This Informational Publication has been modified and superseded by IP 2001(14)
PURPOSE: This publication provides a brief description of certain taxes applicable to companies doing business in Connecticut. It is not an all-inclusive list but it contains those taxes of interest to the majority of businesses and identifies the state agencies to contact for further information. For more detailed information about taxes applicable to businesses in Connecticut, request Informational Publication 99(21), Getting Started in Business: Understanding Connecticut Taxes, from the Department of Revenue Services (DRS).
The following taxes are among those administered by DRS: corporation business tax, sales and use taxes, motor vehicle fuels tax, motor carrier road tax, and income tax withholding. For further information or to request Form REG-1, Application for Tax Registration Number, contact Taxpayer Services at 860-297-5962 (anywhere) or 1-800-382-9463 (in-state).
EFFECTIVE DATE: Upon Issuance.
CORPORATION BUSINESS TAX: The corporation business tax is a tax on the privilege of carrying on business in a corporate capacity in Connecticut. Corporations must calculate their tax under two alternative methods and remit the higher tax. If a corporation owes less than $250 under both methods, it pays the minimum tax of $250.
Net income base
The starting point for determining Connecticut taxable income is federal net income. Specific adjustments are made that either increase or decrease federal taxable income. Multistate corporations that derive their income from the manufacture, sale or use of tangible personal or real property multiply their Connecticut net income by an apportionment fraction that is the average of the receipts, payroll and property ratios (with the receipts ratio double-weighted). Multistate corporations that derive their income from business other than the manufacture, sale or use of tangible personal or real property multiply their Connecticut net income by an apportionment fraction. The numerator is their gross receipts from business carried on within Connecticut, and the denominator is their gross receipts from business carried on everywhere. The Connecticut net income (or apportioned Connecticut net income for multistate corporations) is taxed as follows:
|For Income Years Beginning On or After||But Before||Tax Rate|
Minimum tax base
The Connecticut minimum tax base is:
(A) the average value of issued and outstanding capital stock, surplus and undivided profits, and surplus reserves reduced by
(B) the average value of any deficit carried on the balance sheet and holdings of stock of private (nongovernmental) corporations including treasury stock.
Multistate corporations multiply their Connecticut minimum tax base by an apportionment fraction that is the average of the intangible personal property and tangible personal property ratios. The Connecticut minimum tax base (or apportioned Connecticut minimum tax base for multistate corporations) is taxed at a rate of 3.1 mils ($0.0031) per dollar. The minimum tax cannot be more than $1,000,000 or less than $250.
Estimated corporation business tax
A corporation whose estimated current year’s tax exceeds $1,000 must make estimated tax payments. The required annual payment is the lesser of:
30% of prior year’s tax or 27% of current year’s tax.
70% of prior year’s tax or 63% of current year’s tax.
80% of prior year’s tax or 72% of current year’s tax.
100% of prior year’s tax or 90% of current year’s tax.
For income years beginning on or after January 1, 1999, corporations are allowed to make quarterly estimated tax payments using an annualized method. See Informational Publication 99(12.1), Calculating Annualized Estimated Corporation Business Tax Installments and Worksheet CT-1120AE, or Informational Publication 99(13.1), Calculating Annual Estimated Business Tax Installments for S Corporations and Worksheet CT-1120S AE, for further information.
C corporations must file Form CT-1120, Corporation Business Tax Return, by the first day of the fourth month after the close of the income year. S corporations must file Form CT-1120S, S Corporation Business Tax Return, and an informational return, Form CT-1120SI, on or before the 15th day of the fourth month after the close of the income year.
