Moderated by Srishti, Digital Transformation Consultant at Hyperbots
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:
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.
Moderated by Kate, Financial Technology advisor at Hyperbots
Kate: Hello, everyone! My name is Kate, and I’m a financial technology advisor here at Hyperbots. Today, I’m thrilled to have Shaun Walker as my guest. Hey, Shaun, how are you doing today?
Shaun Walker: Doing good. How are you?
Kate: I’m doing great. Thank you so much for joining us today. So a little bit about Shaun, he’s the Sox compliance manager at Northrock Southern, and today we will be discussing managing sales and use taxes from sellers’ and buyers’ perspectives. So let’s jump right in.
Shaun Walker: Okay.
Kate: So, coming to the first question, could you give us an overview of the types of sales and use taxes that businesses need to consider in the United States?
Shaun Walker: Certainly. So there’s several types of sales and use taxes, and they vary by jurisdiction. At the broadest level, you have the state sales tax, which is set by each state. Many states allow county and city sales tax to add to the state rate. In some areas, there are transit taxes to fund public transportation. There are special purpose taxes for projects, and there are district taxes for supporting schools or other initiatives. Certain products like alcohol or tobacco are subject to excise tax. There have also been decisions about how to collect remote sales tax. And then there’s the use tax for items bought out of state but used in-state. The last one would be a digital sales tax that applies to online services like software and media subscriptions.
Kate: Okay, understood. Moving on from a seller’s perspective, how should a business determine whether they have a legal obligation or nexus to collect sales tax?
Shaun Walker: Well, nexus can be complex because it’s based on physical and economic presence. Physical presence can mean having a warehouse, office, or employees in a state, while economic presence involves reaching a specific level of sales in a state. Most states set a threshold, often $100,000 in sales or 200 transactions annually, which creates economic nexus.
Kate: Makes sense. So, Shaun, once a seller has determined nexus, how do they handle the collection and remittance of sales taxes?
Shaun Walker: Once a seller has nexus, they must register in each relevant state or local jurisdiction. They need to apply the correct tax rate to sales, which can vary within states due to local add-ons. There’s also automated tax software like Avalara or TaxJar that helps sellers keep rates accurate.
Kate: I understand. So for buyers, when does use tax come into play, and how should they handle it?
Shaun Walker: Use tax applies when a buyer purchases goods from an out-of-state seller who didn’t collect sales tax. It’s the buyer’s responsibility to report and remit the use tax in their home state. This often occurs when a business buys from a small out-of-state vendor or an online seller without nexus in the buyer’s state.
Kate: Makes sense. So, coming to the next question, what are some common mistakes businesses make when managing sales and use taxes? And how can they avoid them?
Shaun Walker: Common mistakes include failing to correctly determine nexus, underestimating the complexity of multi-jurisdictional tax rates, and not keeping exemption certificates. Businesses can avoid these pitfalls by regularly reviewing nexus in each jurisdiction, using tax software for rate accuracy, and maintaining exemption documentation. Frequent audits also help catch errors early.
Kate: That is a very interesting point. Coming to an even more interesting question, how can AI play a role in improving the management of sales and use of taxes for businesses?
Shaun Walker: AI can streamline the sales and use tax process in several ways. AI tools can automatically determine tax rates based on location, identify nexus patterns through sales data analysis, and flag transactions with potential tax discrepancies. AI also simplifies audits by quickly scanning transaction records and identifying anomalies, ensuring compliance with regional tax codes.
Kate: I completely agree with you. So how should businesses handle sales tax exemptions, and what documentation is required to support these exemptions?
Shaun Walker: Businesses need to collect exemption certificates for any sales-tax-exempt transactions. Buyers, like resellers or nonprofits, provide these certificates to show eligibility. Sellers should keep these documents on file to ensure they’re current and complete. Some states require renewals periodically, so it’s important to validate these certificates for legitimacy.
Kate: I couldn’t agree more with you, Shawn, on this. We have reached almost the end of our discussion today. Finally, from a buyer’s perspective, what should companies consider when purchasing from out-of-state or foreign sellers to ensure compliance with sales and use tax laws?
Shaun Walker: Buyers should confirm whether the seller will collect the sales tax, as some out-of-state or foreign vendors may not. If the sales tax isn’t collected, the buyer must record the purchase and remit use tax to their state. For larger or recurring purchases, it may be worthwhile to establish a formal process to track use tax obligations and ensure all necessary taxes are paid correctly.
Kate: That is a very unique point. I totally agree with you, Shawn.
With that, we have come to an end to today’s discussion on managing sales and using taxes from sellers’ and buyers’ perspectives. Thank you so much, Shaun, for joining us today and sharing your insights, and a big thanks to our listeners as well.
Kate: I’ll see you around. Have a great day ahead.
Shaun Walker: Alright, take care!
Kate: Yeah, bye.
Shaun Walker: Bye.
