DRS: IP 92(6.3), Business Taxes

 

STATE OF CONNECTICUT
DEPARTMENT OF REVENUE SERVICES

450 Columbus Blvd
Hartford CT 06103
 
 
 
 
 
 

 
 

This Informational Publication has been modified and superseded by IP 99(11.1)

IP 92(6.3)

Business Taxes


INTRODUCTION: The following is a brief description of certain taxes applicable to companies doing business in Connecticut. This is not intended to be an all-inclusive list but it contains those taxes of interest to the majority of businesses and identifies the state agencies to contact for further information.

For more detailed information about Connecticut taxes, request IP 94(5.1), Getting Started in Business: Understanding Connecticut Taxes, from the Department of Revenue Services. (This is not available on the DRS Web Site.)


DEPARTMENT OF REVENUE SERVICES: The following taxes are among those administered by the Connecticut Department of Revenue Services: corporation business tax, sales and use taxes, motor vehicle fuels tax, motor carrier road tax and income tax withholding. For further information or a registration application, contact Taxpayer Services at 860-297-5962 (Hartford area or out-of-state) or 1-800-382-9463 (in-state).

REG-1, Application for Tax Registration Number (with instructions)


CORPORATION BUSINESS TAX: The corporation business tax is a tax on the privilege of carrying on business in a corporate capacity. Corporations must calculate their tax under two alternative methods and remit the higher tax. If a corporation owes less than $250 under both methods, it pays the minimum tax of $250.

  • Net income base: Federal net income is modified by certain additions and subtractions to compute Connecticut net income. Multistate corporations, when their income is derived from the manufacture, sale or use of tangible personal or real property, multiply their Connecticut net income by an apportionment fraction that is the average of the receipts, payroll and property ratios (with the receipts ratio double-weighted). Multistate corporations, when their income is derived from business other than the manufacture, sale or use of tangible personal or real property, multiply their Connecticut net income by an apportionment fraction, the numerator of which is their gross receipts from business carried on within Connecticut, and the denominator of which is their gross receipts from business carried on everywhere. The Connecticut net income (or apportioned Connecticut net income for multistate corporations) is taxed at:
FOR INCOME YEARS BEGINNING RATE
On or after January 1, 1997 but before January 1, 1998 10.5%
On or after January 1, 1998 but before January 1, 1999 9.5%
On or after January 1, 1999 but before January 1, 2000 8.5%
On or after January 1, 2000 7.5%
  • Additional tax base: The Connecticut additional tax base is: A. the average value of issued and outstanding capital stock, surplus and undivided profits and surplus reserves reduced by B. the average value of any deficit carried on the balance sheet and holdings of stock of private (nongovernmental) corporations including treasury stock. (Multistate corporations multiply their Connecticut additional tax base by an apportionment fraction that is the average of the intangible personal property and tangible personal property ratios.) The Connecticut additional tax base (or apportioned Connecticut additional tax base for multistate corporations) is taxed at a rate of 3.1 mils ($0.0031) per dollar. The additional tax cannot be more than $1,000,000 nor be less than $250.

A corporation has the following estimated tax requirements for income years beginning on or after January 1, 1998 if its current year tax exceeds $1,000:

Installment Due Date

Pay the Lesser of

1st

15th day of 3rd month:

30% of prior year’s tax or 27% of current year’s tax,

2nd

15th day of 6th month:

70% of prior year’s tax or 63% of current year’s tax,

3rd

15th day of 9th month:

80% of prior year’s tax or 72% of current year’s tax,

4th

15th day of 12th month:

100% of prior year’s tax or 90% of current year’s tax.

A return is due by the first day of the fourth month after the close of the income year. C corporations file a Form CT-1120. S corporations file a Form CT-1120S on or before this date and an informational return, Form CT-1120SI, on or before the 15th day of the fourth month after the close of the income year.

