or bulletin boards, computer games and shareware, whether or not the information is downloaded and saved for further use; and any technical support provided in connection therewith, such as telephone user support or consulting.

A "Connecticut seller" is a seller having any physical presence in Connecticut, including, generally, owning or leasing real or tangible personal property in Connecticut, maintaining an office in Connecticut, or having agents or employees present in Connecticut. Arrangements for the dedicated use of telecommunication lines, or the maintaining of web sites in Connecticut do not, by themselves, constitute owning or leasing property in Connecticut for purposes of this definition.

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CHARGES FOR ON-LINE ACCESS: Sellers that provide customers with on-line access are providing taxable computer and data processing services enumerated in Conn. Gen. Stat. §12-407(2)(i)(A). Such services constitute "providing access to information" as that term is used in the definition of computer and data processing services in Conn. Agencies Regs. §12-426-27(b)(1). All charges for such services, including one-time "setup" charges, monthly charges, per-hour charges or other periodic charges, are subject to tax at the current rate for computer and data processing services (see Tax Rate Schedule for Computer and Data Processing Services).

A Connecticut seller that sells on-line access services to purchasers who receive the benefit of the services in Connecticut must register with the Department as a retailer by filing Form REG-1, Application for Tax Registration Number (if the services are sold from a location within Connecticut) or Form REG-7, Application for Authority to Collect Connecticut Use Tax (if the services are sold from a location outside Connecticut). The Connecticut seller must charge, collect and remit sales or use tax to the Department at the current rate for computer and data processing services on all on-line access charges. (See Tax Rate Schedule for Computer and Data Processing Services.)

The benefit of an on-line access service is received in Connecticut if the purchaser’s computer terminal with respect to which the service is rendered is located in Connecticut. In the case of mobile computer equipment, the benefit of the service is received in Connecticut if the home base of the mobile computer is located in Connecticut.

It is the responsibility of sellers that are required to be registered and to collect sales or use tax to determine the locations of the computer terminals with respect to which their services are rendered, if necessary by inquiring of their customers. In the absence of information about the physical location of the computer terminal with respect to which on-line access services are rendered, it will be presumed that the benefit of the service is received at the billing address of the purchaser.

Sellers that are uncertain whether they must register and charge sales or use tax on their sales of on-line access services should contact the Department for advice.

A purchaser of on-line access services where the benefit of the services is received in Connecticut is a user of taxable computer and data processing services, and is liable for use tax on the purchase of those services, at the current rate for computer and data processing services. (See Tax Rate Schedule for Computer and Data Processing Services.) If the seller of the on-line access services does not charge and collect Connecticut sales or use tax, the purchaser must self-assess the use tax. It is the purchaser’s responsibility to determine if tax is being charged by the service provider, and if it is not, to pay the tax directly to the Department.

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SELF-ASSESSMENT OF USE TAX BY PURCHASER: Individuals purchasing on-line access services for personal use and not for use in carrying on a trade, business, profession or occupation, where tax is not charged and collected by the seller, must remit the use tax to the Department annually for purchases made during the previous calendar year, at the time of filing their Connecticut income tax returns (Form CT-1040, CT-1040EZ or CT-1040NR/PY), or by filing Form OP-186, on or before April 15 following the calendar year during which the purchases were made. All other purchasers (i.e., persons carrying on a trade, business, profession or occupation) must include amounts paid for on-line access services on which tax was not charged by the seller as purchases subject to use tax on their monthly, quarterly or annual sales and use tax returns (Form OS-114). (See Tax Rate Schedule for Computer and Data Processing Services.)

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ON-LINE PURCHASES OF TANGIBLE PERSONAL PROPERTY: A Connecticut seller that accepts orders for tangible personal property by computer–including such items as books, prewritten (canned) computer software, computer hardware and equipment or any other goods not specifically exempt from sales and use taxes–and that ships or delivers the items to Connecticut addresses, must charge and collect Connecticut sales or use tax on such sales.

A purchaser of taxable tangible personal property on which no tax is charged by the seller must self-assess and remit use tax at the rate of 6% on such purchases. (See Self-assessment of Use Tax by Purchaser.)

