Corporation Business Tax Information
- What's New for 2022
- Who Must Complete a Registration Application and File a Corporation Business Tax Return
- Exempt Entities
- What Constitutes a Unitary Business
- What is Common Ownership
- Which Companies Must Be Included in the Combined Group
- Selecting the Combined Group’s Filing Basis
- Selecting a Designated Taxable Member
- How to Determine the Combined Group’s Income Year
- Foreign (Non-United States) Companies
- Accounting Period and Method of Accounting
- NAICS Code for Principal Business Activity
- When to File (Tax Due Dates and Extensions)
- Where to File
- Electronic Payment Options
- Estimated Tax Payments
- Amended Returns and Federal Changes
- Interest and Penalties
- Tax Calculation and Credits
- Capital Base Tax Calculation – Summary
Tax credit for employers making certain student loan payments
Legislation expands the scope of the tax credit for employers making certain student loan payments. Pursuant to this amendment, the scope of eligible loans has been expanded to include all loans issued by the Connecticut Higher Education Supplemental Loan Authority (CHESLA). Prior to this amendment, the credit was available only in connection with refinanced loans issued by CHESLA. In addition, the amendment allows certain small businesses (defined as those businesses that have gross receipts of $5 million dollars or less in the applicable calendar or income year) that qualify for a credit to elect to have such credit issued in the form of refund. Previously, this credit was not refundable.
Qualified businesses can claim the Student Loan Payment tax credit for certain student loan payments by completing Form CT‑SLP, Student Loan Payment Tax Credit. Enter the amount from Form CT-SLP, Part I, Line 2 on Form CT-1120K, Business Tax Credit Summary, Part I-B, Column A to report the Student Loan Payment tax credit.
Qualified small businesses can request a refund for the Student Loan Payment tax credit by completing Form CT‑RSLP, Application for Refund of Student Loan Payment Tax Credits by a Qualified Small Business. Enter the amount from Form CT-SLP, Part I, Line 2 on Form CT-RSLP, Part II, Line 1. Enter the amount from Form CT-RSLP, Part II, Line 3 on Form CT-1120K, Part I-B, Column F to report the Student Loan Payment tax credit amount to be refunded.
Research Credit Utilization
Beginning with income year 2022, a company may utilize research and experimental tax credits available under section 12‑217j (R&E Tax Credits) and research and development tax credits available under section 12‑217n (R&D Tax Credits) in excess of the standard credit limitation.
In general, the amount of tax credits allowable against the corporation business tax shall not exceed 50.01% of the amount of tax due. However, R&E Tax Credits and R&D Tax Credits may be used up to 60% of the tax due in income year 2022, and up to 70% of the tax due in income year 2023 and thereafter.
“Jobs CT” Tax Rebate Program
This bill establishes the “Jobs CT” tax rebate program. Under this program, qualified businesses that create jobs in this state may be allowed a tax rebate, which shall be treated as a credit against the tax imposed under Chapter 208 (corporation business) or 228z (pass-through entity tax) or as an offset of the tax imposed under Chapter 207 (insurance premiums) for reaching certain job creation targets. The rebate is based on the number of new full-time equivalent employees (FTEs) the business creates and maintains, the FTEs’ average wage, and the state income tax that would be paid on this average wage for a single filer. The amount of credits issued in any one fiscal year may not exceed $40 million dollars. This legislation is effective for income years beginning on or after January 1, 2023.
Who Must Complete a Registration Application and File a Corporation Business Tax Return
Every corporation (or association taxable as a corporation) that carries on business or has the right to carry on business in Connecticut must complete a registration application and file Form CT‑1120, Corporation Business Tax Return. Any corporation dissolved or withdrawn from Connecticut is subject to the Corporation Business Tax up to the date of dissolution or withdrawal.
Groups of companies with common ownership that are engaged in a unitary business, where at least one member of the group is subject to the Corporation Business Tax, are required to calculate their tax liability on a combined unitary basis on Form CT‑1120CU, Combined Unitary Corporation Business Tax Return. See Special Notice 2016(1), Combined Unitary Legislation.
