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Ruling 93-19, Corporation Business Tax

This Ruling is obsoleted in part by AN 94-1 


The Corporation was formed as a non-stock housing development corporation. The Corporation owns a housing development with numerous apartment units, none of which are leased to commercial tenants. The Corporation also owns, and uses in connection with the housing development, an administration building, a plant facility building and a meeting hall.

Only persons who have entered into an apartment leasehold with the Corporation and have purchased a membership in the Corporation are members of the Corporation. The Corporation's directors are elected by members of the Corporation.

Each apartment leasehold is between the Corporation and a member, and inures to the benefit of the member's heirs and assigns. Membership is not transferable except in conjunction with the transfer of an apartment leasehold. The leasehold is for a term of 99 years, with the right to renew, upon payment of $10, for a second term of 99 years, and the further right to renew, upon payment of $10, for a third term of 99 years.

In case the Corporation is dissolved, its net assets, after payment of its debts, are to be distributed among its members in proportion to each member's payments to the Corporation of the membership subscription price and principal payments under the apartment leasehold.

The Corporation's federal income tax return indicates that it has taxable income, as described in 26 U.S.C. § 63(a).


Whether a non-stock cooperative housing corporation with taxable income is exempt from corporation business tax under Conn. Gen. Stat. § 12-214(a)(5).


Conn. Gen. Stat. § 12-214(a)(5) (formerly, Conn. Gen. Stat. § 12-214(a)(6) until the repeal of the preceding subdivision by 1990 Conn. Pub. Acts 28) exempts "cooperative housing corporations, as defined for federal income tax purposes, where there is no taxable income to the corporation." Conn. Agencies Regs. § 12-214-2(b)(6) defines such a corporation as:

a company which is described in section 216(b)(1) of the Internal Revenue Code and section 1.216(d) of title 26 of the Code of Federal Regulations and which has no taxable income as described in section 63(a) of the Internal Revenue Code. For each income year for which exemption from the tax imposed under chapter 208 is claimed, the company shall file with the commissioner the annual return which is required by section 12-222 ....

Section 216(b)(1) of the Internal Revenue Code defines a "cooperative housing corporation" as a corporation:

(A) having one and only one class of stock outstanding,

(B) each of the stockholders of which is entitled, solely by reason of his ownership of stock in the corporation, to occupy for dwelling purposes a house, or an apartment in a building, owned or leased by such corporation,

(C) no stockholder of which is entitled (either conditionally or unconditionally) to receive any distribution not out of earnings and profits of the corporation except on a partial or complete liquidation of the corporation, and

(D) 80 percent or more of the gross income of which for the taxable year ... is derived from tenant-stockholders.

Although 26 U.S.C. § 216(b)(1) and the regulation thereunder appear to apply only to stock corporations, the Internal Revenue Service has held that

a non-stock cooperative housing apartment corporation which otherwise qualifies is in accord with the purpose of section 23(z) of the 1939 Code [now 26 U.S.C. § 216]. The purpose of section 23(z) is to place the cooperative apartment owner in as favorable a position with respect to interest and taxes paid as the owner of a dwelling house. See Senate Report No. 1631 on the Revenue Bill of 1942, C.B. 1942-2, 504, at pages 546 and 577. Perpetual use of and equity in an apartment or the proprietary lease of an apartment, coupled with membership in the corporation, is the equivalent for practical purposes of ownership of an apartment.

Rev. Rul. 55-316, 1955-1 C.B. 312, 314-315.

Cooperative members in the instant case possess the normal and usual rights of stockholders, namely, a pro rata distribution of assets upon liquidation, participation in the management by reason of electing the board of directors, and transferability of their interest.

Id. at 314. (Evans v. United States, 251 F. Supp. 296 (D. Or. 1966), which held that another part of Rev. Rul. 55-316 was an arbitrary and unreasonable interpretation of 26 U.S.C. § 216(b)(2), was reversed by the Court of Appeals; 375 F.2d 730 (9th Cir. 1967).)

However, even though the Corporation qualifies as a "cooperative housing corporation" under 26 U.S.C. § 216(b)(1), it has "taxable income as described in 26 U.S.C. § 63(a)." Conn. Agencies Regs. § 12-214-2(b)(6). Therefore, the Corporation is not exempt from corporation business tax under Conn. Gen. Stat. § 12-214(a)(5). (Even if the Corporation had no taxable income, and, thus, was exempt, it is required to file a return each year to claim the exemption.)


A non-stock corporation may be a cooperative housing corporation, as described in Conn. Gen. Stat. § 12-214(a)(5) and as defined in Conn. Agencies Regs. § 12-214-2(b)(6), but it is not exempt from corporation business tax unless it has no taxable income as described in 26 U.S.C. § 63(a). Even if it has no taxable income, a cooperative housing corporation must file a corporation business tax return to claim exemption under Conn. Gen. Stat. § 12-214(a)(5).


Issued: October 21, 1993