Source: https://portal.ct.gov/DRS/Publications---Policy-Statements/2006/PS-20068-Sales-and-Use-Taxes-on-ComputerRelated-Services-and-Sales-of-Tangible-Personal-Property
Timestamp: 2018-11-16 09:28:48
Document Index: 799781221

Matched Legal Cases: ['§12', '§12', '§12', '§12', '§12', '§12', '§12', '§12', '§12', '§12', '§12', '§12', '§12', '§12', '§12', '§12', '§12', '§12', '§12']

PS 20068 Sales and Use Taxes on ComputerRelated Services and Sales of Tangible Personal Property
Current: PS 2006(8), Sales and Use Taxes on Computer-Related Services and Sales of Tangible Personal Property
Alert: This publication has not been updated to accommodate the recent legislative changes. Please visit our 2015 Legislative Information page for the most up-to-date tax information.
PS 2006(8)
Provides clarification on differentiating between persons rendering computer and data processing services and those providing personnel services, and differentiating between employees and independent contractors.
Effective Date: This Policy Statement applies to all open tax periods.
Statutory Authority: Conn. Gen. Stat. §12-407(a)(2)(A); §12-407(a)(2)(I); §12-407(a)(8) and (9); §12-407(a)(35); §12-407(a)(36); §12-407(a)(37)(A); §12-407(a)(37)(C); §12-407(a)(37)(H); §12-407(a)(37)(J); §12-407(a)(37)(Q); §12-407(a)(37)(C); §12-408(1)(C); §12-411(1)(D); and Conn. Agencies Regs. §12-407(2)(i)(J)-1; §12-426-25; and §12-426-27.
The list of services in the regulation does not exclude other services from the scope of computer and data processing services. (See Conn. Agencies Regs. §12-426-27(k).) Data scanning, creating custom software, computer training, and online access to information are within the scope of taxable computer and data processing services. Computer and data processing services are subject to tax in Connecticut if the benefit of the services is received in this state.
Tax Rate Reduced for Computer and Data Processing Services: The sales and use tax rate for computer and data processing services other than Internet access services was reduced in annual increments and became taxable at 1% effective July 1, 2001. (Internet access services became nontaxable on that date.) Charges for computer and data processing services are reported on Line 74 of Form OS-114, Sales and Use Tax Return. See Form O-88, Instructions for Form OS-114, for details on reporting these charges.
Creation and Maintenance of Web Sites: Under Conn. Gen. Stat. §12-407(a)(37)(A), taxable computer and data processing services do not include services rendered in connection with the creation, development, hosting, or maintenance of all or part of a website which is part of the graphical, hypertext portion of the Internet, commonly referred to as the World Wide Web.
This exclusion applies to all computer and data processing services (such as programming, data entry, scanning, computerized graphic design, software installation, software maintenance, and hosting fees), when the services are provided to a service recipient in connection with the service recipient’s website. The exclusion does not apply to charges for access to websites maintained by others. These charges are taxable at 1%.
The sale of prewritten software necessary to create a website is taxable at the 6% rate when tangible personal property is provided to the purchaser by the retailer, but is excluded from tax when the software is delivered electronically and the retailer provides no tangible personal property to the purchaser.
Sales of Computer Software: The tax rate for sales of computer software depends on whether the software is prewritten or custom.
Canned or prewritten software. Canned or prewritten computer software is tangible personal property. The sale, leasing, or licensing of the software (including upgrades) is taxable at 6%.
For more information on computer software purchased in connection with exempt machinery, see Policy Statement 98(8), Exemption From Sales and Use Taxes for Items Used Directly in the Biotechnology Industry; Special Notice 93(1.1), The Manufacturing Recovery Act of 1992 Exemption for Purchases of Property Used in Manufacturing, Processing and Fabricating; and Policy Statement 2001(7), Purchases of Machinery, Equipment, Tools, Materials, and Supplies by Commercial Printers and Publishers.
Example 2: A law firm engages and pays a service provider (other than an accredited institution of higher education) to conduct a class for its attorneys on the use of email to facilitate interoffice communications. Charges for this training are taxable at the 1% rate because the training is not directly related to the specific job skills of the attorneys.
For more details on personnel services, see Policy Statement 2006(7), Taxation of Services by Employment Agencies and Agencies Providing Personnel Services.
The criteria for determining whether staff are employees or independent contractors for federal tax purposes also apply for Connecticut tax purposes. Whether a Form W-2 or a Form 1099 is supplied to an individual therefore does not control. Internal Revenue Service Publication 15-A, Employer’s Supplemental Tax Guide, summarizes the criteria for determining whether an individual is an employee as defined under the common law, and these criteria apply when reviewing an individual’s status for purposes of the Connecticut sales and use taxes on personnel services. The existence of an employer-employee relationship is determined by the substance of the relationship, not the label, and all information that provides evidence of the degree of control and the degree of independence must be considered.
Although there are no invariable guidelines in this area, the more control the service recipient has over the service provider’s employee’s duties while the employee is with the service recipient, and the less that employee’s duties are related to a predetermined task or project, the more likely the services are personnel services. Conversely, the more the duties performed by the employee fulfill a project or task predetermined by the service provider and the service recipient, and the more control the service provider has over the employee’s duties while the employee is with the service recipient, the more likely the service is a computer and data processing service. (However, the fact that a service recipient has control over superficial aspects of the employee’s work, such as days or hours of attendance and other rules of general conduct in the work place, is not the deciding factor of the issue.)
Example 1: A bank hires a service provider to provide temporary personnel to fill in for absent employees or to supplement the workforce in its data processing department. The bank has control over the work the employees do and how they do it. The service provider is rendering personnel services taxable at 6%.
Example 2: A bank contracts with a service provider for the provider to perform a project. The project consists of the service provider merging two computer software systems by converting all the files of an old system into files of the new system. The bank and the service provider have predetermined the scope of this project. The service provider places several of its employees at the bank to perform the conversion project. The employees have special skills that enable them to perform systems conversion. These employees work alongside bank employees, work the same hours as bank employees, and often take their breaks and lunch periods with bank employees, although the bank and the agency have prearranged their duties. The service provider is rendering computer and data processing services taxable at the 1% rate.
Example 3: A bank contracts with a service provider to provide several individuals to do routine data processing functions in the bank’s data processing department. Although the individuals describe themselves as “independent contractors” and are issued 1099’s instead of W-2’s by the service provider, the substance of the relationship between them and the service provider meets the criteria in IRS Publication 15-A for the individuals to be considered employees of the service provider. The service provider is rendering taxable personnel services because the bank has control over the work the employees provided by the service provider do and how they do it.
Business management consulting includes only services directly related to the core business activities or human resource management activities of the service recipient. Depending on the service recipient’s business and the use to which the service recipient’s computers are put, computer consulting may not be directly related to the core business or human resource management of the service recipient. (Conn. Agencies Regs. §12-407(2)(i)(J)-1(h).)
The service provider must separately state charges for computer consulting and show the charges are not related to the recipient’s core business or human resource management. Charges for computer consulting services not stated separately from charges for business management consulting services are taxable at 6%.
Effect on Other Documents: This Policy Statement modifies and supersedes Policy Statement 2004(3), Sales and Use Taxes on Computer-Related Services and Sales of Tangible Personal Property.
For payment of business taxes other than those listed above: Use Fast-File to pay your business taxes over the Internet or by phone. Visit the DRS website at www.ct.gov/DRS and click on Electronic Services for a list of eligible taxes. The ACH debit method is used to make the transfer. No pre-registration is required.
Issued: 03/23/2007