Register online through myconneCT. Go to myconneCT, under Business Registration click New Business/Need a CT Registration Number? There is no fee for registering for the Unrelated Business Income Tax.
Click here to File, Pay, or Register Now on myconneCT!
myconneCT is the new Connecticut Department of Revenue Services’ (DRS) online portal to file tax returns, make payments, view your filing history, and communicate with the agency simply and more efficiently on virtually any mobile device, including laptops, tablets, and smartphones, 24 hours a day, 7 days a week.
If the corporation elects S corporation status with the Internal Revenue Service after it registers for corporation business tax, it must notify DRS of the change in its status by logging into myconneCT to send a message using the Messages feature within the myconneCT application.
In addition to any tax filing obligations, your company may also be required to register with the Connecticut Secretary of the State as referenced in Connecticut Agencies Regulations 12-214-1.
Carrying on business includes:
- Owning or leasing (as lessee) real property
- Maintaining an office
- Selling tangible personal property
- Performing or soliciting orders for services
- Selling or soliciting orders for real property
- Maintaining a stock of inventory in a public warehouse
- Delivering merchandise inventory on consignment to its distributors or dealers
- Owning or leasing (as lessee) personal property which is not related to solicitation of orders
- Participating in the approval of servicing distributors and dealers where its customer or user of its product can have such product serviced or repaired.
Having the right to carry on business means:
- For companies incorporated or organized under the laws of this state, the Secretary of the State has endorsed its certificate of incorporation.
- For companies incorporated or organized under the laws of another state, the Secretary of the State has issued to it a certificate of authority.
If your company has a substantial economic presence in Connecticut, it must file a Corporation Business Tax return, see Informational Publication 2010(29.1), Q & A on Economic Nexus.
Certain types of companies are specifically exempt from the Corporation Business Tax. If your company is exempt, it is not subject to the Corporation Business Tax, but may be required to file a return.
The following companies are exempt from the Corporation Business Tax and from filing Form CT-1120 or being included in Form CT-1120CU:
- Insurance companies incorporated under the laws of any other state or foreign government, and domestic insurance companies;
- Companies exempt by the federal corporation net income tax law;
- A domestic international sales corporation (DISC) which has made a valid election for federal income tax purposes to be treated as a DISC;
- Companies subject to gross earnings taxes under Chapter 210 of the Connecticut General Statutes or whose properties in Connecticut are operated by railroad companies subject to gross earnings taxes under Chapter 210;
- Cooperative housing corporations, as defined for federal income tax purposes;
- Corporate limited partners in one or more investment partnerships that are otherwise not doing business in Connecticut; and
- Non‑United States corporations whose sole activity in Connecticut is trading in stocks, securities, or commodities for their own account.
The following companies are exempt from the Connecticut Corporation Business Tax but must file Form CT-1120 to claim the exemption:
- A homeowner’s association that has elected to be treated as such for federal income tax purposes. (A copy of federal Form 1120‑H must be available only upon request from DRS. Do not mail a copy unless otherwise requested.);
- Certain political organizations or associations exempt from federal income taxes under IRC § 527 (if the organization or association files federal Form 1120‑POL, then it must be attached to the Form CT‑1120);
- Financial service companies whose corporate headquarters are located in the export zone in the City of Hartford, Connecticut, and who are conducting all of their business outside the United States; and
- Passive investment companies (PICs), as defined under Conn. Gen. Stat. § 12‑213(a)(27), must file Form CT‑1120 PIC, Information Return for Passive Investment Companies, in place of Form CT‑1120.
What Constitutes a Unitary Business (Form CT-1120CU)
A unitary business is characterized by significant flows of value evidenced by factors such as those described in Mobil Oil Corp. v. Vermont, 445 U.S. 425 (1980): functional integration, centralization of management, and economies of scale. These factors provide evidence of whether the business activities operate as an integrated whole or exhibit substantial mutual interdependence. Facts suggesting the presence of the factors mentioned above should be analyzed in combination for their cumulative effect and not in isolation.