The corporation business tax on S corporations is being phased out. The percentage of nonseparately stated income of an S corporation subject to the tax will be reduced each year as follows:
FOR INCOME YEARS BEGINNING
|On or after January 1, 1997 but before January 1, 1998||90%|
|On or after January 1, 1998 but before January 1, 1999||75%|
|On or after January 1, 1999 but before January 1, 2000||55%|
|On or after January 1, 2000 but before January 1, 2001||30%|
|On or after January 1, 2001||0%|
S corporation shareholders’ income from the S corporation is subject to income tax. The shareholders’ income includes their pro rata share of separately stated items of S corporation income. Beginning in 1997, income also includes their pro rata share of the percentage of nonseparately stated (ordinary) income that is not taxed at the corporate level. Nonresident shareholders are taxed only to the extent that the income is Connecticut source income. For income years beginning on or after January 1 ,1998, an S corporation may elect to treat a 100%-owned subsidiary as a qualified subchapter S subsidiary (SESS). In that case, the SESS would not be treated as a separate corporation for purposes of the Connecticut corporation business tax, regardless of whether the measure of such tax is net income, capital or the minimum tax. The assets, liabilities and items of income, deduction, and credit of the SESS will be included in the S corporation’s tax return.
Corporation Business Tax Credits
Corporation business tax credits are available to new and existing businesses. Informational Publication 95(2.1), A Guide to Connecticut Corporation Business Tax Credits, contains detailed summaries of available credits. To order this publication, send a self-addressed 9" x 12" envelope with $1.43 postage affixed to:
Department of Revenue Services
Mail Unit, Corporation Credit Guide
25 Sigourney Street
Hartford CT 06106-5032
SALES AND USE TAXES
Retail sales or leases of tangible personal property and certain services are subject to sales and use taxes at a 6% rate except as noted below. The room occupancy tax rate of 12% applies to the occupancy of a room in a hotel or lodging house for a period of thirty consecutive days or less.
The use tax generally applies to taxable tangible personal property or services on which the Connecticut sales tax was not imposed by the seller. A business must report purchases subject to the use tax on Form OS-114, Connecticut Sales and Use Tax Return, for the period in which the purchases are made. If an item purchased in another state already was subject to that state’s sales tax, credit for such tax is generally given when computing the Connecticut use tax.
Certain services subject to tax
Although not an inclusive list, the following are commonly provided taxable services:
Advertising or public relations services not related to the development of media advertising or cooperative direct mail advertising;
Business analysis, management, management consulting, and public relations services;
Cable television services, including satellite services;
Computer and data processing, including charges for on-line access to computer services and information, but excluding services rendered in connection with creation, development, hosting or maintenance of all or part of a web site that is part of the World Wide Web. The tax on computer and data processing services is being phased out through a series of rate reductions. The rate is 3% beginning July 1, 1999, and will drop by 1% per year, effective on July 1 of each year, until it is repealed on July 1, 2002;
Employment and personnel services;
Landscaping and horticulture services;
Motor vehicle repairs;
Repairs to tangible personal property (except repairs to vessels and fabrication labor to existing vessels, which are nontaxable beginning July 1, 1999);
Repair and renovation services to commercial, industrial, and income producing real property;
Repair and renovation services to residential real property limited to: paving, painting or staining, wallpapering, roofing, siding, and exterior sheet metal work. The tax on these services is being phased out. The rate is 4% beginning July 1, 1999, 2% beginning July 1, 2000, and the services will be nontaxable beginning July 1, 2001;
Sales agent services for selling tangible personal property, excluding the services of a consignee selling works of art or clothing and the services of an auctioneer;
Telephone answering services;
Sales of services between the following 100% wholly-owned affiliated business entities are exempt from sales and use taxes: corporations, trusts, estates, partnerships, limited partnerships, limited liability partnerships, limited liability companies, single member limited liability companies, sole proprietorships, and non-stock corporations.
Because this area of tax law is complex, DRS created Informational Publication 99(19), Building Contractors’ Guide to Connecticut Sales and Use Taxes, which includes information about tax issues of interest to building contractors. To order this publication send a self-addressed 9" x 12" envelope with $1.87 in postage affixed to:
Department of Revenue Services
Mail Unit, Building Contractors’ Guide
25 Sigourney Street
Hartford CT 06106-5032
Sales and use taxes are imposed on most items purchased by Connecticut manufacturers. However, there are certain exemptions:
Machinery used directly in the manufacturing production process;
Repair, replacement, component or enhancement parts for such machinery;
Materials that become an ingredient or component part of the products to be sold;
Tools, fuel, and materials that are used directly in an industrial plant in the actual fabrication of finished products to be sold;
Calibration services for manufacturing machinery, equipment or instrumentation.
