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A bit about use tax and how it affects business owners

In Connecticut, business owners have to pay various taxes to the state. Failure to pay all applicable taxes can have significant consequences. There is one type of tax that some may not understand or think applies to them, and that is use tax. This week, this column will discuss a bit about use tax and how it varies from sales tax. 

Sales tax is the money collected by business owners on items that the state requires to be taxed. This money is then forwarded on to the Department of Revenue. Use tax, however, is money business owners need to pay for items they purchase in or out of state, for use in state, only if the retailer collected no Connecticut sales tax. 

The current use tax rate is set at 6% for most goods or services. It is only 1% for data processing and computer services. If sales tax was paid to another state, business owners are only required to pay the difference between what was paid and what would have been collected in Connecticut. 

Use tax can be difficult for the Department of Revenue to keep track of. Issues with this type of tax are generally found if a business is audited. Those who are found to have failed to pay use tax may face a number of consequences, including:

  • Penalties
  • Fines
  • Criminal charges

Use tax can be confusing, particularly for first-time use taxpayers. Those who need more information about how it works or those who have made mistakes, either in failing to pay or when paying this tax, can turn to legal counsel for guidance on the matter. With the right assistance, one may be able to avoid or, at least, minimize any potential penalties.

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