Without limiting the scope of what constitutes a unitary business, the presence of the following circumstances likely indicate the existence of a unitary business when conducted by two or more commonly owned companies:
- Companies engaged in the same line or similar lines of business.
- Companies engaged in different steps of a vertically structured business.
- Companies controlled by strong centralized management.
- Economies of scale that allow for mutual benefit to companies.
- One company exercises significant control over another company or companies.
- Companies engaged in intercompany business transactions, particularly relating to products, services, intellectual
- property, or financing that are significant to the businesses’ operations.
What is Common Ownership (Form CT-1120CU)
Common ownership means that more than fifty per cent of the voting control of each member of a combined group is directly or indirectly owned by a common owner or owners, either corporate or noncorporate, whether or not the owner or owners are members of the combined group. Whether voting control is indirectly owned shall be determined in accordance with Internal Revenue Code (IRC) § 318.
Which Companies Must Be Included in the Combined Group?
The following steps describe how to identify companies that must be included in the combined group:
Identify all companies with common ownership that are engaged in a unitary business with a company that is subject to the Corporation Business Tax.
The group of companies identified in Step 1 should be modified to reflect the applicable group filing basis: water’s‑edge, worldwide, or affiliated group. The group filing basis dictates which companies are included in or excluded from the combined group. Information on each group filing basis is provided below.
Exclude from the modified group of companies identified in Step 2 those companies that are specifically exempt from the Corporation Business Tax, such as:
- Insurance companies;
- Companies exempt from federal corporation net income tax;
- Companies subject to gross earnings taxes under Chapter 210 of the Connecticut General Statutes;
- Companies all of whose properties in this state are operated by companies subject to gross earnings taxes under Chapter 210 of the Connecticut General Statutes;
- Cooperative housing corporations;
- Certain political organizations or associations;
- Passive investment companies; and
- Municipal utilities.
The group of companies remaining after Step 3 is the combined group. Prior to calculating the combined group’s tax on a combined unitary basis, the companies must be divided between taxable members and nontaxable members. Members of the combined group that are individually subject to the Corporation Business Tax (i.e., have Connecticut nexus) are the taxable members. All other members are the nontaxable members.
The businesses of pass‑through entities are considered to be conducted by their direct or indirect members, but only to the extent of each member’s distributive share of the pass‑through entity income. Accordingly, a member’s pro‑rata share of the pass‑through entity’s income, capital, and apportionment factors derived from the unitary business must be included in the calculation of the combined group’s tax.
Portion of a Company’s Operations Engaged in a Unitary Business
If only a portion of a company’s operations are part of a unitary business, only the income, capital, and apportionment factors related to said portion should be included in the calculation of the combined group’s tax. The remaining portion of a member’s business operations may be subject to tax separately from the combined group, if such member individually conducts business in Connecticut, or with another combined group, if it is engaged in a unitary business with a different combined group that conducts business in Connecticut.
Passive Holding Companies
Passive holding companies that directly or indirectly control one or more operating companies engaged in a unitary business shall themselves be deemed to be engaged in a unitary business with such companies. Passive holding companies may be engaged in more than one unitary business. The income, capital, and apportionment factors of a passive holding company, or any other company, that is a member of more than one combined group shall be allocated on a consistent basis in accordance with combined unitary reporting principles. If a passive holding company is engaged in a unitary business with members of a combined group and with entities exempt from or otherwise not subject to the Corporation Business Tax, its income, capital, and apportionment must be allocated between the combined group and such other entities.
Selecting the Combined Group’s Filing Basis (Form CT-1120CU)
A combined group must select which filing basis it will use. A group’s filing basis affects which members are included in or excluded from the combined group. The filing bases are:
- Water’s‑Edge (default rule);
- Worldwide (elective option); or
- Affiliated Group (elective option).