Also, under the Manufacturing Recovery Act, available to manufacturers, processors, and fabricators, 50% of the purchase price of materials, tools, fuels, machinery, and equipment is exempt from sales and use taxes.
Informational Publication 99(18), Sales and Use Taxes Guide for Manufacturers, Fabricators and Processors, includes information about tax exemptions and other issues of interest to manufacturers. To order this publication send a self-addressed 9" x 12" envelope with $1.87 in postage affixed to:
Department of Revenue Services
Mail Unit, Manufacturers’ Guide
25 Sigourney Street
Hartford CT 06106-5032
Connecticut retailers that sell taxable goods or services must collect sales tax on their sales, except when a properly completed Connecticut Sales and Use Tax Resale Certificate is taken in good faith or the sale is otherwise exempt from the tax. Retailers must remit sales and use taxes on a quarterly basis to the state, except where the tax for the 12-month period ended on the preceding September 30 was more than $4,000, in which event the tax is remitted monthly. Annual filing is allowed for businesses whose total annual liability for sales and use taxes is less than $1,000.
Certain sales are exempt from tax including, but not limited to, sales of food (other than meals), clothing under $50, newspapers, magazines by subscription, and prescription and certain nonprescription drugs.
MOTOR VEHICLE FUELS TAX
An excise tax is imposed on motor vehicle fuel. The tax rate on gasoline is 32¢ per gallon. The tax rate on gasohol is 31¢ per gallon. The tax rate on diesel fuel is 18¢ per gallon.
MOTOR CARRIER ROAD TAX
A tax is imposed on the use of motor vehicle fuel in the operations in Connecticut of motor carriers operating qualified motor vehicles. The rate is equivalent to the Connecticut motor vehicle fuel tax rate. A qualified motor vehicle is a motor vehicle that is used, designed or maintained for transportation of persons or property and that:
Has two axles and a gross vehicle weight or registered gross vehicle weight exceeding 26,000 pounds; or
Has three or more axles regardless of weight; or
Is used in combination and the combined gross vehicle weight or registered gross vehicle weight exceeds 26,000 pounds.
International Fuel Tax Agreement (IFTA)
Connecticut is a member of the International Fuel Tax Agreement (IFTA). IFTA is an agreement among jurisdictions (states of the United States and Canadian provinces) to simplify the reporting of the fuel use taxes by interstate carriers. All 48 contiguous states as well as 10 Canadian provinces are members of IFTA.
Each motor carrier based in Connecticut that also operates in at least one other IFTA jurisdiction must obtain a Connecticut IFTA license and decals. For carriers based in another jurisdiction that is also an IFTA member, the IFTA license and decals from that jurisdiction satisfy Connecticut fuel use tax requirements. Qualified motor vehicles based outside Connecticut in a non-IFTA jurisdiction or that operate only in Connecticut must obtain Connecticut motor vehicle road tax decals. Call the DRS Registration Unit to obtain an application.
INCOME TAX WITHHOLDING
An employer that (1) maintains an office in Connecticut or is transacting business within Connecticut, and (2) is considered an employer for federal income tax withholding purposes, is an employer for Connecticut income tax withholding purposes. Employers must withhold Connecticut income tax from wages of resident employees and from nonresident employees who work in Connecticut. In general, when an employer deposits federal income taxes withheld from employee wages, the employer must pay over Connecticut income taxes withheld from employee wages to DRS. Quarterly reconciliations are due on the last day of the month following the end of the calendar quarter. The annual reconciliation for the preceding year is due on the last day of February.
OTHER STATE AGENCIES
The following taxes are administered by other state or municipal agencies: corporation franchise tax, unemployment compensation tax, property tax, and motor vehicle fees.