Moderated by Kate, Financial Technology Consultant at Hyperbots
Kate: Everyone. My name is Kate, and I am a financial technology advisor here at Hyperbots. Today I’m thrilled to have Kelly O’Neill with me. Hey, Kelly, how are you doing today?
Kelly: Doing wonderful.
Kate: That’s great to hear. A little bit about Kelly—she’s the Chief Executive Officer at KM One Ventures. Today, we will be discussing Colorado sales and use tax compliance. So let’s jump right in. Coming to the first question, could you provide an overview of Colorado state sales and use tax rates? How do these rates differ across goods and services?
Kelly: Absolutely. Colorado has a base state sales tax rate of 2.9%, which is one of the lower state rates. But local jurisdictions—cities, counties, and special districts—can impose additional rates if they choose to. This can lead to significantly varied combined rates across the state. For example, general merchandise would be a 2.9% state rate plus additional rates based on local taxation, resulting in a combined rate that can exceed 11% in some areas. Food and groceries are generally exempt from sales tax, though some local jurisdictions may impose a tax on those items. Some items, such as prescription drugs and medical devices, are exempt. Colorado’s decentralized tax system requires businesses to apply the correct combined rate for each sales location based on both state and local rules.
Kate: Understood. Moving on, could you discuss some of the jurisdictions in Colorado with notably high or low sales tax rates? How does this affect businesses?
Kelly: Colorado’s local jurisdictions create a patchwork of different rates. Highest rates are found in some cities, such as Winter Park or Glenwood Springs, which have combined rates exceeding 11%. Lower rates are in unincorporated areas and towns that may have rates closer to the 2.9% state rate without any additional local tax. This variability affects businesses by requiring them to apply different rates based on where each sale occurs. Companies in high-tax areas may face customer resistance to higher prices, while businesses in lower-tax regions might have an advantage with more competitive pricing.
Kate: That makes sense. How often do Colorado sales tax rates change? How do businesses keep up with these updates?
Kelly: The Colorado state rate is pretty stable, but local rates can change frequently—often yearly or even more frequently if cities pass new tax measures. Some localities also implement seasonal rates in tourist-heavy areas, such as those with ski resorts. Businesses typically monitor rate changes through the Colorado Department of Revenue, which provides updated rate tables, or they use third-party tax compliance tools to stay current. For companies operating across multiple jurisdictions, automated solutions are crucial to ensure they are using the latest rates accurately.
Kate: What are some of the primary resources available to businesses to stay informed about sales and use tax changes in Colorado?
Kelly: Helpful resources include the Colorado Department of Revenue, the primary source for state and local tax guidelines and forms. Sales tax rate lookup tools provided by the CDOR allow businesses to look up rates by address or zip code. Additionally, third-party compliance software, such as Avalara or TaxJar, offers real-time updates and comprehensive rate information across all Colorado jurisdictions, making it easier for businesses to apply the correct rate. What challenges do companies face when managing compliance with Colorado sales and use tax rules? Could you share some examples? The main challenges include jurisdictional complexity. Colorado has home-rule cities that administer their taxes independently. For example, a company with sales in Denver, which has its own tax administration, must manage a process different from that in state-administered areas. Frequent rate changes also pose challenges, especially in tourist-heavy areas with seasonal rates. Determining taxable items adds complexity—groceries, for example, may be exempt at the state level but taxable at the local level. Businesses must remain vigilant to apply the correct rates and taxability, particularly if they operate statewide.
Kate: How can artificial intelligence help businesses manage sales and use tax compliance more efficiently, especially with Colorado’s complex local tax structure?
Kelly: AI can simplify compliance in several ways. Automated rate updates ensure that the latest rates for each jurisdiction are applied. AI tools can also determine the exact sales tax rate by customer location, ensuring accurate application across Colorado’s home-rule cities and state-administered areas. AI can handle exemptions, such as food items that are exempt at the state level but taxable locally. For example, Hyperbots AI offers a solution that automates local rate adjustments across Colorado’s jurisdictions, reducing errors and administrative costs for compliance.
Kate: How can AI support companies during audits for sales and use tax compliance in Colorado?
Kelly: AI simplifies audit preparation by managing and organizing documentation efficiently. It can retrieve invoices, sales records, and tax rate documentation by jurisdiction, streamlining the audit process. AI also detects and corrects errors, allowing companies to address issues proactively. Hyperbots AI can prepare compliance reports and organize records by location, which is especially helpful in Colorado, where home-rule cities require highly organized tax records by jurisdiction.
Kate: What do you see as the future role of AI in handling Colorado sales and use tax compliance?
Kelly: AI will likely move beyond compliance into areas like predictive analysis. For example, AI could forecast how tax rate changes across Colorado’s home-rule cities might impact revenue, helping companies plan for rate shifts. Real-time compliance monitoring could provide live dashboards with tax liability insights across different jurisdictions. Proactive compliance alerts could notify companies of pending rates or legislative changes, enabling them to adjust in advance. Hyperbots AI is advancing in this area, offering solutions that provide real-time compliance and predictive analytics, helping Colorado businesses manage complex tax rules and anticipate changes.