The water’s-edge basis is the default option. The worldwide basis and affiliated group basis are elective options. A worldwide or affiliated group election must be made on the original return filed by the due date or extended due date of such return. If an election is made to file on a worldwide or affiliated group basis, the combined group must continue to use the selected elective basis for the current year and the next ten income years.
An election is made by checking either the worldwide or affiliated group box on Page 1 of Form CT-1120CU. If no election is made, the combined group should check the water’s-edge box and file on the default water’s-edge basis.
Water’s-Edge Basis (default rule)
Under the water’s-edge filing basis, the combined group includes those commonly owned companies engaged in a unitary business that:
- Are incorporated in the United States or formed under the laws of the United States, excluding companies with 80% or more of their property and 80% or more of their payroll located outside of the United States during the income year;
- Are incorporated outside of the United States, if 20% or more of their property and 20% or more of their payroll are located in the United States during the income year; or
- Are incorporated in a tax haven, unless it is proven to the satisfaction of the Commissioner that such companies are incorporated in a tax haven for a legitimate business purpose. See Special Notice 2016(1), Combined Unitary Legislation, for more information on tax havens.
Worldwide Basis (election)
Under the worldwide election, the combined group includes all companies with common ownership that are engaged in a unitary business regardless of where they are incorporated.
Affiliated Group Basis (election)
Under the affiliated group election, the combined group includes:
- Companies included in a federal consolidated return with a taxable member (regardless of whether said companies are engaged in a unitary business);
- Domestic (United States) companies that have more than 50% of their voting stock owned, directly or indirectly, by any member or members of a federal consolidated return that includes a taxable member (regardless of whether said companies are engaged in a unitary business); and
- Companies incorporated in a tax haven that share common ownership with a taxable member and are engaged in a unitary business with such member, unless it is proven to the satisfaction of the Commissioner that such companies are incorporated in a tax haven for a legitimate business purpose. See Special Notice 2016(1), Combined Unitary Legislation, for more information on tax havens.
How is the designated taxable member selected (Form CT-1120CU)
The combined group must select a designated taxable member. The designated taxable member must be a taxable member (i.e., have Connecticut nexus) and have a Connecticut Tax Registration Number. The designated taxable member is the combined group member that files the return, makes payments and performs other acts on behalf of the combined group. If the common parent is a taxable member in the combined group, it must be the designated taxable member. Otherwise, any taxable member may be selected.
If this is the first year that a combined group is filing a Form CT‑1120CU, the group will select the designated taxable member by reporting the member as the named filer on Page 1 of Form CT‑1120CU (in the box Name of Connecticut designated taxable member). No other form is required to select the designated taxable member. The designated taxable member should continue to file, pay and act on behalf of the combined group in future years.
Even though the designated taxable member is responsible for filing and paying on behalf of the combined group, each taxable member is jointly and severally liable for the tax due from the combined group.
How to Determine the Combined Group’s Income Year (Form CT-1120CU)
If two or more members of the combined group file a federal consolidated return, the combined group’s income year is the same as it is for federal consolidated return purposes. Otherwise, the combined group’s income year is the designated taxable member’s income year.
If a member has a different income year than the combined group’s income year, it should report the amounts from its income year ending during the combined group’s income year in the combined group’s return.
Foreign (Non-United States) Companies (Form CT-1120CU)
Connecticut Combined Unitary Corporation Business Tax Return
For any member not incorporated in the United States, not included in a consolidated federal corporate income tax return and not required to file its own federal corporate income tax return, the income to be included in the combined group’s net income shall be determined from a profit and loss statement. The statement shall be prepared for each foreign branch or company in the currency in which the books of account of the branch or company are regularly maintained. The statement must be adjusted to conform it to the accounting principles generally accepted in the United States for the presentation of such statements and further adjusted to take into account any book-tax differences required by federal or Connecticut law.