S Corporation Tax Phase Out: The corporation business tax on S corporations is being phased out. The percentage of nonseparately stated income of an S corporation that is subject to the tax will be reduced each year as follows:

FOR INCOME YEARS BEGINNING

RATE

On or after January 1, 1997 but before January 1, 1998 90%
On or after January 1, 1998 but before January 1, 1999 75%
On or after January 1, 1999 but before January 1, 2000 55%
On or after January 1, 2000 but before January 1, 2001 30%
On or after January 1, 2001 0%

S corporation shareholders are subject to income tax on income from the S corporation. The shareholders’ income includes their pro rata share of separately stated items of S Corporation income and, beginning in 1997, their pro rata share of the percentage of nonseparately stated (ordinary) income that is not taxed at the corporate level. Nonresident shareholders are taxed only to the extent that the income is Connecticut sourced income.


CORPORATION BUSINESS TAX CREDITS: Credits that may be applied against the corporation business tax are available to new and existing businesses. IP 95(2.1), A Guide to Connecticut Corporation Business Tax Credits, contains detailed summaries of available credits. (This is not available on the DRS Web Site.) To receive a free copy of this publication send a self-addressed envelope (at least 9" x 12") with $1.70 in postage affixed to:

Department of Revenue Services
25 Sigourney Street
Hartford CT 06106-5032
ATTN: Mail Unit, Corporation Credit Guide


SALES AND USE TAXES: The sales and use taxes apply at a 6% rate (6% Rate Chart) to retail sales (or leases) of most goods and certain services. The room occupancy tax rate of 12% applies to the occupancy of a room in a hotel or lodging house for a period of thirty consecutive days or less.

The use tax generally applies to taxable tangible personal property or services on which the Connecticut sales tax was not imposed by the seller. A business must report purchases subject to the use tax on Form OS-114, Connecticut Sales and Use Tax Return, for the period in which the purchase is made. If an item purchased in another state already has been subject to that state's sales tax, credit for such tax is generally given when computing the Connecticut use tax.

Certain services subject to tax:
(Although not an inclusive list, the following are commonly provided taxable services.)

  • Advertising or public relations services
  • Business analysis, management, management consulting and public relations services
  • Cable television services
  • Computer and data processing, including charges for on line access to computer services but excluding services rendered in connection with creation, development, hosting or maintenance of all or part of a web site which is part of the World Wide Web. The tax on computer and data processing services is being phased out through a series of rate reductions. The rate is 5% beginning July 1, 1997 and will drop by 1% a year effective on July 1 of each year until it is repealed on July 1, 2002.
  • Employment and personnel services
  • Landscaping and horticultural services
  • Motor vehicle repairs
  • Repairs to tangible personal property
  • Repair and renovation services to commercial, industrial and income producing real property
  • Repair and renovation services to residential real property limited to: paving, painting or staining, wallpapering, roofing, siding and exterior sheet metal work
  • Sales agent services for selling tangible personal property, excluding the services of a consignee selling works of art or clothing and the services of an auctioneer
  • Services to repair or renovate industrial, commercial and income-producing real property
  • Stenographic services
  • Telecommunications services
  • Telephone answering services

NOTE: An exemption from sales and use taxes is provided for sales of most services between parent companies and their wholly-owned subsidiaries.

Filing requirements: Connecticut retailers making sales of taxable goods or services are required to collect sales tax on their sales except when a properly completed Connecticut Sales and Use Tax Resale Certificate (Regulation 1 & 23) is taken in good faith or such sales are otherwise exempt from the tax. The tax is remitted quarterly to the state, except in those instances where the tax for a 12-month period ended on the preceding September 1 was more than $4,000, in which event the tax is remitted monthly. Annual filing is allowed for businesses whose total annual liability for sales and use taxes is less than $1,000.

For more detailed information on sales and use taxes, request a copy of IP 94(5.1), Getting Started in Business: Understanding Connecticut Taxes. (This is not available on the DRS Web Site.)

