DRS: IP 2001(14), 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modified and superseded by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 2003(34)

IP 2001(14)

Business Taxes


Purpose: This publication provides a brief description of certain taxes applicable to companies doing business in Connecticut. It is not an all-inclusive list, but it contains those taxes of interest to the majority of businesses and, where appropriate, identifies the state agencies to contact for further information. For more information about conducting business in Connecticut, see Informational Publication 2000(26), Getting Started in Business: Understanding Connecticut Taxes.


Effective Date: Upon Issuance.


Registering for Business Taxes: Use Form REG-1, Business Taxes Registration Application, to register a business for those taxes administered by the Department of Revenue Services (DRS) including: corporation business tax, sales and use taxes, motor vehicle fuels tax, and income tax withholding. See below for information on obtaining forms and publications. For further information, contact the DRS Taxpayer Services Division at 860-297-5962 (from anywhere) or 1-800-382-9463 (in-state).


Business Entity Tax

For taxable years beginning on or after January 1, 2002, the following business entities are subject to the Business Entity Tax if they are required to file an annual report with the Office of the Connecticut Secretary of the State:

  • S corporations;
  • Limited liability companies (LLCs), including single member limited liability companies(SMLLCs);
  • Limited liability partnerships (LLPs); and
  • Limited partnerships (LPs).
Review IP 2003(15)  for more information.
 

Corporation Business Tax

The corporation business tax is a tax on the privilege of carrying on business in a corporate capacity in Connecticut. 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, unless it is statutorily exempt from the minimum tax.

Net income base

The starting point for determining Connecticut taxable income is federal net income. Specific adjustments are made that either increase or decrease federal taxable income. Depending on the type of business activity conducted by the corporation, a multistate corporation apportions net income using either a single receipts factor apportionment formula or a three factor apportionment formula. The Connecticut net income (or apportioned Connecticut net income for multistate corporations) is taxed at 7.5%.

Minimum tax base

The Connecticut minimum tax base is:

  • The average value of issued and outstanding capital stock, surplus and undivided profits, and surplus reserves reduced by:

  • 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 minimum tax base by an apportionment fraction that is the average of the intangible personal property and tangible personal property having a tax situs within Connecticut, over those assets having a tax situs outside of Connecticut. The Connecticut minimum tax base (or apportioned Connecticut minimum tax base for multistate corporations) is taxed at a rate of 3.1 mils ($0.0031) per dollar. The tax on capital is capped at $1,000,000.

Estimated corporation business tax

A corporation whose estimated current year’s tax exceeds $1,000 must make estimated tax payments. The required annual payment is the lesser of:

1st Installment
30% of prior year’s tax or 27% of current year’s tax.
2nd Installment
70% of prior year’s tax or 63% of current year’s tax.
3rd Installment
80% of prior year’s tax or 72% of current year’s tax.
4th Installment
100% of prior year’s tax or 90% of current year’s tax.

Filing requirements

C corporations, and other business entities that elect to be taxed as a corporation, must file Form CT-1120, Corporation Business Tax Return, by the first day of the fourth month after the close of the income year.

Effective for income years beginning on or after January 1, 2001, S corporations are not subject to the corporation business tax. Connecticut, like the federal government, treats S corporations as flow-through entities. S corporations must file an informational return, Form CT-1120SI, Connecticut S Corporation Information and Composite Income Tax Return, on or before the 15th day of the fourth month after the close of the income year.

S corporation shareholders’ income from the S corporation is subject to personal income tax. The shareholders’ income includes their pro rata share of separately stated items of S corporation income, and their pro rata share of nonseparately stated (ordinary) income. Nonresident shareholders are taxed only to the extent that the income is Connecticut source income.

Corporation Business Tax Credits: Corporation business tax credits are available to new and existing businesses. Informational Publication 95(2.1), A Guide to Connecticut Corporation Business Tax Credits, and Special Notice 2000(15), Connecticut Corporation Business Tax Credits, 1999/2000 Update, contain detailed summaries of available credits. To order these publications, send a self-addressed 9" x 12" envelope with $2.23 postage affixed to:

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


Sales and Use Taxes

Retail sales or leases of tangible personal property and certain services are subject to sales and use taxes at a 6% rate, except as noted below. 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.

Use tax generally applies to taxable tangible personal property or services on which the seller did not impose Connecticut sales tax. A business must report purchases subject to the use tax on Form OS-114,

Sales and Use Tax Return, for the period in which the purchases are made. If an item purchased in another state already was subject to that state’s sales tax, credit for such tax is generally given when computing Connecticut use tax.

