Ruling 92-10
Corporation Business Tax
Real Estate Investment Trusts
This Ruling is obsoleted in part by AN 94(1); cited in Ruling 2001-1
FACTS:
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A business trust [hereinafter, "the Trust"] is an association taxable as a corporation for federal income tax purposes, as defined in Conn. Agencies Regs. §12-213-1(e).
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The Trust is also a real estate investment trust, as defined in 26 U.S.C. §856(a).
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Under 26 U.S.C. §856(c), the Trust is "considered a real estate investment trust."
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The Trust will form a wholly-owned subsidiary that will be a qualified REIT subsidiary, as defined in 26 U.S.C. §856(i)(2).
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Either the Trust or the qualified REIT subsidiary will carry on, or will have the right to carry on, business in Connecticut, as the phrase is used in Conn. Gen. Stat. §12-214 and defined in Conn. Agencies Regs. §12-214-1.
ISSUE:
Whether a qualified REIT subsidiary is treated as a separate corporation or whether all its assets, liabilities, and items of income, deduction, and credit are treated as assets, liabilities, and such items of the real estate investment trust.
DISCUSSION:
For purposes of [title 26 of the United States Code]--
(A) a corporation which is a qualified REIT subsidiary shall not be treated as a separate corporation, and
(B) all assets, liabilities, and items of income, deduction, and credit of a qualified REIT subsidiary shall be treated as assets, liabilities, and such items (as the case may be) of the real estate investment trust.
26 U.S.C. §856(i)(1).
This subsection was added by the Tax Reform Act of 1986; Pub. L. No. 99-514, §662(a), 100 Stat. 2085, 2300-2301. By the addition of this subsection, Congress allowed a real estate investment trust to limit its liability by forming separate wholly-owned subsidiaries; S. Rep. No. 313, 99th Cong., 2d Sess. 775 (1986); without changing the requirements of 26 U.S.C. §856(c), which were to apply to the real estate investment trust and each of its wholly-owned subsidiaries as if only a single corporate taxpayer existed. H.R. Conf. Rep. No. 841, 99th Cong., 2d. Sess. II-216 (1986), reprinted in 1986 U.S. Code Cong. & Ad. News 4075, 4304.
As was noted in Ruling No. 91-26, the corporation business tax is "a tax or excise upon [a company's] franchise for the privilege of carrying on or doing business within the state in a corporate capacity ...." Conn. Gen. Stat. §12-214.
The thing taxed is not the mere dealing in merchandise, in which the actual transactions may be the same, whether conducted by individuals or corporations, but the tax is laid upon the privileges which exist in conducting business with the advantages which inhere in the corporate capacity of those taxed, and which are not enjoyed by private firms or individuals. These advantages are obvious, and have led to the formation of such companies in nearly all branches of trade. The continuity of the business, without interruption by death or dissolution, the transfer of property interests by the disposition of shares of stock, the advantages of business controlled and managed by corporate directors, the general absence of individual liability, these and other things inhere in the advantages of business thus conducted, which do not exist when the same business is conducted by private individuals or partnerships. It is this distinctive privilege which is the subject of taxation, not the mere buying or selling or handling of goods which may be the same, whether done by corporations or individuals.
Flint v. Stone Tracy Co., 220 U.S. 107, 161-162 (1911) (quoted in Spector Motor Service, Inc. v. Walsh, 135 Conn. 37, 66-67, 61 A.2d 89 (1948)).
Corporations are subject to the tax, because they enjoy the privileges derived from conducting business in a corporate capacity. Unlike the situation in Ruling No. 91-26, where the separate corporate existence of the series funds was a legal fiction, a qualified REIT subsidiary whose separate corporate existence is disregarded pursuant to 26 U.S.C. §856(i) still enjoys the privileges derived from conducting business in a corporate capacity. Therefore, a qualified REIT subsidiary is subject to the tax.
Nonetheless, because all assets, liabilities, and items of income, deduction, and credit of a qualified REIT subsidiary are treated as assets, liabilities, and such items of the real estate investment trust; 26 U.S.C. §856(i)(1); the Trust shall file a single corporation business tax return on behalf of itself and its qualified REIT subsidiaries, each of which must apply for its own Connecticut tax registration number. However, any minimum or maximum additional tax under Conn. Gen. Stat. §12-219(a)(2) will be calculated by disregarding this treatment of the Trust and its qualified REIT subsidiaries as a single corporate taxpayer.
A statement ("This corporation business tax return is filed in accordance with Ruling No. 92-10.") that is signed by the same person who signed the return, identifying by name, Connecticut tax registration number and federal employer identification number each qualified REIT subsidiary of the Trust, must be attached to the return.
(Ruling No. 91-26 is clarified to require that a similar statement ("This corporation business tax return is filed in accordance with Ruling No. 91-26.") that is signed by the same person who signed the return, identifying by name, Connecticut tax registration number and federal employer identification number each fund of the regulated investment company, be attached to each return.)
RULING:
All the assets, liabilities, and items of income, deduction, and credit of a qualified REIT subsidiary are treated as assets, liabilities, and such items of the real estate investment trust, but any minimum or maximum additional tax under Conn. Gen. Stat. §12-219(a)(2) will be calculated for each corporation by disregarding this treatment of the Trust and its qualified REIT subsidiaries as a single corporate taxpayer.
LEGAL DIVISION
April 20, 1992