Connecticut Computer, Software, and SaaS Tax Guide

Prepared by Sales Tax Helper

Table of Contents

1. Introduction
2. Nexus Considerations
3. General Rules and Compliance Considerations
4. Specific Exemptions
5. Sourcing Rules
6. Audit Considerations
7. Voluntary Disclosure Agreements (VDAs)
8. Conclusion
9. References & Resources

1. Introduction

For software companies, SaaS providers, and technology firms conducting business in
Connecticut, the state's sales and use tax rules present unique challenges. Unlike some states that treat digital products and cloud-based services uniformly, Connecticut has specific rules for computer hardware, prewritten (canned) software, custom software, and various technology services. Connecticut's tax treatment of software and technology-related services depends on multiple factors, including whether software is delivered in tangible or electronic form, whether it is prewritten or custom, and whether services provided are classified as taxable computer and data processing services or other types of services.

Purpose of This Guide

This guide is designed to help businesses navigate Connecticut's sales and use tax rules related to software and technology services. It focuses on:

• Nexus Considerations: Understanding when businesses must register and collect
  Connecticut sales tax due to physical or economic presence.
• Taxability of Software & Services: Clarifying the tax treatment of computer hardware,
  prewritten vs. custom software, cloud computing services, and related technology
  offerings.
• Sourcing Rules: Determining how and where transactions are taxed based on customer
  location and method of software delivery.
• Audit Considerations: Identifying common tax audit triggers and best practices for
  compliance.
• Voluntary Disclosure Agreements (VDAs): Explaining the process for businesses to
  rectify past noncompliance while mitigating penalties and limiting back-tax liability.

Why This Matters for Technology Companies

Connecticut's sales tax laws impact software companies, SaaS providers, and technology firms in multiple ways:

• Sales Tax Obligations: Businesses that sell software or related services to Connecticut
  customers may have a duty to collect and remit Connecticut sales tax, depending on how
  the product is classified.
• Unique Treatment of Digital Services: Connecticut taxes computer and data processing
  services at a reduced rate (1%), which is different from many other states that either fully
  tax or fully exempt such services.
• Different Rates for Different Components: Hardware, prewritten software, and
  computer services each have their own tax treatment, making compliance for bundled
  offerings particularly complex.
• Compliance Risks: Failure to correctly assess and collect sales tax can result in
  significant penalties, interest, and extended audit exposure.

This guide will walk through Connecticut's specific sales tax rules governing hardware, software, SaaS, and technology-related services while referencing applicable statutes, administrative rules, and Connecticut Department of Revenue Services guidance. Throughout the guide, official Connecticut Department of Revenue Services sources will be linked for further reference.

For more information, visit the Connecticut Department of Revenue Services Tax Information
page.

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