Corporation Franchise Tax: The Office of the Secretary of the State collects a franchise tax from Connecticut corporations. For further information write to the Secretary of the State, 30 Trinity St., Hartford, CT 06106 and enclose a stamped, self-addressed envelope or telephone 860-509-6003 for further information.
A domestic corporation is required to pay a franchise tax to the Secretary of the State at the time of incorporation and at the time of any increase in the number of shares of authorized capital stock as follows:
(Minimum franchise tax: $150)
|Number of Shares||Tax Rate|
|First 10,000 shares||1¢ per share|
|10,001-100,000 shares||1/2¢ per share|
|100,001-1,000,000 shares||1/4¢ per share|
|1,000,000+ shares||1/5¢ per share|
There is an additional fee of $50 for filing the certificate of incorporation and a $25 fee for a certified copy of the certificate. Corporations must file annual reports on or before the last business day of the month in which occurs the anniversary date of incorporation. The filing fee is $75. The fee for a certified copy of a corporate document is $25.
A corporation organized outside the state may obtain a certificate of authority to transact business in Connecticut by filing an application with the Secretary of the State and appointing an agent to accept service of process. Applications are available from the Secretary of the State and must be accompanied by a filing fee of $275 and a certificate of good standing from the state of incorporation. Corporations must file annual reports on or before the last business day of the month in which occurs the anniversary date of the authorization to transact business. The filing fee is $300.
Unemployment Compensation Tax
The Department of Labor administers the unemployment compensation tax. For further information and registration forms, write to the Connecticut Department of Labor, Attn: Employer Status Unit, 200 Folly Brook Boulevard, Wethersfield, CT 06109 or call 860-263-6550.
Unemployment Compensation Act
Employers engaged in covered activities are subject to the Unemployment Compensation Act if during a calendar quarter of the current or preceding calendar year they paid cash wages totaling $1,500 or more, or the employer had, during the current or preceding calendar year, one or more employees at any time in each of 20 calendar weeks.
Agricultural employers are subject to the Act if: (1) during any calendar quarter of the current or preceding calendar year they paid cash wages totaling $20,000 or more, or (2) during the current or preceding calendar year, they had 10 or more employees at any time in each of 20 calendar weeks. Domestic employers are subject to the Act if they paid cash wages totaling $1,000 or more during any calendar quarter of the current or preceding calendar year.
Unemployment Compensation Fund
The Unemployment Compensation Fund is financed through a benefit ratio system. For employers who qualify to be experience-rated (those who have been chargeable with benefits for at least one year ending June 30), taxes are based on: (1) the benefit ratio of each employer, which will determine the charged tax rate, and (2) unemployment compensation fund reserves, which will determine a fund balance tax rate. These rates are recalculated annually for qualified employers.
An employer’s charged tax rate is the ratio of charges during the applicable experience period to the taxable payroll for the same period; it can range from 0.5% to 5.4% of taxable payroll. The fund balance tax rate may increase an employer’s total contribution rate, depending on the solvency of the unemployment compensation fund. It is calculated annually, applies uniformly to all employers who qualify for experience rating, and ranges from 0% to 1.5% of taxable payroll for calendar years 1994-1998, and 0% to 1.4% starting in 1999.
An employer who has not been subject to the Act for a sufficient period of time to be experience-rated shall pay contributions at a rate that is the higher of 1.0% of taxable wages, or the Connecticut five-year benefit cost rate. An employer’s taxable wages consist of the sum of employees’ wages not in excess of $15,000 per individual in calendar year 1999.
Maximum unemployment compensation rate
The maximum unemployment compensation rate is $382 per week, effective October 1999. The rate is revised annually as of the first Sunday in October. The annual increase is limited to $18 over the previous maximum benefit. However, the maximum benefit cannot exceed 60% of the average weekly wage of manufacturing production and related workers in Connecticut.