Kate: Thank you so much, Kelly, for sharing your insights. It was a really fruitful discussion and a big thanks to our listeners for tuning in.
Kelly: Thank you!
Moderated by Emily, Digital transformation Consultant at Hyperbots
Emily: Hi, everyone. This is Emily, and I’m a digital transformation consultant at Hyprbots. I’m really pleased to have John on the call with me, who is the VP of FP&A at Extreme Reach. Today, we’ll be discussing sales and use tax compliance, which is an area that often flies under the radar but has significant impacts on a company’s bottom line and operations. So, John, let’s quickly dive into the topic. I’d like to kick things off by asking, what are some of the compliance risks companies face if incorrect sales or use tax is charged by vendors?
John Silverstein: The impact is significant, and it affects your customers too. If you’re not passing it on, or you’re not registered in the right states, and your vendors aren’t compliant, then, if they go through an audit, they might start charging you sales and use tax. This actually happened with one of my clients recently, where we had to go in and make sure there were adjustments. There are a lot of gray areas, which makes it hard to stay compliant and understand the rules, especially since they’re constantly changing, particularly as technology evolves. With SaaS environments, for instance, states vary on whether it’s considered a service or not. Everyone has been trying to figure out: is it a service or isn’t it? Having AI support compliance by state makes it very complex.
Emily : Understood. Also, John, could you explain why incorrect tax charges lead to cash flow disruptions?
John Silverstein: It goes back to compliance. If you’re not compliant, you can incur penalties, which can end up costing more than the sales tax itself. Sales tax rates can be quite high in some states—I’m in New York, where sales tax is closer to 10%. Non-compliance can impact your customers, who may not want to continue services, and it also affects your credibility. If you have to pay both sales tax and penalties due to an audit, it can be very disruptive to your cash flow.
Emily : Understood. How do you think tax compliance affects a company’s reputation with stakeholders?
John Silverstein: It affects everyone because there’s an expectation that you should know and manage tax compliance accurately. Larger organizations may assess sales and use tax on themselves, but everyone is essentially trusting each other in this environment. If you’re a vendor collecting sales tax, and you’re not doing it correctly, it can raise concerns. To maintain credibility and look professional, it’s crucial to stay on top of tax compliance.
Emily : Understood. Talking about best practices, John, what are some best practices for ensuring accurate sales and use tax compliance within an organization?
John Silverstein: There are several key practices. One is regular tax reconciliation and invoice reviews. For example, each month, we might review a sample of invoices to ensure tax calculations align with the latest rules. You could also use a program to do this since rules change, or new cases arise that impact tax obligations. If you’re a reseller, you should be tax-exempt, so it’s important to have the correct exemption certificates. If you’re not checking every bill in a large organization, you might not realize you’re being charged taxes when you’re actually exempt. This creates room for error, and many companies overpay their sales and use taxes.
Emily : Got it. Could you provide examples of automated tools or processes that help with tax compliance?
John Silverstein: There are various tools, including tax compliance modules in ERP systems. There are also add-ons like TaxJar and Avalara, which are popular with smaller businesses. Some large accounting firms also offer services to keep companies tax-compliant. It’s critical to get both software and professional tax advice due to the complexity of these rules. Tools like Hyperbots can automate compliance by applying specific state rates using AI to categorize invoice items and identify tax obligations accurately. This reduces manual intervention and human error, which is key because, without a tool like Hyperbots or specialized tax software, it’s hard to stay compliant. AI is particularly useful because it’s constantly updated, whereas legacy tools rely on your descriptions, which may not always be accurate.
Emily : Got it. So, John, can AI help companies keep up with changing tax rates and rules across jurisdictions?
John Silverstein: Absolutely. AI can not only monitor rules and regulations but also adapt to changes that aren’t always reflected in the regulations right away, especially as sales models shift to subscriptions. For instance, in New York, if tax rates are adjusted, AI can detect these changes and update the system to apply the correct rate for each transaction. AI can also monitor legal rulings that determine whether something is taxable, which helps companies stay compliant and avoid penalties.
Emily : Got it. To round off the discussion, John, what are some challenges companies face when implementing AI for tax compliance?
John Silverstein: One challenge is that AI doesn’t have full judgment capabilities yet, so it requires human oversight. For instance, in Michigan, SaaS services recently became taxable, but this isn’t always explicitly stated in the regulations. Often, AI assists, but it may struggle with vague or evolving legal definitions. These ambiguities can make it difficult to interpret compliance requirements, especially as court rulings continue to define these regulations.
Emily : Understood. Thank you so much, John, for sharing these insights. It’s clear that accurate tax compliance is vital for financial stability, and AI offers exciting possibilities to make this process more efficient and error-proof. I really appreciate your time and expertise. Thank you.
John Silverstein: No problem. Thank you for having me.