Certain services subject to tax

Although not an exhaustive list, the following are commonly provided taxable services:

  • Advertising or public relations services not related to the development of media advertising or cooperative direct mail advertising;

  • Business analysis, management, management consulting, and public relations services;

  • Cable television services, including satellite services;

  • Computer and data processing, including charges for on-line access to computer services and information, but excluding services rendered in connection with creation, development, hosting or maintenance of all or part of a web site that 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 2% beginning July 1, 2000, and will drop by 1% per year, effective on July 1 of each year, until it is repealed on July 1, 2002. Charges for Internet access services, including the monthly subscription fee for access to the Internet through an Internet access provider’s server, will no longer be taxable on or after July 1, 2001;

  • Employment and personnel services;

  • Landscaping and horticulture services;

  • Motor vehicle repairs;

  • Repairs to tangible personal property (except repairs to vessels and fabrication labor to existing vessels, which are nontaxable beginning July 1, 1999);

  • 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. The tax on these services is being phased out. The rate is 2% until July 1, 2001, and the services are nontaxable thereafter;

  • 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;

  • Stenographic services;

  • Telecommunications services;

  • Telephone answering services;

Related companies

Sales of services between the following affiliated business entities are exempt from sales and use taxes: corporations, trusts, estates, partnerships, limited partnerships, limited liability partnerships, limited liability companies, single member limited liability companies, sole proprietorships, and non-stock corporations. To qualify, the business entities must be affiliated in such a manner that:

  • Either business entity in the transaction owns a controlling interest in the other business entity; or

  • A controlling interest in each business entity in the transaction is owned by the same person or persons or business entity or business entities.

Contractor services

Because this area of tax law is complex, DRS created Informational Publication 99(19), Building Contractors’ Guide to Connecticut Sales and Use Taxes. To order this publication send a self-addressed 9" x 12" envelope with $1.60 in postage affixed to:

Department of Revenue Services
Mail Unit, Building Contractors’ Guide
25 Sigourney Street
Hartford CT 06106-5032

Manufacturer’s exemptions

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;

  • Repair, replacement, component or enhancement parts for the machinery;

  • Materials that become an ingredient or component part of the products to be sold;

  • Tools, fuel, and materials that are used directly in an industrial plant in the actual fabrication of finished products to be sold;

  • Calibration services for manufacturing machinery, equipment or instrumentation.

Also, under the Manufacturing Recovery Act, which is available to manufacturers, processors, and fabricators, 50% of the purchase price of materials, tools, fuels, machinery, and equipment is exempt from sales and use taxes.

Informational Publication 99(18), Sales and Use Taxes Guide for Manufacturers, Fabricators and Processors, includes information about tax exemptions and other issues of interest to manufacturers. To order this publication send a self-addressed 9" x 12" envelope with $1.81 in postage affixed to:

Department of Revenue Services
Mail Unit, Manufacturers’ Guide
25 Sigourney Street
Hartford CT 06106-5032

Filing requirements

Connecticut retailers that sell taxable goods or services must collect sales tax on their sales, except when a properly completed Connecticut Sales and Use Tax Resale Certificate or the Uniform Sales and Use Tax Certificate — Multi-jurisdiction is taken in good faith from the purchaser or the sale qualifies for exemption. Retailers must remit sales and use taxes on a quarterly basis to the state, except where the tax collected by the retailer for the 12-month period ended on the preceding September 30 was more than $4,000, in which event the tax must be remitted monthly. Annual filing is allowed for businesses whose total annual liability for sales and use taxes is less than $1,000.

Other Exemptions: Certain sales are exempt from tax including, but not limited to, sales of food (other than meals), clothing under $75, newspapers, magazines by subscription, and prescription and certain nonprescription drugs. Each year, from the third Sunday in August through the following Saturday, most items of clothing and footwear costing less than $300 each are not taxable.


Motor Vehicle Fuels Tax

An excise tax is imposed on motor vehicle fuels used to propel motor vehicles. The rates effective July 1, 2000, are 25¢ per gallon for gasoline, and 24¢ per gallon for gasohol. The tax rate on diesel fuel is 18¢ per gallon.


Motor Carrier Road Tax

A tax is imposed on motor carriers on the use of all motor vehicle fuel in the operations in Connecticut of motor carriers operating qualified motor vehicles. The rate is equivalent to the Connecticut motor vehicle fuels tax rate. A qualified motor vehicle is a motor vehicle that is used, designed, or maintained for transportation of persons or property and:

  • Has two axles and a gross vehicle weight or registered gross vehicle weight exceeding 26,000 pounds; or

  • Has three or more axles regardless of weight; or

  • Is used in combination and the combined gross vehicle weight or registered gross vehicle weight exceeds 26,000 pounds.

International Fuel Tax Agreement (IFTA)

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 IFTA, as well as 10 Canadian provinces.

Each motor carrier based in Connecticut that operates 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 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 motor carrier road tax decals. Call the DRS Registration Unit, 860-297-4753, to obtain an application.


