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LSN-89

This information is not current and is being provided for reference purposes only

Revised Special Noticed Concerning Controlling Interest Transfer Taxes

This LSN is cited in Rulings 90-4094-1498-399-6
This LSN has been superseded and modified by SN 2003(11) 

I. INTRODUCTION

Section 39 of 1989 Conn. Pub. Acts 251 imposes, under certain circumstances described below, a tax on the transfer of a controlling interest in a corporation, partnership, association, trust or other entity, where the entity owns Connecticut real property. The Act also imposes, under certain circumstances also described below, an additional tax on the transfer of a controlling interest in an entity that owns Connecticut real property that has been classified as farm land, forest land or open space land.

The transferor--not the transferee--is subject to the tax or taxes. Where a group of persons acting in concert transfers a controlling interest, these transferors are jointly and severally liable for the tax or taxes. (One tax return, signed by each member of the group, is to filed by the group.)

The measure of the taxes is the present true and actual value of the Connecticut real property. As of 1990 Conn. Pub. Acts 315,§ 3 makes clear, this value is not prorated in those instances where the controlling interest that is transferred is less than 100% of the total combined voting power of all classes of stock in a corporate entity (or less than 100% of the capital, profits or beneficial interest in a noncorporate entity).

The rate of the controlling interest transfer tax is one and eleven-one hundredths of one per cent (1.11%). The rate of the additional controlling interest transfer tax ranges from one to ten per cent, depending, in the case of farm land or forest land, on the length of time that the farm land or forest land has been owned, or, in the case of open space land, on the length of time that the land has been classified as open space land. Farm land or forest land is considered to be owned as of the date of recordation of the instrument conveying such land to the entity. Open space land is considered to be classified as such as of the first day of the initial assessment year in which the land is so classified by an entity.

The tax return (Form AU 330) is due on or before the last day of the month following the month in which the controlling interest is transferred. Where a transfer of a controlling interest is made in a series of transfers, the tax return is due on or before the last day of the month following the month in which the interest transferred, in the aggregate, is more than fifty per cent (50%).

Section 1 of 1990 Conn. Pub. Acts 315 requires the entity in which a controlling interest is transferred to file an informational return (Form AU 331) on or before the last day of the month following the month in which such interest is transferred. The entity is also required to maintain records pertaining to any such transfer.

II. ELEMENTS OF A TAXABLE TRANSFER

In order for a taxable transfer to occur, all six of the following elements must be presented:

A. A transferor (or a group of transferors acting in concert) must transfer a controlling interest in an entity. A contract to transfer an interest is not a transfer of the interest if the contract does not vest legal title to the interest in the transferee. Once a controlling interest has been transferred, any additional transfer by the transferor to the transferee will not be a taxable transfer.

B. The controlling interest must be transferred to a transferee (or a group of transferees acting in concert).

C. The transfer must be for consideration.

D. The entity must own Connecticut real property. If the entity does not own Connecticut real property but has a wholly-owned subsidiary that does own Connecticut real property, the transfer of a controlling interest in the parent corporation is not a taxable event.

E. The present true and actual value of the Connecticut real property must not be less than two thousand dollars ($2,000.). If more than one parcel of Connecticut real property is owned, the aggregate present true and actual value of those parcels must not be less than two thousand dollars ($2,000).

F. The transfer of a controlling interest must occur on or after July 1, 1989. A transfer or transfers of an interest occurring before that date will be disregarded in determining whether a transfer of a controlling interest has occurred on or after that date.

III. TRANSFER OF A CONTROLLING INTEREST IN A SERIES OF TRANSFERS

A transfer of a controlling interest may be made all at once or it may be made in a series of transfers. Where transfers occur that, had they all occurred at one time, would have constituted a transfer of a controlling interest, they will be treated as such a transfer.

