How to Register for a Sales Tax Permit in Connecticut

Everyone has that one business role model, a person you look up to, a business owner, a manager or a director who you think has it all and who you’d wish to be like. This doesn’t mean that you’d like to take over their personal characteristics, but that you’d like to achieve what they’ve achieved in the business world. Yet you find yourself spending hours pondering the possibility of running your own company but never actually gathering the courage to take that step forward.

But what is stopping you? Who is stopping you? If it is the approval of your friends and family you are looking for, you might never take that step, as there will always be someone who does not think you have it in you to be the person in charge. It is time to leave that mindset behind and see what you can do, what your skills are and how to put them to good use and achieve many of the benefits your role model enjoys, like financial freedom, flexible working hours and basically the right to do as they please.

Often these benefits are overlooked and not given enough stress. The emphasis is always put on the hard work and the business owner is often portrayed as the man stressing over everything with time for no one and nothing else but work. This is a dramatic image of a leader but it is not completely true. Yes, hard work and dedication is a fundamental pillar of the success of your business, but once you put the work in, once you build your company from scratch and bring it to a level where you can delegate tasks and know that everything will be running smoothly without your presence, that is the time when you reap the rewards of your hard work.

So if you live in Connecticut, and are considering starting your own business, this article is a guide to the steps you need to take to prepare for starting your business, register the company and register for a sales tax.

Before you go on reading, we have to stress that this is not an official document and that you should always check with your local authorities, an attorney or a business advisor for any issues you may have in regards to the process you will read about in this text.

Preparing to Register a Business in Connecticut

A business starts with an idea, or from that something you might be passionate about. Perhaps you have a product you would like to work with, or maybe a market you’d like to enter. Knowing that gives you a starting point, which you have to expand on. As part of your preparation, you must develop a business plan. This is a document you will use as a roadmap for your preparation process. Later down the road, you can use it to solicit additional funding from lenders, investors or financial institutions, if you decide your business needs additional funding. Without a business plan, barely anyone will look at your business idea and invest in it.

So what does a business plan include? It will include all the results of the research you will have to conduct on your target market and the product. These results will tell you the condition the market is in, whether there is actual demand for the product or service you are willing to offer, whether your business model is sustainable, and whether there are other markets you could exploit at first before branching out.

These other markets are often a safe choice. If your research results show that your target market is actually oversaturated and there are already plenty of competitors struggling over a limited market share, this might not be the market you should enter. Looking into a smaller, niche market that is lacking supply but has a healthy level of demand could be the choice for you. This means you would be able to place your products in a market where you can dictate the price due to a high demand but very limited sources. This will also give you the chance to set the foundations for your business and establish your name in the market, build a customer base and bring a steady income. Once you have built a name in the market it is easy to use the experience you gathered in a niche market, as well as the funds accrued, to branch out into any market.

In case you need additional funding, you might look for financial institutions like banks or maybe private investors to direct cash into your company and help you grow. This is where the information in your business plan comes to the forefront. A well-developed business plan will not only present your business idea, your business model and explain your ambition or portray your company. A well-developed business plan will also give the reader an insight into the sustainability of your business, expected running costs, expected expenses, revenue, income, target market, your strategy for growth and more. All this will be assessed and only then will a bank make its decision on potentially funding your business.

With your preparations done, a business plan developed and funds secured, you can proceed to the legal part of the process: registering your business with the relevant authorities in the state of Connecticut.

Registering a New Business in Connecticut

The business registration process in the state of Connecticut starts with the Department of Revenue Services (DRS). According to the DRS, the first step an aspiring entrepreneur has to take is to select a business entity. This means choosing the business structure you will use. There are several options and each has its own advantages and disadvantages and obligations. The Department of Revenue Services also advises entrepreneurs to consult an attorney or a business advisor when it comes to selecting the right business structure for them.

The options start with a sole proprietorship. This is a business owned and operated by one person. The main advantages of a sole proprietorship are the low establishment and running costs. However, being that there is no legal difference between the owner and the business, you would be required to file your taxes on your individual income tax return. In addition, a sole proprietor is liable for all the debts of the business.

Next is the general partnership, which, according to the DRS, is a “formal relationship between two or more persons who join together to carry on a trade or business.” Usually, the partners’ obligations and responsibilities are set out in a partnership agreement. Like a sole proprietorship, tax returns are filed on each partner’s individual income tax return. Another thing the partnership has in common with a sole proprietorship is the fact that each partner is fully liable for debts of the business, and like the sole proprietorship, Connecticut does not require a general partnership to apply for a Federal Employer’s Identification Number (FEIN).

Moving further down the list, Connecticut’s Department of Revenue Services lists corporation as the next legal business structure. Corporations exist as separate entities from their owners or shareholders. This structure provides the most liability protection to its shareholders. However, it is the most expensive and complex to set up and run.

