Is web design taxable in Connecticut? Yes, at 1%

You are looking at a web design invoice, and the tax line is either there or it is not. Either way, you want to know whether it is right. Is web design taxable in Connecticut? Yes: the Connecticut Department of Revenue Services (DRS) taxes website creation, development, hosting and maintenance as computer and data processing services, at a reduced rate of 1% for services provided on or after October 1, 2015. The general sales tax rate of 6.35% applies to most other taxable goods, so a 6.35% charge on a website line is worth a second look. A missing tax line is worth a second look too, especially when the designer is in another state. The rest of this post breaks the answer into design, hosting, maintenance, SEO, software and digital goods, then gives you a ten-minute way to check your own invoices. This is general information for Connecticut buyers and sellers, not tax advice, and your own invoices are the best place to start.

What rate applies to web design, hosting and maintenance?

The rate is 1%. DRS's Services Subject to Sales and Use Taxes page lists computer and data processing services, including charges to create, develop, host or maintain all or part of a website. The same page gives the general rate as 6.35% and the special rate for computer and data processing services as 1%. DRS's 2015 legislative summary identifies October 1, 2015 as the date these services became taxable at that rate, and puts it this way: "services in connection with the creation, development, hosting or maintenance of a website will be taxable at 1%."

That date matters if you are reading older material. Pages written before October 1, 2015 describe an exclusion for website work, and it does not apply to services provided on or after that date. If you are reviewing a historical invoice, check its service date first and apply the rule that was in effect then.

Read the table as a starting point for questions, not a ruling on your invoice. The last two rows are where classification depends on details, and the sections below cover them.

Does hosting or maintenance get a different rate than design?

No, DRS groups them together. Design and development, hosting, and maintenance are all named in the same category, so each of them is checked against the 1% rate. That is useful when you have three separate bills: a project invoice for the build, a monthly or yearly hosting charge, and a maintenance plan. You are looking for the same rate on each, with the tax shown on each line.

Maintenance deserves one extra look. The label "maintenance" can cover very different work, and DRS lists website maintenance in connection with the customer's own website. If a monthly plan bundles site updates with something else, such as SEO reports, email marketing or software licenses, ask the vendor to list each piece with its amount so you can see what each line is.

If you are comparing prices as well as tax, what a custom website costs and what website maintenance costs lay out the numbers. Add 1% to a Connecticut quote for these services when you budget, and confirm that the quote says whether tax is included.

What about software, subscriptions and digital products?

Software and digital goods follow their own rules, and they are where 6.35% shows up. DRS Special Notice 2019(8) sets out the distinctions. Digital goods, meaning electronically accessed or transferred audio, visual, audiovisual and reading materials and ringtones, are taxed at the general 6.35% rate beginning October 1, 2019.

For software, the buyer's use matters. Electronically accessed or transferred canned or prewritten software is taxed at 1% when a business buys it for business use and no tangible personal property is transferred. The rate is 6.35% when the software is transferred with tangible personal property or bought for personal use.

A subscription can go either way, depending on its true object. A software-as-a-service plan can fall under the 1% computer and data processing rate when what you are buying is business access to software or computer services. A subscription whose true object is access to digital content may be taxed at 6.35%. If you sell ebooks, courses, downloads or memberships from your own site, ask what the buyer actually receives, and confirm the rate with DRS or a tax professional before you set your prices.

Is SEO taxable in Connecticut?

SEO can land in different categories depending on what is delivered. A technical fix to your website may look like computer services. Advertising, public relations, business consulting and marketing work can each be classified differently, and DRS distinguishes nontaxable marketing research from taxable business analysis, management consulting, public relations and certain advertising services.

So, do not assign a rate to an SEO-only line by guessing from its label. Write down what the work is, such as keyword reports, page rewrites, link outreach or a site audit, and ask DRS or a tax professional which category each piece falls into. If an SEO charge is bundled into a design or maintenance invoice, ask for it as its own line so the rate on each piece can be checked.

What if my web designer is outside Connecticut?

You may still owe Connecticut tax. If you buy a taxable website service from an out-of-state provider and the provider does not collect Connecticut tax, you generally owe Connecticut use tax on it. DRS Informational Publication 2020(9) says businesses must pay use tax when they buy taxable goods or services for use in Connecticut from an out-of-state merchant that is not registered to collect Connecticut use tax.

Put simply, a vendor who does not charge Connecticut tax has not made the purchase tax-free. The tax can move from the seller to you as use tax. If you have paid a designer in another state for a website used in Connecticut, gather the invoices, note the service dates and amounts, and ask your accountant how to report the use tax. Fixing this is usually a bookkeeping task, and older or repeated purchases may call for a tax professional.

