Town of Groton v. Department of Revenue Services
Connecticut may not exempt municipalities that sell services from the state sales tax, even if the services are related to government functions. The State of Connecticut found that the Town of Groton wrongly failed to collect sales tax on gross receipts received in connection with trash collection services for businesses. The state ordered the municipality to pay $240,866 for the period between May 2007 and September 2010. During that period, the municipality did not apply state sales taxes to the invoices it sent to end users, who select the size of the trash receptacle and the frequency of trash pickups. The municipality objected that trash collection services do not qualify as "sales," and that the town is exempt from state sales taxes for carrying out a municipal function. Connecticut General Statutes §12-407(a)(37) provides that "services" includes services that are provided to "industrial, commercial or income-producing real property" for consideration. The municipality did not dispute that consideration has been paid. "[W]hile the town sends an invoice for its costs to the end users, and the end users comply by paying this invoice," wrote the court, "there is still justification to find that there was a sale of services by the town." The municipality is not exempt, because it is performing a traditional government function. C.G.S. §12-412(1) provides that sales tax does not apply to sales of services "to . . . any political subdivisions" of the state. "The plaintiff," wrote the court, "has not demonstrated that Connecticut has a constitutional or statutory provision exempting municipalities that sell services, even if related to government functions, from the imposition of the state sales tax." The court granted judgment to the defendant, Department of Revenue Services.