Next in line is the limited liability company (LLC), which is a hybrid between a partnership and a corporation. An LLC takes the liability protection of a corporation and the setup costs and structure from partnerships. Speaking of partnerships, both Limited Liability Partnership and the LLC provide limited liability protection to its members.

To find the forms and documents you have to fill out, it is better to use the Department of Revenue Services’ Taxpayer Service Center (TSC). Once you have completed the registration with the DRS, you will be provided with a confirmation number that will serve as your temporary tax identification number. Allow for three to five business days to receive your registration package with a permanent Connecticut tax identification number.

Besides the registration with the DRS, you might be required to file other applications and seek permits from federal, state, county or local authorities that might be specific for each business area.

One of these permits, especially if your line of business will include buying and selling cheap wholesale merchandise, is the sales tax permit. Due to its importance and complexity, we have dedicated a whole section of this article to it. What is a sales tax permit, and who needs it?

Connecticut Sales Tax Permit

According to the Connecticut Department of Revenue Services (DRS), anyone intending to engage in the sale, rental or lease of goods, sale of a taxable service or plans on operating a hotel, motel or a lodging house must obtain a sales and use tax permit. In this case, you have to charge a sales tax of 6.35 percent.

In short, you must have a sales tax nexus, a presence in the state of Connecticut in order to be required to file for a sales tax permit. If you are wondering whether you have a sales tax nexus ask yourself the following questions. Do you have an office or a place of business in the state? Do you have an employee or a representative, merchandise stored in a warehouse, do you own personal or real property? Do you deliver merchandise in the state or do you have independent contractors in Connecticut? If the answers to these questions are yes, then you do have a sales tax nexus in the state of Connecticut.

Your next step in determining whether you require a sales tax permit is to check whether the products or the services you will be providing are taxable. In general, services are not taxable in Connecticut unless the service you provide includes creating or manufacturing a product. Dealing with tangible products, however, is taxable for the most part, but there are exceptions to the rule such as dealing with clothing, certain groceries, safety gear, child seats, medical equipment and so on.

Prior to applying for a sales tax permit, you have to obtain a Federal Employer’s Identification Number (FEIN). This can be done online through the United States Internal Revenue Service. The remaining process is completed through the Connecticut Department of Revenue Services, which is a one-stop-shop for all your business registration requirements.

In order to apply for a sales tax permit, you can go online and register through the Connecticut Taxpayer Services Center. Allow for up to ten business days before receiving your sales tax ID. You can also download the Form REG-1, the Business Taxes Registration Application, and file it, together with a fee of $100, to the DRS at the address provided in the Contact Details section at the end of this article, or by physically delivering the filled out form to any of the field offices.

The information you are required to provide includes business details, your major business activity, the entity type you chose and if you have more owners and officers, their information has to be provided too. The advantage of filing for a sales tax permit this way is the fact that you can obtain your tax ID immediately without the waiting period those who apply online have to go through. If you decide to mail in your papers, you should allow for two to three weeks for it to be processed.

Once your application is approved and you have obtained your sales tax permit, bear in mind that every two years the sales tax permit has to be renewed. It has to be stressed that failing to obtain a sales tax permit can result in $500 fines and even imprisonment for up to three months.

Sales Tax Exemptions in Connecticut

The state of Connecticut does, however, exempt some sales from the sales and use tax. While there are certain institutions that are tax exempt, like the governmental institutions, you as a wholesale buyer can avoid paying sales tax if you provide a resale certificate.

According to the Department of Revenue Services, you can either use the Connecticut sales and use tax resale certificate, for an individual purchase or use a blanket certificate if you plan on making the same purchase over a longer period, from the same source. These blanket certificates are valid for three years.

It has to be added that as you can provide a resale certificate, you might be on the receiving end of one during your resale process. In that case, you must verify that the resale certificate is complete and signed. You are not required to accept a sales tax exemption certificate issued by another state. In addition, if you receive an exemption certificate, you are required to keep in in your records for at least six years.

As you can see from the resale certificate, you must fill in the seller’s personal information, you as a buyer have to sign the document, provide your personal information, describe the type of property or service you sell in your regular line of business, provide your tax ID and provide a description of the merchandise you are buying. DRS stresses that the misuse of the resale certificate can result in civil and criminal penalties.

Make sure you follow all the rules and regulations. Once again we have to stress that this document serves as a set of guidelines and that you should always contact your local authorities, an attorney or a professional business advisor if you have any doubts or questions about the process.

Contact Details

Department of Revenue Services State of Connecticut

PO Box 2937
Hartford CT 06104-2937
Phone: 860-297-5962

Other Field Offices

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