Sellers have their own side of this. An out-of-state seller must register for a Connecticut Sales and Use Tax Permit when it makes retail sales of taxable goods or services into Connecticut and meets the economic-nexus threshold, which DRS currently identifies as at least 200 Connecticut retail sales and at least $100,000 in gross receipts during the relevant preceding 12-month period. DRS's registration page explains how to register, and an out-of-state seller may use Form REG-7 to obtain authority to collect Connecticut use tax when registration is appropriate. If you are a Connecticut web designer or hosting company, this is the point where you set up collection for your Connecticut customers.

How can I check a web design invoice in ten minutes?

You can do this with your last few bills and a pen. It gives you questions to take to the vendor, and it does not settle an unclear mixed transaction on its own.

1. Pull the invoices: Open the latest design, hosting, maintenance and SEO invoices.
2. List each charge separately: One line for each piece of work or service.
3. Label each line: Website creation or development, hosting, maintenance, software, digital goods, SEO, advertising, consulting or another service.
4. Write down the tax rate and tax amount: Note them beside each line.
5. Compare the website lines with 1%: Design, development, hosting and maintenance should generally be reviewed against the 1% rate.
6. Flag the others: Digital goods, personal-use software, software with tangible property and unclear SEO lines need a separate look.
7. Check how the tax is shown: DRS permits tax to be included in the selling price if the receipt is marked "tax included," or added to the price and separately stated.
8. Save the paperwork: Keep the invoice, contract, payment record and any written explanation from the vendor.

If a line looks wrong, ask the vendor to explain the classification and rate, and request a corrected invoice or a credit if the rate does not match. If the service does not clearly match DRS guidance, ask DRS or a tax professional before you change the invoice or your filing. You can do this first pass yourself, and a designer who is confident in the invoice will itemize it on request.

Which invoice mistakes are worth fixing first?

Some errors are simple to correct, and some take a little more work. This is a practical order of what to look for, not a count of how often each happens.

• 6.35% on a website service line: Compare the line with the 1% rate, ask the vendor to review it, and request a correction if appropriate.
• Old guidance treated as current: Check the transaction date, then apply the rule in effect at that time.
• Use tax never reported on an out-of-state purchase: Identify the purchase, any tax already paid, and the Connecticut tax due, then report it through the applicable Connecticut business use-tax process.
• One lump-sum line: Ask for design, hosting, maintenance, software and SEO to be listed separately.
• Software or subscriptions classified by label only: Look at what the plan gives you and how you use it.
• Thin records: Keep the contract, invoice and payment record so you can explain the tax on each charge.

Sellers should also keep records that support the gross receipts reported on Form OS-114, including exemption or resale certificates, customer-location information and notes on whether each charge was a taxable service, digital good, software or other work. For mixed or recurring charges across several vendors and states, an accountant can set up consistent treatment once so you are not rebuilding it each quarter.

Frequently Asked Questions About is web design taxable in connecticut

Is website design taxable in Connecticut?

Generally yes. Website creation and development are taxable computer and data processing services at 1% for services provided on or after October 1, 2015.

Is website hosting taxable in Connecticut?

Yes. DRS includes website hosting among the taxable website services subject to the 1% rate.

Is website maintenance taxable?

Generally yes when the maintenance is performed in connection with your website. DRS lists website maintenance among the taxable website services at 1%.

Is the rate 1% or 6.35%?

Website creation, development, hosting and maintenance generally use the 1% computer and data processing rate. Digital goods and certain software transactions may use 6.35%.

What if my designer is outside Connecticut?

If the seller does not collect Connecticut tax, you may owe Connecticut use tax on a taxable service you use in the state.

What if my invoice has no tax on it?

No tax on the invoice does not mean no tax is due. Check whether the seller should have collected tax or whether use tax applies, and keep the invoice, contract and payment record.

What This Means for You

Web design, hosting and maintenance are taxable in Connecticut at 1% for services on or after October 1, 2015, and DRS names all three in the same category. The general 6.35% rate belongs to other categories, such as digital goods and personal-use software, so the rate on each line depends on what that line is. If a designer in another state left tax off, use tax can still be yours to report.

Your ten-minute check is the fastest way to see where you stand: list each charge, note the rate and compare it with the DRS rate for that service. Ask the vendor to itemize anything bundled, and take unclear lines such as SEO-only work to DRS or a tax professional. Businesses across Connecticut, including those in cities such as New Haven, can run this check the same way, because the rules come from the state.

If you want a Connecticut website quote that itemizes design, hosting and maintenance so each line is easy to check, Web Leveling can put one together. Our web design and website maintenance services can be quoted as separate lines, and we will point out what to confirm with a tax professional. We work with small and medium businesses across the country and overseas. Send us your current quote or invoice, and we will help you read it.

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