Manufacturer's exemptions: The sales and use taxes are imposed on most items purchased by Connecticut manufacturers. However, there are certain exemptions: machinery used directly in the manufacturing production process; materials that become an ingredient or component part of the products to be sold; and tools, fuel and materials that are used directly in an industrial plant in the actual fabrication of finished products to be sold. There is also a partial exemption of 50% of the purchase price of materials, tools, fuels, machinery and equipment, available to manufacturers, processors and fabricators in computing the sales or use tax due. IP 95(14.1), Sales and Use Taxes Guide for Manufacturers, Fabricators and Processors, includes information about tax exemptions and other issues of interest to manufacturers. (This is not available on the DRS Web Site.) To receive a free copy of this publication send a self-addressed envelope (at least 9" x 12") with $2.39 in postage affixed to:

Department of Revenue Services
25 Sigourney Street
Hartford CT 06106-5032
ATT: Mail Unit, Manufacturer’s Guide


OTHER EXEMPTIONS: Certain sales are exempt from tax including, but not limited to, sales of food (other than meals), clothing under $50, newspapers and magazines by subscription, prescription and certain nonprescription drugs.


MOTOR VEHICLE FUELS TAX: A tax is imposed on motor fuel used to propel motor vehicles on public highways. The rate is 36¢ per gallon (33¢, effective July 1, 1998). The gasohol rate is 35¢ per gallon (32¢, effective July 1, 1998) and the diesel fuel tax rate is 18¢ per gallon.


MOTOR CARRIER ROAD TAX: A tax is imposed on the use of motor fuel in the operations in Connecticut of motor carriers operating qualified motor vehicles. The rate is equivalent to the Connecticut motor fuel tax rate or diesel fuel tax rate. A qualified motor vehicle is a motor vehicle that is used, designed or maintained for transportation of persons or property and that: (A) has two axles and a gross vehicle weight or registered gross vehicle weight exceeding 26,000 pounds; or (B) has three or more axles regardless of weight; or (C) is used in combination and the combined gross vehicle weight exceeds 26,000 pounds.

Connecticut is a member of the International Fuel Tax Agreement (IFTA). IFTA is an agreement among jurisdictions (states of the United States and Canadian provinces) to simplify the reporting of the fuel use taxes by interstate carriers. All 48 contiguous states are members of the IFTA program as well as 10 Canadian provinces.

Each motor carrier based in Connecticut that will be operating in at least one other IFTA jurisdiction must obtain a Connecticut IFTA license and decals. For carriers based in another jurisdiction that is also an IFTA member, the IFTA license and decals from that jurisdiction will satisfy Connecticut fuel use tax requirements. Qualified motor vehicles based outside Connecticut in a non-IFTA jurisdiction or that operate only in Connecticut must obtain Connecticut fuel tax decals. Applications for registration may be obtained by contacting the Department's Registration Unit.


INCOME TAX WITHHOLDING: An employer that (1) maintains an office in Connecticut or is transacting business within Connecticut, and (2) is considered an employer for federal income tax withholding purposes, is an employer for Connecticut income tax withholding purposes and must withhold Connecticut income tax from wages of resident employees and from nonresident employees who work in Connecticut. Each time an employer makes a deposit of federal income tax withholding, the employer must make a deposit of Connecticut withholding tax to the Connecticut Department of Revenue Services. Quarterly reconciliations are due on the last day of the month following the end of the calendar quarter. The annual reconciliation for the preceding year is due on the last day of February.


OTHER STATE AGENCIES: The following taxes are administered by other state or municipal agencies: corporation franchise tax, unemployment compensation tax, property tax, motor vehicle fees.


CORPORATION FRANCHISE TAX: The Office of the Secretary of the State collects a franchise tax from Connecticut corporations. For further information write to the Secretary of the State, 30 Trinity St., Hartford, CT 06106 and enclose a stamped, self-addressed envelope or telephone 860-509-6000 for further information.