The property tax is administered by each Connecticut municipality. For further information on property tax, write to the Intergovernmental Policy Division of the Office of Policy and Management, 450 Capitol Avenue, Mail Stop 54 FOR, Hartford, CT 06106-1308. Specific information may also be obtained from the city or town assessor where the business will be located.
Each company pays an ad valorem property tax to the community in which it has real property, personal property or both. Manufacturing inventories of finished goods and goods in process are exempt, as are mercantile inventories.
October 1 is the annual assessment date. Not later than November 1, each company must file a declaration of its personal property with the local assessor. Personal property and motor vehicles are revalued annually. Real property is revalued every four years, pursuant to a schedule contained in Conn. Gen. Stat. §12-62. Increases in assessed values of real property resulting from revaluation may be phased-in for up to four years, at community option.
Any municipality with a population in excess of 35,000 (as defined by the most recent federal census) may establish a special service district to construct, own, operate, and maintain public improvements, and to provide within the district such services that a municipality is authorized to provide, except elementary and secondary education.
Newly acquired manufacturing machinery and equipment (including property used in the production of motion pictures, videos, and sound recordings) may be exempt from the property tax for a five year period. New commercial motor vehicles used exclusively for the interstate or intrastate transport of freight for hire, may also be exempt for a five year period. Both exemptions must be claimed annually. Exemption applications and personal property declaration forms are available from the assessor.
Connecticut has a free-port law which permits goods shipped in from out-of-state to remain free of local property taxes while stored in a public warehouse not owned by consignor or consignee, provided such goods remain in their original packages.
MOTOR VEHICLE REGISTRATION FEES
Motor vehicle registration is administered by the Department of Motor Vehicles. Driver licenses are renewed every four years for $35.50 and commercial driver licenses are renewed every four years for $50. There is a biennial registration fee of $70 for private passenger cars and $78 for passenger cars used for business purposes. The annual registration fee for commercial motor vehicles is based on the vehicle gross weight (weight of vehicle empty plus weight of heaviest load) as follows:
Up to 20,000 lbs.
$1.15 per 100 lbs.
|20,001 - 30,000 lbs.||$1.40 per 100 lbs.|
(or fraction of 100 lbs.)
|30,001 - 73,000 lbs.||$1.75 per 100 lbs.|
(or fraction of 100 lbs.)
|73,001 – and up||$1.90 per 100 lbs.|
(or fraction of 100 lbs.)
Both motorized units (tractors) and trailers must be registered. There are fixed annual fees for saw rigs ($25), spray rigs ($25), and well drillers ($46). Permanently mounted cranes require a fee by gross weight. There is a $306 registration fee per year (not prorated) for "heavy duty vehicles" (55,000 lbs. gross weight and over). Overweight vehicles require a special permit from the Connecticut Department of Transportation.
Specific registration classes exist for taxis, liveries, and buses, each with special requirements and fees.
For further information, write to the Department of Motor Vehicles, 60 State Street, Wethersfield, CT 06161 or call 860-566-4710, 860-263-5700 or 1-800-842-8222.
EFFECT ON OTHER DOCUMENTS: Informational Publication 99(11.1) modifies and supersedes Informational Publication 99(11) which may no longer be relied upon on or after the date of issuance of this publication.
EFFECT OF THIS DOCUMENT: An Informational Publication is a document that addresses frequently asked questions about a current Department position, policy or practice.
FOR FURTHER INFORMATION: Please call the Department of Revenue Services during business hours, Monday through Friday:
1-800-382-9463 (toll-free within Connecticut), or
860-297-5962 (from anywhere).
TTY, TDD and Text Telephone users only may transmit inquiries 24 hours a day by calling 860-297-4911.
FORMS AND PUBLICATIONS: Forms and publications are available all day, seven days a week:
Internet: preview and download forms and publications from the DRS Web site: http://www.ct.gov/drs; or
Telephone: Call 860-297-4753 ( from anywhere) or 1-800-382-9463 (toll-free within Connecticut) and select Option 2 from a touch-tone phone.