The profit and loss statement of each member of the combined group and the related apportionment factors, whether United States or foreign, shall be translated from the currency in which the company maintains its books and records into United States dollars on any reasonable basis consistently applied on a year-to-year or entity-by-entity basis.
In lieu of these procedures and subject to the determination of the Commissioner that the income to be reported reasonably approximates income as determined under the Corporation Business Tax, income may be determined on any reasonable basis consistently applied on a year-to-year or entity-by-entity basis.
Accounting Period and Method of Accounting
A corporation must use the same accounting period and method of accounting for Connecticut tax purposes as it does for federal tax purposes. If a corporation’s accounting period or method of accounting is changed for federal tax purposes, the same change must be made for Connecticut tax purposes.
NAICS Code for Principal Business Activity
Enter the North American Industry Classification System (NAICS) code for your principal business activity. General information concerning the classification of principal business activity under NAICS can also be found at www.census.gov/naics.
When to File (Tax Due Dates and Extensions)
Every corporation must file a return on or before the fifteenth day of the month following the due date of the corporation’s corresponding federal income tax return for the income year (May 15 for calendar year taxpayers). For example, if a corporation has a December 31st year end, the return is due on May 15th. Exception for June 30th year ends: If a corporation has a June 30th year end, the return is due on October 15th. If the due date falls on a Saturday, Sunday, or legal holiday, the return is considered timely if filed on the next business day.
|Year End||Original Due Date||Extended Due Date|
|Anything except June 30||15th day of 5th month after year end||15th day of 11th month after year end|
|June 30||15th day of 4th month after year end||15th day of 11th month after year end|
In order to request additional time to file Form CT-1120 or Form CT-1120CU, a corporation must file Form CT-1120 EXT, Application for Extension of Time to File Connecticut Corporation Business Tax Return. For detailed information about extensions, see the instructions to Form CT-1120 EXT.
All Corporation Business Tax returns must be filed electronically. See Informational Publication 2022(6), Filing and Paying Connecticut Taxes Electronically.
Modernized e-File Program (MeF)
DRS accepts Corporation Business Tax returns, extensions, and estimated payments through the MeF Program. Check with your software provider for availability.
Form CT-1120 can be filed electronically through myconneCT. DRS myconneCT allows taxpayers to electronically file, pay, and manage state tax responsibilities. If you file electronically you are expected to pay electronically at the time of filing.
Form CT‑1120CU can be filed electronically using the MeF program using third party software. Check with your current software provider to verify that they provide support for Form CT‑1120CU. DRS myconneCT does not support filing of Form CT‑1120CU, but can be used to make electronic Form CT‑1120CU Estimated Payments, Extension Payments, and balance due payments.
If Form CT‑1120 or Form CT-1120CU is filed late, see Interest and Penalties to determine if interest and penalty should be reported with this return.
All Corporation Business Tax payments (estimates, extension payments, and return payments) must be made electronically. Non-electronic payments made without an electronic payment waiver will be subject to penalty. See Informational Publication 2022(6), Filing and Paying Connecticut Taxes Electronically.
There are multiple options to pay electronically:
Visit myconneCT to make an electronic payment. After logging in to myconneCT, find your tax account on the Summary screen, select the Make a Payment link, and choose your payment method.
- Pay by Direct Payment: Using this option authorizes DRS to electronically withdraw a payment from your bank account (checking or savings) on a date you select up to the due date.
- Pay by Credit Card or Debit Card: You may elect to pay your tax liability using a credit card (American Express®, Discover®, Master Card®, Visa®) or comparable debit card. A convenience fee will be charged by the credit card service provider. You will be informed of the amount of the fee and may elect to cancel the transaction. Your payment will be effective on the date that you make the charge.
At the end of the transaction, you will receive a confirmation number for your records. As a reminder, even if you pay electronically, you must still file your return by the due date. Tax not paid on or before the due date will be subject to penalty and interest.
Modernized e‑File (MeF)
Check with your current software provider to determine if this option is available.
