DRS: SN 2017(4), Obligation of Dry Cleaners for the Dry Cleaning Establishment Surcharge and Business Use Tax

 

STATE OF CONNECTICUT
DEPARTMENT OF REVENUE SERVICES

450 Columbus Blvd
Hartford CT 06103
 
 
 
 
 
 

 
 

SN 2017(4)

Obligation of Dry Cleaners for the Dry Cleaning Establishment Surcharge and Business Use Tax

 

 

Purpose: The purpose of this Special Notice is to describe the dry cleaning establishment surcharge, which applies to the gross receipts at retail from dry cleaning services. Legislation passed in 2017 provides that the surcharge no longer applies to “drop stores” for calendar quarters commencing on or after October 1, 2017.

 

This Special Notice also provides information to dry cleaning establishments about their use tax obligations.

 

Definitions:

 

Dry Cleaning Establishment means any place of business engaged in the dry cleaning of clothing or other fabrics.

 

Dry Clean means to cleanse (clothing or fabrics) with chemical solvents rather than water. Dry cleaning includes (but is not limited to) the use of the following chemical solvents:

  • Perchloroethylene, Trichlorotrifluoroethane, Stoddard, 140F;
  • Organic processes using DF-2000 solvent (Petroleum-Based) classified by the EPA as a neurotoxin, Solvon K4;
  • Green Earth processes using D5 (Silicone-Based).

Wet Cleaning refers to cleaning processes using water as the solvent (Aqueous Solvents-Detergents / Conditioners).  Wet cleaning establishments are not subject to the surcharge

Gross Receipts at Retail means the total amount accruing from dry cleaning service, valued in money, without any deduction for the cost of the materials used, labor or service costs or any other expense.

 

Imposition of the Surcharge: A dry cleaning establishment surcharge of 1% of the gross receipts at retail from dry cleaning services performed at each dry cleaning establishment, as defined in this notice, shall be paid to the Department of Revenue Services (DRS) for any dry cleaning service performed.

 

The surcharge does not apply to the gross receipts from any other services, such as shirt laundering, alterations, tailoring or mending, or from sales of goods by those establishments.

 

EXAMPLE 1: Dry cleaner A charges the customer $7.00, of which $4.00 is the charge for dry cleaning and $3.00 is the charge for laundering shirts. Dry cleaner A's gross receipts subject to the surcharge include the $4.00 from dry cleaning services and not the $3.00 from shirt laundering.

 

Surcharge Is Imposed Upon Dry Cleaning Establishments: Unlike Connecticut sales tax, the surcharge is imposed upon the dry cleaning establishment, not the customers. Therefore, the dry cleaning establishment is not required to charge its customers an additional amount on account of the surcharge.

 

If an additional amount for the surcharge is billed to the customer, such additional amount is included in the establishment's gross receipts from dry cleaning services (and is itself subject to the surcharge).

 

EXAMPLE 2: Dry cleaner B charges $10.00 to dry clean a dress. The gross receipts subject to the surcharge include the $10.00 from this transaction.

 

EXAMPLE 3: Dry cleaner C charges $10.00 to dry clean a dress and an additional $.10 billed as an "environmental surcharge." Dry cleaner C's gross receipts subject to the surcharge include the $10.10 from this transaction. Any additional amount billed to the customer for the surcharge is part of the gross receipts from dry cleaning services and subject to the surcharge.

 

EXAMPLE 4: Dry cleaner D charges $25.20, of which $20.00 is for dry cleaning, $5.00 is for tailoring and $.20 is a dry cleaning or environmental surcharge. Dry cleaner D's gross receipts from dry cleaning services include the $20.20 from the dry cleaning and the surcharge. Any additional amount billed to the customer for the surcharge is part of the gross receipts from dry cleaning services and subject to the surcharge.

 

Drop Stores: “Drop stores” that only accept clothing or other fabrics to be cleaned elsewhere by a dry cleaning establishment are no longer required to pay the surcharge for calendar quarters commencing on and after October 1, 2017.

 

EXAMPLE 5:  Drop store E charges $25.10, of which $10.00 is for dry cleaning at a dry cleaning establishment, $.10 for the dry cleaning establishment surcharge, $5.00 for tailoring, and a $10.00 markup.  The drop store is not subject to a dry cleaning establishment surcharge based on the total dry cleaning retail sale of $25.10.

 

The dry cleaning establishment surcharge is imposed upon the gross receipts of the dry cleaning establishment, not the gross receipts of the drop store or any charges to the customer.

 

 

Filing Requirements: The dry cleaning establishment surcharge is due and payable on or before the last day of the month following the end of each calendar quarter using Form OP-374, Dry Cleaning Establishment Surcharge Return.

 

 

Penalty and Interest: If the dry cleaning establishment surcharge is not paid when due, a penalty of 10% of the amount due or $50.00, whichever is greater, will be imposed and the surcharge due will bear interest at the rate of 1% per month or fraction thereof from the due date to the date of payment.

