Bulletin #8

Q. MUST AFFILIATED CORPORATIONS FILING A COMBINED CORPORATION BUSINESS TAX RETURN COMPUTE THEIR TAX LIABILITY BY UTILIZING THE SAME BASE, I.E., THE NET INCOME BASE, THE ADDITIONAL TAX BASE UNDER SECTION 12-219(1)(A) OR THE ADDITIONAL TAX BASE UNDER SECTION 12-219(1)(B)?

A. Yes, all must use the same base.

Q. IN THE COMPUTATION OF ENTIRE NET INCOME OR LOSS OF A CORPORATION PURSUANT TO THE NEW ADDITIONAL TAX BASE, CAN A NET OPERATING LOSS CARRYOVER BE UTILIZED?

A. No, only current losses are recognized.

Q. IS A NET OPERATING LOSS CONSIDERED IN COMPUTING THE NEW ADDITIONAL TAX LIABILITY?

A. Yes, the tax is one-half of the sum of the entire net loss, which is the net loss as apportioned to Connecticut, and the apportioned officer's salaries and compensation.

Q. WILL A CORPORATION BE ALLOWED TO DEDUCT UP TO $1,750 PER OFFICER FOR PAYMENT TO A QUALIFIED RETIREMENT PLAN?

A. No, the deduction is allowed to unincorporated businesses only.

Q. ARE QUALIFIED PENSION PLAN CONTRIBUTIONS COMPENSATION IN THE YEAR IN WHICH A CORPORATION MAKES PAYMENT TO THE PLAN OR IN THE YEAR IN WHICH THE OFFICER WITHDRAWS MONEY FROM THE PLAN?

A. The year in which a corporation makes payment into the plan and takes a deduction thereof from its gross income.

Q. ARE ITEMS SUCH AS PENSION, PROFIT-SHARING CONTRIBUTIONS, MEDICAL AND GROUP LIFE INSURANCE PREMIUMS AND OTHER FRINGE BENEFITS CONSIDERED "OTHER COMPENSATION"?

A. Yes, but key man insurance policy premiums (if the corporation is the beneficiary) will be excluded as will the employer's payment of workmen's compensation, social security and unemployment compensation on behalf of the employee.

Q. A PROFESSIONAL MAN OWNS ALL THE STOCK OF A PROFESSIONAL CORPORATION. THE CORPORATION ALSO HAS THREE SALARIED PROFESSIONALS. IS THE COMPENSATION TO THE SHAREHOLDER OFFICER THE ONLY COMPENSATION INCLUDED IN THE MEASURE OF THE NEW ADDITIONAL TAX BASE?

A. Yes, as long as the three salaried professionals are not elected or appointed officers and are not charged with and performing any of the regular functions of any such officer.

Q. IN COMPUTING THE OFFICER'S SALARIES AND COMPENSATION, ARE ONLY OFFICERS AT THE END OF THE INCOME YEAR CONSIDERED OR ALL WHO WERE OFFICERS DURING THE YEAR?

A. The salaries and compensation paid to all who were officers during the year will be considered.

Q. A HUSBAND AND WIFE ARE BOTH FULL-TIME EMPLOYEES AND OFFICERS OF A CORPORATION. ARE BOTH THEIR SALARIES USED TO COMPUTE THE ADDITIONAL TAX BASE?

A. Yes.

Q. ARE RENTS PAID BY A CORPORATION TO AN OFFICER WHO OWNS A BUILDING OF WHICH THE CORPORATION IS THE LESSEE CONSIDERED TO BE COMPENSATION?

A. Generally, no.

Q. A CORPORATION INCORPORATED UNDER THE LAWS OF ANOTHER STATE IS SUBJECT TO THE CONNECTICUT CORPORATION BUSINESS TAX. THE SOLE OFFICER AND SHAREHOLDER, A RESIDENT OF THAT OTHER STATE, PERFORMS HIS SERVICES ENTIRELY WITHOUT CONNECTICUT. IS HIS COMPENSATION UTILIZED TO COMPUTE TAX LIABILITY UNDER SECTION 12-219(1)(B)?

A. Yes, but it is subject to apportionment as provided by law.

Q. WHAT ATTRIBUTION RULES WILL BE USED TO DETERMINE OWNERSHIP OF STOCK IN EXCESS OF 1%?

A. The attribution rules as set forth in subsection 318(a) of the Internal Revenue Code.

Q. IF AN INDIVIDUAL IS THE SOLE BENEFICIARY OF A TRUST THAT OWNS MORE THAN ONE PERCENT OF THE STOCK IN A CORPORATION FOR WHICH HE WORKS, IS HIS SALARY INCLUDED IN THE MEASURE OF THE NEW ADDITIONAL TAX BASE?

A. Yes, the attribution rules as set forth in subsection 318(a) of the Internal Revenue Code will control.

Q. WHAT IS THE PENALTY FOR UNDERPAYMENT OF THE ESTIMATED TAX?

A. Interest at the rate of 1 1/4% per month or fraction thereof will be assessed on the portion of the estimated tax not timely paid.

Computation of New Additional Tax [12-219(1)(B)]

A corporation, which is taxable both within and without the state, is entitled to apportion 10% of its net income to Connecticut (its entire net income). Its net income is $500,000; its officers' salaries and other compensation are $100,000.

The above questions were submitted at seminars conducted by the Connecticut Bar Association, Association of Certified Public Accountants and Association of Public Accountants. The answers to the questions are submitted to aid and assist the practitioner and taxpayer in understanding the provisions of the Unincorporated Business Tax and the new additional tax base of the Corporation Business Tax. However, the answers are subject to modification in the promulgation of regulations pertaining to the Unincorporated Business Tax and the Corporation Business Tax.