Newegg to collect Connecticut sales tax; Connecticut to stop hounding Newegg customers

To save its customers from being hounded by the Connecticut Department of Revenue Services over unremitted use tax, Newegg has agreed to collect and remit Connecticut sales tax starting July 1, 2018.

Thousands of Connecticut residents have received notices from the Department of Revenue Services (DRS) telling them they owe the state use tax on certain online purchases. It knows this because more than 150 large online retailers — including Newegg, No. 21 on the Internet Retailer 2017 Top 500 internet retailers — have given the department three years’ worth of electronic sales records for all individual sales made to customers with Connecticut addresses. The retailers opted to do this rather than register with the state and collect and remit sales tax (Connecticut Department of Revenue Services cracks down on non-collecting sellers and their customers).

Commissioner of Revenue Services Kevin Sullivan and his department are using that data to increase consumer use tax collections. He’d rather the retailers collect and remit on behalf of their customers: “I remain uninterested in going door to door to collect use tax in the state of Connecticut. Our goal is to use whatever leverage we have to get the companies to do the right thing [collect the tax].”

However, since the retailers don’t have a physical presence in the state, the state can’t force them to collect. The Supreme Court ruled in Quill Corp. v. North Dakota, 504 U.S. 298 (1992) that a state cannot compel a business to collect and remit sales tax unless it has a physical presence in the state.

What a state can do is ask businesses that sell into it to share certain information about their sales. Armed with that, Connecticut is more effectively able to target its use tax compliance efforts. Commissioner Sullivan: "Usually we don't have the data, but in several cases companies have said … we’ll squeal on our customers and you can beat up on them. The people who sold to them have ratted them out." 

Last week, the commissioner announced Newegg would comply with the state’s request to collect and remit tax on its Connecticut sales as of July 1, 2018. This is big. According to an Internet Retailer and Bloomberg Report, the online electronics company currently collects sales tax in only four states: California (where it’s based), Indiana, New Jersey, and Tennessee.

In other words, Newegg doesn’t typically comply when states where it doesn’t have a physical presence try to make it collect. In fact, it’s involved in lawsuits with several states over just that issue, including South Dakota: South Dakota v. Wayfair, Inc. will soon be heard by the Supreme Court of the United States. Sullivan expressed hope that “the U.S. Supreme Court finally ends the argument for favored treatment of remote sales and assures a marketplace where all retailers play by the same rules.”

Why Newegg has chosen to collect in Connecticut at this point is unclear, though it could be to appease customers. Most Newegg customers who were contacted by the DRS were reportedly “unhappy about the fact that Newegg gave up their customer information.” Although few people want to pay tax, they might rather pay it at checkout than get a notice from the tax authorities.

Newegg’s decision to collect in Connecticut doesn’t affect any use tax revenue customers have already remitted at the behest of the DRS. For more information about Newegg’s compliance with Connecticut state sales tax collection, see the Department of Revenue Services media release.

Learn more about that case, and how its outcome could impact remote retailers all over the country, in this blog and infographic.