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. Employers must withhold Connecticut income tax from wages of resident employees and from nonresident employees who work in Connecticut. In general, when an employer deposits federal income taxes withheld from employee wages, the employer must pay over Connecticut income taxes withheld from employee wages to DRS. 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

Other state or municipal agencies administer the following taxes and fees: corporation franchise tax, unemployment compensation tax, property tax, and motor vehicle fees.

Corporation Franchise Tax: The Office of the Secretary of the State collects a franchise tax from Connecticut corporations. For more information, contact the Office of the Secretary of the State at 860-509-6003 or visit their Web site at: http://www.sots.state.ct.us

Domestic corporations

A domestic corporation must 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)

Number of SharesTax Rate
First 10,000 shares
1¢ per share
10,001–100,000 shares
1/2¢ per share
100,001–1,000,000 shares
1/4¢ per share
1,000,000 + shares
1/5¢ per share

There is an additional fee of $50 for filing the certificate of incorporation. Corporations must file annual reports on or before the last business day of the month in which the anniversary date of incorporation occurs. The filing fee is $75. The fee for a certified copy of a corporate document is $25.

Foreign corporations

A corporation organized outside Connecticut 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 corporation’s state of incorporation. Foreign corporations must file annual reports on or before the last business day of the month in which the anniversary date of the authorization to transact business occurs. The filing fee is $300.


Unemployment Compensation Tax: The Department of Labor administers the unemployment compensation tax. For more information and registration forms, contact the Connecticut Department of Labor, Employer Status Unit, at 860-263-6550 or visit their Web site at: http://www.ctdol.state.ct.us

Unemployment Compensation Act

Employers engaged in covered activities are subject to the Unemployment Compensation Act (Act) if during a calendar quarter of the current or preceding calendar year they paid cash wages totaling $1,500 or more, or the employer 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) during the current or preceding calendar year, they had 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.

Unemployment Compensation Fund

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 are based on: (1) the benefit ratio of each employer, which determines the charged tax rate, and (2) unemployment compensation fund reserves, which determine a fund solvency 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. For 1999 and future years the range is between 0.0% and 1.4%.

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 is the sum of each employee’s wages except that part of the employee’s wages that exceeds $15,000.

Maximum unemployment compensation rate

The maximum unemployment compensation rate is $397 per week, effective October 2000. 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, Hartford, CT 06106-1308. Specific information may also be obtained from the city or town assessor where the business is located.

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

Assessment date

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. 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 may establish a special service district to construct, own, operate, and maintain public improvements, and to provide within the district the services that a municipality is authorized to provide, except elementary and secondary education.

Exemptions

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.

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


Motor Vehicle Registration Fees: Motor vehicle registration is administered by the Department of Motor Vehicles. Driver licenses are renewed every four years for $35.50 and commercial driver licenses 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. Annual registration fees for commercial motor vehicles are based on the vehicle gross weight as follows:

Weight Registration Fee
Up to 20,000 lbs. $1.15 per 100 lbs.
(or fraction of 100 lbs.)
20,001 – 30,000 lbs. $1.40 per 100 lbs.
(or fraction of 100 lbs.)
30,001 – 73,000 lbs.  $1.75 per 100 lbs.
(or fraction of 100 lbs.)
73,001 – and up $1.90 per 100 lbs.
(or fraction of 100 lbs.)

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 a fee by gross weight. There is a $306 registration fee per year (not prorated) for heavy duty vehicles (55,000 lbs. gross weight and over). Overweight vehicles require a special permit from the Connecticut Department of Transportation.

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

For more information, contact the Department of Motor Vehicles at 860-263-5700 or 1-800-842-8222, or visit their Web site at: http://www.ct.gov/dmv


Effect on Other Documents: Informational Publication 2001(14) modifies and supersedes Informational Publication 99(11.1), Business Taxes, which may no longer be relied upon on or after the date of issuance of this publication.


Effect of This Document: An Informational Publication is a document that addresses frequently asked questions about a current DRS position, policy or practice.


For Further Information: Please call DRS during business hours, Monday through Friday:

  • 1-800-382-9463 (toll-free within Connecticut), or

  • 860-297-5962 (from anywhere)

TTY, TDD, and Text Telephone users only may transmit inquiries 24 hours a day by calling 860-297-4911.


Forms and Publications: Forms and publications are available all day, seven days a week:

  • Internet: preview and download forms and publications from the DRS Web site: http://www.ct.gov/drs

  • Telephone: Call 860-297-4753 ( from anywhere) or 1-800-382-9463 (toll-free within Connecticut) and select Option 2 from a touch-tone phone


IP 2001(14)
Multiple Taxes
Business Taxes
Issued 07/02/01