SN 92(15)

Unrelated Business Taxable Income Tax

This publication has been superseded in part by SN 93(3)

PURPOSE: This Special Notice describes the tax imposed on the unrelated business taxable income of tax-exempt organizations by 1992 Conn. Pub. Acts 124.

EFFECTIVE DATE: Effective upon issuance and applicable to income years of taxpayers commencing on or after January 1, 1992.

STATUTORY AUTHORITY: 1992 Conn. Pub. Acts 124.

DEFINITIONS:

"Taxpayer" means any corporation or trust that is exempt from taxation in accordance with any of the provisions of 26 U.S.C. §501 (a).

"Unrelated trade or business" is defined in 26 U.S.C. §513 as meaning:

• in the case of a tax-exempt corporation, any trade or business the conduct of which is not substantially related to the exercise or performance by an organization of its charitable, educational, or other purpose constituting the basis for its exemption under 26 U.S.C. §501.
• in the case of any tax-exempt trust that is described in 26 U.S.C. §513 (b), any trade or business regularly carried on by the trust or by a partnership of which it is a member.

"Unrelated business taxable income" means income as defined and determined in accordance with 26 U.S.C. §512, modified as follows:

• Add the amount of any Connecticut unrelated business taxable income tax imposed and paid (or accrued, if the accrual method of accounting is used for federal income tax purposes) during the taxable year;
• Subtract the amount of any refund or credit for overpayment of Connecticut unrelated business taxable income tax received (or accrued, if the accrual method of accounting is used for federal income tax purposes) during the taxable year; and
• Subtract the net operating loss deduction allowed under Conn. Gen. Stat. §12-217, adjusted to reflect the above-described modifications. The deduction may not include any net operating loss sustained during any taxable year beginning prior to January 1, 1992 or during any taxable year in which the taxpayer was not subject to the Connecticut unrelated business taxable income tax; nor may the deduction exceed the deduction for the taxable year allowable under 26 U.S.C. §512 (b) (6).

"Taxable year" means the calendar year upon the basis of which the taxpayer's unrelated business taxable income is computed, provided, if a fiscal year other than a calendar year has been established for federal income tax purposes, "taxable year" shall mean such fiscal year.

IMPOSITION OF TAX: The tax, which is imposed upon the privilege of carrying on any unrelated trade or business within Connecticut, shall be paid at the same rate (including the surtax) and in the same manner as the corporation business tax, Conn. Gen. Stat. §12-214 et seq.

APPORTIONMENT PERCENTAGE: If the taxpayer has a regular place of business outside Connecticut at which its unrelated trade or business is conducted, the taxpayer may apportion its unrelated business taxable income. For example, if the taxpayer owns rental real property which is situated outside Connecticut and from which it derives unrelated business taxable income, the taxpayer has a regular place of business outside Connecticut at which its unrelated trade or business is conducted. The apportionment percentage is determined by adding together the following percentages and dividing the result by the number of percentages.

The percentage that (A) (i) the average value of the taxpayer's real and tangible personal property, without any deduction on account of any encumbrance thereon, owned and used in its unrelated trade or business within Connecticut during the period covered by the taxpayer's return and (ii) the value of real and tangible personal property rented to the taxpayer and used in its unrelated trade or business within Connecticut during the period covered by the taxpayer's return bears to (B) (i) the average value of all the taxpayer's real and tangible personal property, without any deduction on account of any encumbrance thereon, owned and used in its unrelated trade or business within and without Connecticut during such period and (ii) the value of all real and tangible personal property rented to the taxpayer and used in its unrelated trade or business within and without Connecticut during the period covered by the taxpayer's return.

"Tangible personal property" is defined in 1992 Conn. Pub. Acts 124, §2 (d) as meaning corporeal personal property, such as machinery, tools, implements, goods, wares and merchandise, but not including money, deposits in banks, shares of stock, bonds, notes, credits or evidences of an interest in property and evidences of debt. The average value of real and tangible personal property owned and used by the taxpayer in its unrelated trade or business shall be its average monthly net book value. The value of real and tangible personal property rented to the taxpayer and used in its unrelated trade or business shall be computed by multiplying the gross rents, as defined in Conn. Gen. Stat. §12-218 (b), payable during the taxable year by eight.

The percentage that the receipts of the taxpayer's unrelated trade or business, computed on the cash or accrual basis according to the method of accounting used in the computation of the taxpayer's unrelated business taxable income, arising during such period from (A) sales of tangible personal property by the unrelated trade or business where shipments are made to points within Connecticut, (B) services performed within Connecticut by the unrelated trade or business, (C) rentals from property of the unrelated trade or business situated within Connecticut, and (D) all other receipts earned by the unrelated trade or business within Connecticut, bear to the total receipts of the unrelated trade or business, similarly computed, arising during such period from all sales of tangible personal property, services, rentals and all other transactions, within and without Connecticut; and

The percentage that the wages, salaries and other personal service compensation, similarly computed, during such period of employees, except general executive officers, of the taxpayer's unrelated trade or business within Connecticut bear to the total wages, salaries and other personal service compensation, similarly computed, during such period of employees, except general executive officers, of the taxpayer's unrelated trade or business within and without Connecticut.

FILING REQUIREMENTS: The provisions of Chapter 208 pertaining to the administration and collection of the corporation business tax (including the payment of estimated tax) apply to the unrelated business taxable income tax.

The annual return (Form CT-990T) reflecting a taxpayer's unrelated business taxable income must be filed on or before the first day of the fourth month next succeeding the end of the taxable year, as provided in Conn. Gen. Stat. §12-222.

Estimated tax declarations (Form CT-990T-ESA, -ESB, -ESC and -ESD) and payments are due on or before the fifteenth day of the third, sixth, ninth and twelfth months of the taxable year, as provided in Conn. Gen. Stat. §12-242b. Interest will not be assessed on any estimated tax payments due before September 15, 1992, if paid on or before September 15, 1992.

A penalty of fifty dollars or 10% of the tax due, whichever is greater, applies where the taxpayer fails timely to pay the tax reported to be due on its return, and interest accrues at the rate of 1 2/3% of the tax due per month or fraction thereof, from the due date to the date of payment, as provided in Conn. Gen. Stat. §12-229.

A person willfully failing to pay tax, file a return, keep records or supply information is subject to a fine of not more than $1,000 or imprisonment for not more than one year, or both, in addition to any other penalty provided by law, as provided in Conn. Gen. Stat. §12-231 (a).

A person willfully delivering a fraudulent or materially false return or other document is subject to a fine of not more than $5,000 or imprisonment for not more than five years nor less than one year, or both, in addition to any other penalty provided by law, as provided in Conn. Gen. Stat. §12-231 (b).

REGISTRATION: Each taxpayer that is carrying on any unrelated trade or business within Connecticut must register with the Department of Revenue Services for purposes of the unrelated business taxable income tax:

• by filing a Form REG-1 with the Department, if not registered with the Department of Revenue Services for other tax purposes.
• by writing to the Department's Registration Unit, indicating therein its Connecticut Tax Registration Number and Federal Employer Identification Number, if registered with the Department of Revenue Services for other tax purposes.

SN 92(15)
Unrelated business taxable income tax
Issued 7/13/92