 

Dry Cleaning Establishment Registration: Dry cleaning establishments must renew their registration with DRS each October 1. Failure to renew your registration with DRS will result in a $200 penalty.

 

DRS will mail renewal applications to registered dry cleaners each year. You must register each location with DRS and display a Dry Cleaning Establishment Surcharge Certificate in order to legally conduct business in the state. Locations not registered with DRS must submit an REG-1, Business Taxes Registration Application, and an REG-1 Addendum B, Dry Cleaning Establishment Surcharge, to receive a Dry Cleaning Establishment Surcharge Certificate.

 

Dry cleaning establishments already doing business in Connecticut that currently are not registered with DRS must register or be subject to a $1,000 penalty.  Dry cleaning establishments that do not renew their permit or do not register for the surcharge may not engage in or transact a dry cleaning business.

 

 

Dry Cleaning Establishment Remediation Account: Funds received by the state from the surcharge are deposited within the general fund in the Dry Cleaning Establishment Remediation Account. The state, acting through the Department of Economic and Community Development (DECD), uses the moneys in the account to provide grants to dry cleaning establishments for the purposes of clean-up or prevention of pollution resulting from the discharge, spillage, uncontrolled loss, seepage or filtration of chemicals or hazardous waste on or at the site of dry cleaning establishments.

 

In order to qualify for a grant, a dry cleaning establishment must demonstrate to the satisfaction of the DECD that it (1) is using or has previously used, tetrachloroethylene or stoddard solvent or other chemicals for the purpose of cleaning clothes or other fabrics, (2) has been doing business and has maintained its principal office and place of business in this state for a period of at least one year prior to the date of its application for assistance under this section and (3) is unable to obtain financing from conventional sources on reasonable terms or in reasonable amounts.

 

Contact the DECD at 860-270-8000 for more information about applying for a grant.

 

Business Use Tax on Dry Cleaning Establishments: Business Use Tax applies to goods or services purchased by a dry cleaner on which sales tax was not collected. 

 

Examples of purchases subject to use tax are:

  • Transfer machines,
  • washers,
  • extractors,
  • dry-to-dry machines,
  • reclaiming dryers,
  • solvents,
  • tanks,
  • detergents,
  • condensers,
  • separators,
  • muck cookers,
  • carbon adsorption units,
  • cartridge filters,
  • pipes,
  • flanges,
  • pumps,
  • hangers,
  • soap,
  • shrink-wrap,
  • cleaning supplies,
  • packing slips,
  • clothing identifiers,
  • furniture,
  • instruments,
  • appliances,
  • computers,
  • computer software,
  • office supplies,
  • paper,
  • stationery items,
  • certain publications, and
  • books.

See Informational Publication 2015(16), Q & A on the Connecticut Use Tax for Businesses and Professions.

 

 

Effective Date: Effective upon issuance, except that the exclusion of drop stores from the dry cleaning establishment surcharge is effective for calendar quarters commencing on or after October 1, 2017.

 

 

Statutory Authority: Conn. Gen. Stat. §12-263m, as amended by 2017 Conn. Pub. Acts 147, §26; Conn. Gen. Stat. §12-411.

 

Effect on Other Documents: Special Notice 94(16), Dry Cleaning Establishment Surcharge, and Announcement 2015(5), Obligation of Dry Cleaners and Dry Cleaning Drop Stores for the Dry Cleaning Establishment Surcharge and Business Use Tax, are modified and superseded and may not be relied upon on or after the date of issuance of this Special Notice.

 

 

Effect of This Document: A Special Notice announces a new policy or practice in response to changes in state or federal laws or regulations or to judicial decisions. A Special Notice indicates an informal interpretation of Connecticut tax law by the Department of Revenue Services (DRS).

 

 

For Further Information: Call DRS during business hours, Monday through Friday:

  • 1-800-382-9463 (Connecticut calls outside the Greater Hartford calling area only); or
  • 860-297-5962 (from anywhere).

TTY, TDD, and Text Telephone users only may transmit inquiries anytime by calling 860-297-4911.

 

 

Forms and Publications: Visit the DRS website at www.ct.gov/DRS to download and print Connecticut tax forms and publications.

 

 

Paperless Filing/Payment Methods (fast, easy, free, and confidential): Business and individual taxpayers can use the Taxpayer Service Center (TSC) at www.ct.gov/TSC to file a variety of tax returns, update account information, and make payments online.

File Electronically: You can choose first-time filer information and filing assistance or log directly into the TSC to file returns and pay taxes.

Pay Electronically: You can pay taxes for tax returns that cannot be filed through the TSC. Log in and select the Make Payment Only option. Choose a payment date up to the due date of the tax and mail a paper return to complete the filing process.

 

DRS E-alerts Email Service: Get connected to the latest DRS news including new legislation, policies, press releases, and more. Visit the DRS website at www.ct.gov/DRS and select Sign up for e-alerts under How Do I? on the gold navigation bar.

 

SN 2017(4)
Dry Cleaning Surcharge
Use Tax
Issued: 09/05/2017