Amazon, the giant online retailer, will begin collecting sales tax in the state in November as part of an agreement that Gov. Dannel P. Malloy says will mean hundreds of new jobs and $50 million in investment in Connecticut over two years.
The agreement, signed Sunday, allows the state to address the long-standing issue over collection of online sales tax and follows similar agreements in Massachusetts in December and New Jersey in May 2011.
Federal law does not require online retailers without brick-and-mortar retail locations to collect taxes on sales to Connecticut.
"All in all, this is a win for our state's taxpayers, our main street retailers, and our workforce," Malloy said.
State officials expect the tax deal to bring in about $15 million yearly. Putting it in place before the wave of holiday shopping should capture taxes on about 45 percent of the year's revenues, Department of Revenue Services Commissioner Kevin Sullivan said.
"This has been one of our top priorities for over a year now," Sullivan said.
Though Amazon has numerous distribution sites throughout the country, it maneuvered around collecting sales taxes in those states by registering order fulfillment sites under separate companies. Years of court cases have resulted in little in terms of a broad solution to what is essentially a state tax-collection issue.
With the tax issue out of the way, the online retailer will establish an order fulfillment center somewhere in the state within two years, where at least 300 people will work.
The governor said that the deal is not contingent on tax breaks or economic assistance.
Exactly what why Amazon agreed to the deal was not immediately clear, though tax experts say the changing business of online shopping and the potential of a bad outcome for Amazon could have caused the shift in strategy.
Had the deal not been made, Malloy said, his administration would have kept arguing that Amazon had a substantial business footprint in the state and so should collect sales taxes.
One tax expert said it would not be in the company's interest to force a court decision that could order it to pay taxes on past sales. University of Connecticut law professor Richard Pomp, an expert on state and local taxation, said that could open up Amazon to "an awfully large retroactive exposure."
Said Malloy: "I continue to believe that this issue of tax fairness and compliance needs to be address at the federal basis. We will join with other state to put as much pressure on online retailers as well as the federal government to address this issue."