IV. GROUPS ACTING IN CONCERT

A. TRANSFERORS ACTING IN CONCERT

1. A transfer of a controlling interest may be made by one transferor or it may be made by a group of transferors acting in concert. Where transfers occur that, had they all been made by one person, would have constituted a transfer of a controlling interest, they will be presumed to constitute such a transfer, it the transferors are so related that one influences or controls the actions of another (such as parent and subsidiary corporation, parents and children, husbands and wives, etc.) or if there is a unity which the transferors have negotiated and will consummate the transfers.

2. Factors that may indicate that there is such a unity include the following: the transfers are closely related in time; there are few transferors; the contracts to transfer an interest contain mutual terms; and, in addition to the contracts to transfer an interest, the transferors have entered into an agreement among themselves, binding themselves to a course of action with respect to the transfers.

3. Factors that may indicate that there is no such unity include the following: the transfer are in connection with a tender offer that is made to shareholders of a publicly-held corporation , and each shareholder, acting independently, sells (or does not sell) without regard to whether other shareholders are selling (or not selling).

B. TRANSFEREES ACTING IN CONCERT

1. A transfer of a controlling interest may be made to one transferee or it may be made to a group of transferees acting in concert. Where transfers occur that, had they all been made to one person, would have constituted a transfer of a controlling interest, they will be presumed to constitute such a transfer, if the transferees are so related that one influences or controls the actions of another (such as parent and subsidiary corporations, parents and children and husbands and wives, etc.) or if there is a unity with which the transferees have negotiated and will consummate the transfers.

2. Factors that may indicate that there is such a unity include the following: the transfers are closely related in time; there are few transferees; the contracts to acquire an interest contain mutual terms; and, in addition to the contracts to acquire an interest, the transferees have entered into an agreement among themselves, binding themselves to a course of action with respect to the transfers.

V. EXEMPTIONS

For any sale or transfer of a controlling interest occurring on or after June 12, 1990, only the sale or transfer of a controlling interest in an entity that only owns Connecticut real property located in an enterprise zone is exempt from the tax. See 1990 Conn. Pub. Acts 315 § 3, amending 1989 Conn. Pub. Acts 251§ 39(b). See 1989 Conn. Pub. Acts 251§ 52 for exemptions from the additional tax.

VI. DEFINITIONS

While 1989 Conn. Pub. Acts 251,§ 38 defined a "controlling interest", in the case of a corporate entity, as fifty per cent (50%) or more of the total combined voting power of all classes of stock in the corporation, 1990 Conn. Pub. Acts 315,§ 2 defines a "controlling interest" as more than fifty per cent (50%) of such total combined voting power.

While 1989 Conn. Pub. Acts 251 § 38 defined "controlling interest", in the case of a noncorporate entity, as fifty per cent (50%) or more of the capital, profits or beneficial interest in the entity, 1990 Conn. Pub. Acts 315,§ 2 defines a "controlling interest" as more than fifty per cent (50%) of such capital, profits or beneficial interest.

The present true and actual value of real property is its fair market value, as of the time of transfer of a controlling interest, unreduced by the amount of any mortgage, lien or other encumbrance.

Real property means any interest, legal or equitable, present or future, vested or contingent, in real property, which interest endures for a period of time, the termination of which is not fixed or ascertained by a specific number of years, such as an estate in fee simple or a life estate, provided, were the entity to convey such interest and were such conveyance considered to be a conveyance of real property for purposes of State and municipal real estate conveyance taxes, then the entity will be considered, for purposes of the controlling interest transfer taxes, to own real property.

Open space land means land classified as such pursuant to Conn. Gen Stat.§ 12-107e.

Farm land means land classified as such pursuant to Conn. Gen Stat.§ 12-107c.

Forest land means land classified as such pursuant to Conn. Gen Stat.§ 12-107d.

VII. RETURNS AND RETURN INSTRUCTIONS

Call (203) 541-3200 for the Controlling Interest Transfer Taxes Return (Form AU 330) and return instructions and the Controlling Interest Transfer Taxes Informational Return (Forms AU 331) and return instructions  

LSN-89 (Revised 7/90)