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SOFTWARE DOWNLOADED BY THE PURCHASER: When a purchaser downloads software and a charge is made for such downloading and no tangible personal property is provided to the purchaser by the retailer and the software is delivered electronically, the charge is for taxable on-line access services, and not for the sale of tangible personal property. A Connecticut seller of such downloaded software is a retailer of computer and data processing services and must register, collect and remit sales or use tax on such sales, at the current rate for computer and data processing services. (See Tax Rate Schedule for Computer and Data Processing Services) A purchaser of downloaded software on which no tax is charged by the seller must self-assess and remit use tax on such purchases. (See Self-assessment of Use Tax by Purchaser.)

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CREATION AND MAINTENANCE OF WEB SITES: Effective July 1, 1997, under Conn. Gen. Stat. §12-407(2)(i)(A), as amended by 1997 Conn. Pub. Acts 316, §6, taxable computer and data processing services do not include:

This exclusion applies to all computer and data processing services (such as programming, data entry, scanning, computerized graphic design, software installation, software maintenance and hosting fees), when such services are provided to a service recipient in connection with the service recipient’s web site.

The exclusion does not apply to charges for access to web sites maintained by others. The sale of prewritten (canned) software necessary to create a web site is taxable at the rate of 6% when tangible personal property is provided to the purchaser by the retailer, and is taxable at the current rate for computer and data processing services when no tangible personal property is provided to the purchaser by the retailer and the software is delivered electronically. (See Tax Rate Schedule for Computer and Data Processing Services.)

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WEB SITE PROVIDERS MAY BE AGENTS FOR SELLERS: Companies that maintain web sites for sellers of tangible personal property may sometimes perform other services for the sellers, such as billing the sellers’ customers, collecting payments from the customers or otherwise acting as agents for the sellers in connection with sales.

A seller of tangible personal property will not be a Connecticut seller, as defined in this Policy Statement (see Definitions), merely because the company that maintains its web site is physically located in Connecticut. However, if a company that maintains a web site for an out-of-state seller of tangible personal property performs services for the seller in addition to maintaining the seller’s web site, such as billing or collecting and remitting payments for the seller, and the company does so from a physical location in Connecticut, the seller of tangible personal property will be a Connecticut seller by virtue of having an agent located in Connecticut performing services in connection with its sales. A Connecticut seller must collect and remit use tax on its sales of tangible personal property to persons located in Connecticut.

A company located outside Connecticut that maintains a web site for a Connecticut seller may sometimes perform services for the seller in addition to maintaining the seller’s web site, such as billing or collecting and remitting payments for the seller, from a physical location outside Connecticut. A web site provider physically located outside Connecticut will not be a Connecticut seller merely because it performs such services.

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PROMOTIONAL ITEMS: A Connecticut seller that sends promotional items of tangible personal property, such as computer software or printed material, free of charge to Connecticut addressees is using or consuming those items in Connecticut, and is subject to Connecticut use tax at the rate of 6% under Conn. Gen. Stat. §12-411, and must pay such use tax to the Department, based on the amount the seller paid for the items given away.

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TAX RATE SCHEDULE FOR COMPUTER AND DATA PROCESSING SERVICES: Effective July 1, 1997, the sales and use tax rate for computer and data processing services is being reduced in annual increments, as follows:

Sales of services occurring:

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EFFECT ON OTHER DOCUMENTS: None affected.

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EFFECT OF THIS DOCUMENT: A Policy Statement (PS) is a document that explains in depth a current Department policy or practice affecting the liability of taxpayers

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FOR FURTHER INFORMATION: If you have questions about Connecticut taxes, please call the Department of Revenue Services during business hours, Monday through Friday:

• 860-297-5962 (Hartford calling area or from out-of-state); or
• 1-800-382-9463 (toll-free from within Connecticut)

Telecommunications Device for the Deaf (TDD/TT) users only, please call 860-297-4911 during business hours.

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PS 98(2)
Sales and use taxes
Issued: 3/31/98