Domestic corporations: A domestic corporation is required to pay a franchise tax to the Secretary of the State at the time of incorporation and at the time of any increase in the number of shares of authorized capital stock as follows:

(Minimum franchise tax: $150)

First 10,000 shares 1¢ per share
10,001-100,000 shares ½¢ per share
100,001-1,000,000 shares ¼¢ per share
1,000,000+ shares 1/5¢ per share

There is an additional fee of $50 for filing the certificate of incorporation, and a $25 fee for a certified copy of the certificate. Corporations must file biennial reports on or before the last business day of the month in which occurs the anniversary date of incorporation (domestic) or authorization to transact business (foreign). The filing fee is $150. The fee for a certified copy of a corporate document is $25.

Foreign corporations: A corporation organized outside the state may obtain a certificate of authority to transact business in Connecticut by filing an application with the Secretary of the State and appointing an agent to accept service of process. Applications are available from the Secretary of the State and must be accompanied by a filing fee of $275 and a certificate of good standing from the state of incorporation. The month when authorization was given for the corporation to conduct business becomes the filing month for annual reporting purposes. Filing must be made on or before the last business day of such month. A license fee of $300 is payable with the annual report.


UNEMPLOYMENT COMPENSATION TAX: The Department of Labor administers the Unemployment Compensation Tax. For further information and registration forms, write to the Connecticut Department of Labor, Attn: Employer Status Unit, 200 Folly Brook Boulevard, Wethersfield, CT 06109 or call 860-566-5180.

Employers engaged in covered activities are subject to the Unemployment Compensation Act if: (1) during a calendar quarter of the current or preceding calendar year they paid cash wages totaling $1,500 or more, or (2) they had, during the current or preceding calendar year, one or more employees at any time in each of 20 calendar weeks. Agricultural employers are subject to the Act if: (1) during any calendar quarter of the current or preceding calendar year they paid cash wages totaling $20,000 or more, or (2) they had, during the current or preceding calendar year, 10 or more employees at any time in each of 20 calendar weeks. Domestic employers are subject to the Act if they paid cash wages totaling $1,000 or more during any calendar quarter of the current or preceding calendar year.

The Unemployment Compensation Fund is financed through a benefit ratio system. For employers who qualify to be experience-rated (those who have been chargeable with benefits for at least one year ending June 30), taxes will be based on: (1) the benefit ratio of each employer, which will determine the charged tax rate, and (2) unemployment compensation fund reserves, which will determine a fund balance tax rate. These rates are recalculated annually for qualified employers. An employer's charged tax rate is the ratio of charges during the applicable experience period to the taxable payroll for the same period; it can range from 0.5% to 5.4% of taxable payroll. The fund balance tax rate may increase an employer's total contribution rate, depending on the solvency of the unemployment compensation fund. It is calculated annually, applies uniformly to all employers who qualify for experience rating, and ranges from 0.0% to 1.5% of taxable payroll for calendar years 1994-1998.

An employer who has not been subject to the Act for a sufficient period of time to be experience-rated shall pay contributions at a rate that is the higher of 1.0% of taxable wages, or the Connecticut five-year benefit cost rate. An employer's taxable wages consist of the sum of employees' wages not in excess of $12,000 per individual in a calendar year 1997 and will be increased by an additional $1,000 per year through 1998. The final increase of $2,000 will be effective for calendar year 1999.

The maximum unemployment compensation rate is $353 per week, effective October 1996. The rate is revised annually as of the first Sunday in October. The annual increase is limited to $18 over the previous maximum benefit. However, the maximum benefit cannot exceed 60% of the average weekly wage of manufacturing production and related workers in Connecticut.


