Effective October 1, 2019, Connecticut is raising its sales and use tax rate for sales of software and digital goods from 1% to 6.35%. These changes can affect individuals and businesses differently.
Businesses selling or purchasing software
Vendors of electronically accessed or transferred software can continue to apply the 1% rate rather than the higher 6.35% rate, as long as certain new conditions are met.
Individual consumers purchasing software
Individual consumers will be taxed at 6.35% on software purchases.
Digital goods sold to businesses and consumers
Digital goods formerly taxed at 1% will be taxed at 6.35% for individuals and businesses. Digital goods include audio works, visual works and audio-visual works. Some examples are stock photographs, clip art, movies, podcasts, audio books, games, smartphone applications, and “in-app” purchases.
Access to online professional or academic research databases remain taxable at 1%. Exemptions remain for newspapers, magazines and college textbooks.
If you would like to learn more about how these changes may impact your business, please contact a Sax advisor at (973) 472-6250 or contact our firm’s in-house advisor on sales and use tax and state tax nexus, Peggy Tilles (ptilles@saxllp.com).