Connecticut shatters record for sales tax revenue in first full year of pandemic

Photo of Alexander Soule
Shoppers stroll Danbury Fair Mall in November 2021, in Danbury, Conn. Across consumer and business-to-business transactions, Connecticut sales tax collections in fiscal 2021 shattered those in previous fiscal years that end in June.

Shoppers stroll Danbury Fair Mall in November 2021, in Danbury, Conn. Across consumer and business-to-business transactions, Connecticut sales tax collections in fiscal 2021 shattered those in previous fiscal years that end in June.

Ned Gerard / Hearst Connecticut Media

In the first full fiscal year during the COVID-19 pandemic, Connecticut shattered its prior record for sales tax collections, with nearly $5.3 billion going into state coffers over the 12-month span ending in June.

That resulted in an extra $633 million for the state’s General Fund compared to the prior record sales tax collections in fiscal 2020 — large enough to cover a year’s worth of operating expenses for Connecticut’s public universities and community colleges.

Thanks to federal aid during the COVID-19 pandemic and an otherwise booming economy, Connecticut is generating budget surpluses after years of struggling to close gaps by cutting services and jettisoning government jobs deemed non-essential.

Sales taxes are the second-biggest source of revenue for the Connecticut General Fund after income taxes, which generated a 9 percent increase in the 2021 fiscal year to $10.3 billion. That still remained about $500 million below income tax collections for the 2018 fiscal year.

But sales tax collections surged past the previous record of $4.7 billion in fiscal 2020, as individuals and businesses spent federal funds that came in from the American Rescue Plan and prior pandemic relief and stimulus packages. Annual sales-tax gains in prior years ranged between $20 million and $200 million.

Officials with the state Department of Revenue Services could not be reached this week for details on what categories of products and services generated the biggest increases in sales taxes in the 2021 fiscal year.

The CEO of Dollar General expressed confidence last week in the outlook for the consumer economy as pandemic relief programs phase out over time.

“A lot of the stimulus money has now dissipated,” CEO Todd Vasos said during a conference call. “But I’ve always said that with our core customer, as long as she is gainfully employed that is probably the biggest driver of her confidence to spend. And there is no doubt that she is gainfully employed right now, and can work as many hours as she may or may not want to.”

Connecticut collects a 6.35 percent tax on most purchases, with exceptions allowed for food and niche product categories like safety equipment or luxury vehicles. Buyers are expected to pay a “use” tax in instances when a sales tax is not levied on products and services they purchase, such as online or in the handful of states that do not charge sales taxes like New Hampshire.

The base rate is the 18th lowest in the country, if factoring in states with combined sales taxes like New York that allow local governments to levy their own sales taxes.

New York has likewise been recording big increases in sales tax collections, with an 18.6 percent gain for the first 10 months of 2021 compared to the same period in 2020. New York’s state comptroller indicated that is primarily the result of more people seeking entertainment outside the home and offices reopening, with a spillover effect for purchases of meals out and gas. But a real estate sales boom in Connecticut and New York could have contributed as well, as people furnished rooms or undertook renovations.

In 2019 before pandemic disruptions to commerce, individuals and businesses spent $175 billion on goods and services subject to Connecticut sales and use taxes, with DRS having yet to publish figures for 2020.

Includes prior reporting by staff writers Julia Bergman and Ken Dixon.

Alex.Soule@scni.com; 203-842-2545; @casoulman