OLR Report 2012-R-0357 explains (1) many states impose a sales tax and (2) Connecticut's sales tax compares to other states.
The District of Columbia and all but five states (Alaska, Delaware, Montana, New Hampshire, and Oregon) impose a state sales tax, ranging from 2.9% in Colorado to 7.25% in California. Connecticut imposes a 6.35% sales tax, which ranks as the 11th highest state sales tax rate.
At least two factors complicate comparisons of sales tax rates across states. The first is that many states allow counties and municipalities to levy sales taxes. Thus, the rates in these states vary across localities and, in some cases, the combined state and local rates are substantially higher than the state's base sales tax rate. When Connecticut is compared with other states based on combined state and local rates, its rank drops from 11th to 31st.
The other factor is that states levy the tax on different mixes of goods and services. Some states tax a broad range of goods and services, with few exemptions, while others tax relatively few. Connecticut's sales tax base is broader than that of surrounding states, but by one recent estimate, it is narrower than most states' sales taxes when taking into account its impact on the state's economic activity. A March 2012 State Tax Notes report estimates that 26.19% of Connecticut personal income is spent on goods and services subject to the state's sales tax, compared to the national median of 34.5% (Mikesell, John. “The Disappearing Retail Sales Tax,” State Tax Notes, March 5, 2012, pgs. 777-791).
While sales taxes across states differ widely, both in their rates and bases, they share several common features. In general, state sales taxes apply to all retail purchases of tangible personal property, except for those explicitly exempted, but only to specified services. States rely on vendors to consider the nature of the purchase, how it will be used, and the nature of the purchaser in determining the taxability of transactions. And all states that impose a sales tax also impose a use tax on taxable goods and services purchased in other jurisdictions for use in the home state.
For more information, read the full report.