ACH credit method users should consult with their banking institution for guidelines to ensure that payment is received timely. (Taxpayers must pre‑register with the DRS Electronic Commerce Unit (ECU) prior to using this option). The taxpayer initiates an electronic payment through their banking institution. This payment must be sent in the ACH standard CCD+TXP format. For detailed information and a list of FAQ’s, review Informational Publication 2022(6), Filing and Paying Connecticut Taxes Electronically.
Every corporation subject to the Connecticut Corporation Business Tax whose estimated current year tax exceeds $1,000 must make its required annual payment in four installments. All Corporation Business Tax estimated payments must be filed and paid electronically. To file and pay estimated taxes electronically, visit myconneCT.
The amount of each estimated payment is calculated based upon the corporation’s required annual payment. In general, the required annual payment is the lesser of:
- 90% of the tax (including surtax) shown on the return for the income year, or, if no return is filed, 90% of the tax for such year; or
- 100% of the tax (including surtax) shown on the return for the previous income year without regard to any credit, if the previous income year was an income year of 12 months and if the company filed a return for the previous income year showing a liability for tax.
Note: For combined group (Form CT-1120CU) the second portion of the required annual payment will be based upon the total tax due from all members of the combined group that filed with the designated taxable member in the prior year.
If the due date falls on a Saturday, Sunday, or legal holiday, the return is considered timely if filed on the next business day.
The estimated tax due dates table indicates the amount due for each installment under the regular installment method. For more information on estimated Corporation Business Tax payments, including information regarding the annualized installment method, see Informational Publication 2022(5), 2022 Q & A on Estimated Corporation Business Tax and Worksheet CT‑1120AE.
|Estimated Tax Payments|
|Estimated Tax Due Dates||Required Payment Amounts
The estimated payments for the income year are the lesser of:
|First||ESA - Fifteenth day of the third month of the income year||30% of prior year tax (including surtax) without regard to credits or
27% of current year tax (including surtax)
|Second||ESB - Fifteenth day of the sixth month of the income year||* 70% of prior year tax (including surtax) without regard to credits or
63% of current year tax (including surtax)
|Third||ESC - Fifteenth day of the ninth month of the income year
||* 80% of prior year tax (including surtax) without regard to credits or
72% of current year tax (including surtax)
|Fourth||ESD - Fifteenth day of the twelfth month of the income year
||* 100% of prior year tax (including surtax) without regard to credits or
90% of current year tax (including surtax)
* Taking into account all prior estimated tax payments made for this year
Amended Returns and Federal Changes
Beginning with income year 2021, Form CT-1120X, Amended Connecticut Corporation Business Tax Return, will no longer be issued. Instead, companies that file on a separate company basis can file an amended 2021 corporation business tax return by using Form CT‑1120, Corporation Business Tax Return, and checking the Amended box on Page 4 of the return. Amended returns for prior years can be filed using Form CT-1120X for the applicable year.
Combined unitary filers should continue to use Form CT-1120CU, Combined Unitary Corporation Business Tax Return, to file amended returns by checking the Amended box.
When to File an Amended Return
Generally, an amended tax return must be filed within three years of the due date of the original return or, if an extension of time was granted, three years from the extended due date.
Reporting Federal Changes
If a corporation has filed an amended federal return with the Internal Revenue Service (IRS) and the amendment affects the corporation’s Connecticut tax return, then within 90 days of the IRS final determination on that amended federal return, the corporation shall file Form CT‑1120 or Form CT-1120CU, and attach a copy of federal Form 1120X, Amended U.S. Corporation Income Tax return.
Corrections to taxable income made by the IRS must be reported to the Commissioner of Revenue Services on or before 90 days after the final determination of the change. All federal adjustments must be reported on an amended return. An extension request for reporting federal audit changes may be submitted in writing to the Commissioner stating the reason additional time is required.
