Amid sales tax debate, Connecticut aims to collect more from Amazon sellers | Crain's Connecticut

Amid sales tax debate, Connecticut aims to collect more from Amazon sellers

Amazon plans to build a new fulfillment center—like this one one in Shakopee, Minn.—on the site of a former Pratt and Whitney building in North Haven, Conn. The state's Department of Revenue Services estimates the lost tax revenue from internet sales at $69.3 million pear year. | Photo by Tony Webster via Flickr

Connecticut has joined a national program to increase sales tax collections from third-party sellers on not long after the Internet giant decided to boost its brick-and-mortar presence in the state with a new fulfillment center in North Haven.

Entrance to the program also comes at a time when political leaders are debating whether to raise Connecticut’s sales tax amid difficulties in finding revenue sources to combat a $3.5 billion budget deficit.

That's a challenge that's only going to get worse, as mobile phones and other technologies move sales away from retail storefronts, says Eric Green, a tax attorney and partner at New Haven-based Green & Sklarz LLC.

“You can do business from almost anywhere now,” he said. “This trend is accelerating and states are seeing their tax bases vaporize.”

To encourage vendors to remit sales taxes, Connecticut is one of 24 states participating in the “voluntary registration” program launched last month by the Multistate Tax Commission. As an incentive, the states have agreed to waive all past penalties for sellers who register with the program between Aug. 17 and Oct. 17 and begin collecting sales tax. did not respond to requests for comment.

In a study completed in February, the Department of Revenue Services estimated that Connecticut does not receive $229.5 million per year of what it should be getting in sales tax revenue. The estimated gap of 5.3 percent of collections is comparable to other states, DRS spokesman Jim Carson said. An additional $69.3 million is the estimated loss from internet sales, he said.

The commission’s idea was created following a presentation in March given to more than 1,100 third-party vendors that sell items over, whose net sales last year rose 27 percent to $136 billion. This year’s gathering, at the annual Prosper Show for Amazon sellers, marked the first time commission representatives spoke at the show, said James Thomson, the event’s president.

There were just four show registrations from Connecticut, according to Thomson. But almost all the attendees are users of the Fulfillment by Amazon program, meaning their inventory likely passed through one of Amazon’s Connecticut distribution warehouses and triggered sales tax responsibility to Connecticut, he noted.

Richard Cram, the commission’s National Nexus Program director, developed the idea that the commission referred to as an “amnesty” program in its Aug. 2 press release.

The commission had received 34 applications nationwide as of Aug. 29 with 10 of those pertaining to Connecticut, Cram said. He said he initially estimated that as many as 400 applications might be received but that half that amount may be more realistic. Whether the program is used again will depend on responses to the current effort.

“We’ll have to wait and see,” Cram said. “If the response is disappointing then the message to the states may be that voluntary registration is not the way to go.”

Connecticut has been an associate/project member of the 50-year-old commission since 1993 and was one of the first 13 states to sign on to the voluntary registration program. Massachusetts, New Jersey, and Vermont are the other Northeast states participating in the program, which is referred to on the commission’s website as the “Online Marketplace Seller Voluntary Disclosure Initiative.”

“Never before have so many states come together to create a simultaneous program like this,” the Washington, D.C.-based commission said in its press release.

The program will likely fall short of its goal because it cuts against the nature of online commerce, tax attorney Green said.

“A major reason people sell online instead of setting up a store in a mall or someplace like that is to avoid sales tax and all those other overhead expenses,” he said. “Unless a seller already has some exposure, I can’t see them wanting to sign up with the authorities.”

The amount collected from Connecticut sales taxes has been rising, going from $3.15 billion in 2003-04 to $3.96 billion in 2012-13, according to Department of Revenue Services figures. These amounts include the business use tax, individual use tax, and hotel room occupancy taxes. But delinquencies have also been rising with the rate rising from 3.10 percent, or $97.9 million, in 2003-04 to 4.28 percent, or $169.5 million, in 2012-13.

Applications made through the multistate program that are approved by the Connecticut Department of Revenue Services means the state will waive past sales tax liability and won’t litigate, Commissioner Kevin Sullivan said. As of Aug. 23, the department had received 12 response letters from Internet sellers, also known as remote sellers, generated through the program, he said.

Under the state’s own voluntary disclosure program, in operation since 1989, 25 remote sellers have completed or are in the process of completing voluntary disclosure agreements, Carson said.

The program is not directed at Seattle-based or its third-party sellers in Connecticut specifically but all online sellers, of which Amazon is “the best example,” the commissioner said.

Non-payment tax on Internet sales puts brick-and-mortar businesses at a disadvantage, Sullivan said.

“The marketplace is growing,” he said. “It’s a matter of fairness.”

To end its feud with the state over sales taxes, signed a voluntary collection agreement in 2013. According to a 2015 letter from’s director of state and local tax, Kurt Lamp, the Internet selling pioneer has satisfied portions of the agreement by making a $100 million capital investment in Connecticut and employing 900 fulltime workers. The letter was made available to Crain’s Connecticut by the Department of Revenue Services.

Amazon is planning to build an 855,000-square-foot distribution site, also known as a fulfillment center, at a former Pratt and Whitney site in North Haven. It currently operates a distribution center in Windsor and a sorting facility in Wallingford. The company employs about 2,000 people in Connecticut and the North Haven site would raise the number by 1,800, Gov. Dannel Malloy said in June while estimating the latest investment at $255 million.

DRS spokesman Carson declined to give’s history of tax payments to Connecticut, citing a state law that forbids the release of tax return information. He also declined to say how many Amazon third-party sellers there are in Connecticut.

The Multistate Tax Commission program centers on a voluntary disclosure agreement that enables taxpayers with potential sales tax liability to negotiate a settlement during the amnesty period ending Oct. 17. Sellers will be able to pay tax on future transactions without penalty for unpaid, prior accumulated sales tax, the commission said in its release.

Agreement applications are filed with the commission, which then routes them to Connecticut and the other states.

Although Connecticut is willing to grant tax amnesty for past third-party sales, that is not the case for direct sales, Carson noted.

“Connecticut will not, however, forego demands under state law for disclosure of the volume and value of state-destined sales or enforcement with respect to direct sellers,” he said.

Voluntary sales tax compliance is at “high levels,” according to a 2014 Department of Revenue Services report to the General Assembly’s Finance, Revenue and Bonding Committee. Yet it lists a “variety of challenges” including failure to register, cash sales, and online sales.

September 6, 2017 - 4:57pm