PROPERTY TAX: The property tax is administered by each Connecticut municipality. For further information on property tax write to the Intergovernmental Policy Division of the Office of Policy and Management, 450 Capitol Avenue, Mail Stop 54 FOR, P. O. Box 341441, Hartford, CT 06134-1441. Specific information can be obtained from the city or town assessor where the business will be located.

Each company pays an ad valorem property tax to the community in which it has real and/or personal property. Manufacturing inventories of finished goods and goods in process are exempt, as are mercantile inventories.

October 1 is the annual assessment date. Not later than November 1, each company must file a declaration of its personal property with the local assessor. Personal property and motor vehicles are revalued annually. Real property is revalued every four years, pursuant to a schedule contained in Conn. Gen. Stat. §12-62 Increases in assessed values of real property resulting from revaluation may be phased-in for up to four years, at community option.

Any municipality with a population in excess of 35,000 (most recent federal census) may establish a special service district to construct, own, operate, and maintain public improvements, and to provide within the district such services which a municipality is authorized to provide, except elementary and secondary education.

Newly acquired manufacturing machinery and equipment (including property used in the production of motion pictures, videos and sound recordings) may be exempt from the property tax for a five year period. New commercial motor vehicles used exclusively for the interstate or intrastate transport of freight for hire, may also be exempt for a five year period. Both exemptions must be claimed annually. Exemption applications and personal property declaration forms are available from the assessor on the assessment date.

Connecticut has a free-port law which permits goods shipped in from out-of-state to remain free of local property taxes while stored in a public warehouse not owned by consignor or consignee, provided such goods remain in their original packages.


MOTOR VEHICLE FEES: Motor vehicle registration is administered by the Department of Motor Vehicles, 60 State Street, Wethersfield, CT 06161 or call 860-566-4710 or 1-800-842-8222. Driver licenses are renewed every four years for $35.50; and commercial driver licenses (CDL's) are renewed every four years for $50. There is a biennial registration fee of $70 for private passenger cars and $78 for passenger cars used for business purposes. The annual registration fee for commercial motor vehicles is based on the vehicle gross weight (weight of vehicle empty plus weight of heaviest load) as follows:

Up to 20,000 lbs. $1.15 per 100 lbs. (or fraction thereof)
20,001 - 30,000 lbs. $1.40 per 100 lbs. (or fraction thereof)
30,001 - 73,000 lbs. $1.75 per 100 lbs. (or fraction thereof)
73,001 - 80,000 lbs. $1.90 per 100 lbs. (or fraction thereof)

Both motorized units (tractors) and trailers must be registered. There are fixed annual fees for saw rigs ($25), spray rigs ($25), and well drillers ($46). Permanently mounted cranes require ½ fee by gross weight. There is a $306 registration fee per year (not pro-rated) for "heavy duty vehicles" (55,000 lbs. gross weight and over). Overweight vehicles require a special permit from the Department of Transportation.

Specific registration classes exist for taxis, liveries, and buses, each with special requirements and fees.


EFFECT ON OTHER DOCUMENTS: IP 92(6.3) modifies and supersedes IP 92(6.2) which may no longer be relied upon after this date.


FOR FURTHER INFORMATION: If you have questions about Connecticut taxes, please call the Department of Revenue Services during business hours, Monday through Friday:

  • 860-297-5962 (Hartford calling area or from out-of-state); or
  • 1-800-382-9463 (toll-free from within Connecticut)

Telecommunications Device for the Deaf (TDD/TT) users only, please call 860-297-4911during business hours.


FORMS AND PUBLICATIONS:

You may obtain forms and publications at any hour, seven days a week:

  • Telephone: use the phone numbers listed above and select Option 3 from a touch-tone phone;
  • Internet: preview and download forms from the DRS Web site: http://www.ct.gov/drs

For information about any other state tax or fee included in this publication, contact the state agency responsible for its administration.


IP 92(6.3)
Issued: 3/4/98
Replaces IP 92(6.2) (Issued: 3/6/95)