If the adjustment on a Connecticut amended return is not related to an adjustment made on a federal amended return (e.g., an adjustment to Connecticut net income, Connecticut minimum tax base, a Connecticut apportionment factor, a Connecticut net operating loss, or a Connecticut Corporation Business Tax credit), explain such adjustment in detail and attach all appropriate supporting forms and schedules.
In general, interest and penalty apply to any portion of the tax not paid on or before the original due date of the return.
If the corporation does not pay the tax when due, it will owe interest at the rate of 1% per month or fraction of a month until the tax is paid in full. Interest due on the underpayment of estimated tax is computed using Form CT‑1120I, Computation of Interest Due on Underpayment of Estimated Tax. Interest on underpayment or late payment of tax cannot be waived.
Penalty for Failure to Remit Payments Electronically
The following graduated penalty amounts will apply if you fail to remit payments electronically:
- First offense – 10% penalty on the amount of the tax payment, but not more than $2,500;
- Second offense – 10% penalty, but not more than $10,000; and
- Third and subsequent offenses – 10% penalty.
When initiating a payment through your financial institution’s online banking system you must verify that your financial institution is sending an EFT, not a check.
Penalty for Late Payment or Late Filing
The penalty for late payment or underpayment of Corporation Business Tax is 10% of the tax due or $50, whichever is greater. If a request for a filing extension has been granted, a corporation may avoid a penalty for failure to pay the full amount due by the original due date if it pays:
- At least 90% of the tax shown to be due on the return on or before the original due date of the return; and
- The balance due with the filing of Form CT-1120 or Form CT-1120CU, on or before the extended due date.
If no tax is due, DRS may impose a $50 penalty for the late filing of any return or report required by law to be filed.
Penalty for Willful Failure to File or Pay
Anyone who willfully fails to pay the tax or file a return will be fined up to $1,000 or imprisoned up to one year, or both, in addition to any other penalty.
Penalty for Willful Filing of a Fraudulent or Materially False Return
If you willfully file a tax return you know to be fraudulent or false in any material matter, you may be fined up to $5,000 or imprisoned from one to five years, or both.
Penalty for Failure to Disclose Listed Transaction
A penalty of 75% of the amount of the deficiency may be imposed when it appears that any part of the deficiency is due to failure to disclose a listed transaction, as defined in IRC § 6707A.
Your Corporation Business Tax liability is the greater of your:
- Net Income Base Tax
- Capital Base Tax
Companies whose total income reported on line 11 of federal Form 1120 equals or exceeds $100 million, or who file as part of a combined unitary group must pay a surtax of 10% of the tax without regard to credits and tax credit recapture. The surtax does not apply to the minimum tax of $250.
You may qualify for tax credits that can reduce your Corporation Business Tax liability. In general, credits cannot reduce your corporation’s tax by more than 50.01%. The Guide to Business Tax Credits provides information on credits available to corporations.
Net Income Base Tax Calculation - Summary
In general, the net income base calculation begins with federal taxable income, which is found on Line 28 of Form 1120, U.S. Corporation Income Tax Return. Certain Connecticut specific adjustments are then made to arrive at Connecticut net income. Companies that engage in business in multiple states are permitted to apportion their income. Accrued net operating losses derived from prior years are then deducted. The tax rate of 7.5% is then applied to arrive at the net income base tax.
|Net Income Base Tax Example|
|Federal Taxable Income||$88,000
|Add||Connecticut Specific Addition Modifications||12,000|
|Subtract||Connecticut Specific Subtraction Modifications
|Equals||Connecticut Net Income||84,000|
|Multiply by||Apportionment Fraction||.20250
|Equals||Apportioned Connecticut Net Income||17,010
|Subtract||Net Operation Loss (NOL) Deduction||(7,010)
|Equals||Apportioned Net Income Subject to Tax||10,000
|Multiply by||Tax Rate of 7.5%||.075
|Equals||Net Income Base Tax||$750
Adjustments to determine Connecticut net income
To calculate your net income base tax, you must make certain modifications to your company’s federal taxable income. These modifications may be additions or subtractions.
