Connecticut Sales and Use Tax Compliance

Find out interesting insights with Shaun Walker, SOX Compliance Manager, Norfolk, Southern

Moderated by Srishti, Digital Transformation Consultant at Hyperbots

Don’t want to watch a video? Read the interview transcript below.

Srishti: Hello, everyone! My name is Srishti Rajp, and I am a digital transformation consultant at Hyperbots. Today, I’m delighted to have Shaun Walker as my guest. Thank you so much, Shaun, for taking out the time today.

Shaun Walker: Absolutely, thanks for having me.

Srishti: Of course, so a little bit about Shaun. He is a Sox compliance manager at Norfolk, Southern, and today we will be discussing Connecticut sales and use tax compliance. Whenever you’re ready, we can get started. On to the first question: Could you provide an overview of Connecticut sales, tax, and use tax rates? How do these rates differ across goods and services?

Shaun Walker: Yeah. Connecticut has a base state tax rate of 6.35%. But there’s some variation. For general merchandise, 6.35% is the expected rate. Luxury goods, such as jewelry over $5,000 or cars over $50,000, are taxed at a higher rate of 7.75%. Prepared foods, like restaurant meals, are taxed at 7.35%.

Srishti: Makes sense. Are there any exemptions to this?

Shaun Walker: Some items like prescription drugs and medical equipment are exempt. This structure simplifies tax applications but requires specific knowledge of tax categories and exemptions.

Srishti: I see. Now to the next question: What are some challenges or complexities that Connecticut businesses face due to state sales tax rules, given the lack of local variations?

Shaun Walker: For example, with luxury and prepared goods, you have to differentiate between standard and higher tax items, such as applying the 7.75% rate for luxury goods and the 7.35% rate for prepared food. It requires precise categorization. Service taxation adds complexity as certain services, like maintenance repairs and digital services, are taxable. Also, exemptions require accurate classification—for instance, food for home consumption is exempt, while prepared food for immediate consumption is not.

Srishti: Understood. How frequently do Connecticut sales tax rates or rules change? How can businesses stay updated?

Shaun Walker: They’ve been relatively stable, but changes do occur, particularly for specific goods or services. Connecticut recently expanded tax applicability to certain digital and remote services. Businesses often need to track updates in legislation that may impact specific categories. The Connecticut Department of Revenue Services (DRS) is the main source for updates, and many businesses use tax compliance tools that provide real-time alerts.

Srishti: I see. What are some of the primary resources available to businesses to stay informed about sales and use tax changes in Connecticut?

Shaun Walker: There are three main resources:

1. The Connecticut Department of Revenue Services (DRS).
2. DRS publications and alerts.
3. Third-party compliance software, such as Avalara and Hyperbots AI, which integrates with sales systems to ensure compliance and update rates automatically.

Srishti: Understood. What challenges do companies face when managing compliance with Connecticut sales and use taxes? Could you share some examples?

Shaun Walker: One challenge is handling multiple tax rates. For example, selling a car over $50,000 incurs a 7.75% tax rate, while other items are taxed at the base rate of 6.35%. Applying tax to certain services, like digital products, can be complex. Lastly, managing exemptions, such as prescription drugs, requires accurate tracking for proper reporting.

Srishti: That’s interesting. Since AI is such a big buzzword today, how can artificial intelligence help businesses manage sales and use tax compliance more efficiently, especially within Connecticut’s unique tax categories and exemptions?

Shaun Walker: AI can automate rate applications, determine taxability, and manage exemptions. For instance, Hyperbots AI automates the categorization and application of Connecticut’s tax rates, helping businesses streamline compliance and minimize errors.

Srishti: Makes sense. How can AI support companies during audits for sales and use tax compliance in Connecticut?

Shaun Walker: AI helps with efficient document retrieval by categorizing and retrieving records by transaction type. It also aids in error detection and correction by analyzing past transactions for misclassified goods or services, allowing businesses to address issues before audits.

Srishti: That’s really helpful. What do you see as the future role of AI in handling Connecticut sales and use tax compliance?

Shaun Walker: AI will likely expand beyond compliance to provide deeper insights and planning capabilities. Predictive analytics can forecast the impact of tax changes on revenue. Real-time compliance dashboards and proactive alerts about regulatory changes will become standard. Hyperbots, for example, offer real-time compliance, predictive analytics, and proactive insights for better financial planning.

Srishti: Thank you so much for sharing your insights, Shaun. This was extremely helpful. That brings us to the end of today’s discussion. Big thanks to our viewers! I’ll see you around. Have a good one. Bye-bye.

Shaun Walker: All right, see you later.