Companies must add back certain items deducted in arriving at federal taxable income, such as:
- Exempt interest income
- State and local income taxes
- Royalties or interest paid to a related member
- Bonus Depreciation
- 80% of I.R.C. §179 deduction
Companies may deduct certain items from federal taxable income, such as:
- Certain dividends less 5% related expense
- Capital losses carryovers not deducted in computing federal gain
- Deferred cancellation of debt income
- I.R.C. §163(j) interest deduction disallowed for federal tax purposes
- Contributions from Connecticut or its municipalities included in federal taxable income
Certain additional adjustments are required for companies that file a Form CT-1120CU, Combined Unitary Corporation Business Tax Return. See Special Notice 2016(1), Combined Unitary Legislation, for more information.
Net Income Apportionment
Companies that conduct business in multiple states are allowed to apportion their net income. In general, Connecticut requires companies to apportion their income based upon the percentage of their sales made in Connecticut. Connecticut provides special apportionment rules and forms for certain types of companies, including:
- Air Carriers
- Broadcasters and Production Entities
- Credit Card Companies
- Financial Service Companies
- Limited Partners
- Manufacturing Companies
- Motor Bus and Motor Carrier Companies
- Security Brokerage Companies
- Income from Services to Regulated Investment Companies.
Combined Unitary Filers
Groups of companies that file a Form CT-1120CU, Combined Unitary Corporation Business Tax Return, also generally apportion their income based upon the percentage of their sales made in Connecticut. Use Form CT-1120A-CU, Apportionment Computation for Combined Unitary Filers, and Special Notice 2016(1), Combined Unitary Legislation, for more information.
Net Operating Losses (NOLs)
Companies that report negative apportioned net income (i.e., NOLs) in a prior year, may carry forward such NOLs and deduct them from positive apportioned net income in future years. An NOL deduction may not exceed 50% of a company’s pre-NOL income. NOLs may be carried forward until utilized, up to a maximum of 20 years.
Capital Base Tax Calculation - Summary
The capital base tax calculation begins with the average value of a company’s capital. Surplus Reserves are then added and holdings of stock in corporations are deducted to arrive at the capital base. Companies that engage in business in multiple states are permitted to apportion their capital base. The tax rate of 0.31% is then applied to the apportioned capital base to arrive at the capital base tax.
Certain companies are exempt from calculating the capital base tax:
- Real estate investment trusts
- Regulated investment companies
- Financial service companies are only subject to a capital base tax of $250.
|Capital Base Tax Example|
|Average* amounts from Line 22a, 22b, 23, 24 and 25 Schedule 1, Federal Form 1120
||Average* Surplus Reserves**||250,000
||Average* Holdings of Stock in Corporations ***||(500,000)
||Apportioned Capital Base||1,057,500
||Tax Rate of 0.31%||.0031
||Capital Base Tax (cannot be less than $250)||$3,278
|*Average of beginning and end of year balances|
|**A surplus reserve is an amount set aside or deducted from current or retained earnings for meeting future liabilities|
|*** Holdings of stock includes all non-governmental corporations, whether closely or publicly held, including treasury stock.|
Capital Base Apportionment
Companies that conduct business in multiple states are allowed to apportion their capital base. Companies apportion their capital base based upon the percentage of their total tangible and intangible assets located in Connecticut. A tangible asset is in Connecticut when it is physically located within the state. An intangible asset is presumed to be in Connecticut if the company’s principal place of business is in Connecticut unless it can be clearly established that some or all of such assets are held in connection with business conducted outside of Connecticut.
Groups of companies that file a Form CT-1120CU, Combined Unitary Corporation Business Tax Return, also generally apportion their capital base based upon the percentage of their tangible and intangible assets in Connecticut. See Form CT-1120A-CU, Apportionment Computation for Combined Unitary Filers, and Special Notice 2016(1), Combined Unitary Legislation, for more information.
Connecticut provides special capital base apportionment rules for air carriers.