Tax Information
Who Must File
The Corporation Business Tax is a tax imposed on businesses that file as C corporations for federal income tax purposes.If your corporation carries on business or has the right to carry on business in Connecticut, you may have to file an annual Connecticut Corporation Business Tax Return.
Certain companies are exempt from the Corporation Business Tax.
In addition to any tax filing obligations, your company may also be required to register with the Connecticut Secretary of the State as referenced in Connecticut Agencies Regulations 12-214-1.
Carrying on business includes:
- Owning or leasing (as lessee) real property
- Maintaining an office
- Selling tangible personal property
- Performing or soliciting orders for services
- Selling or soliciting orders for real property
- Maintaining a stock of inventory in a public warehouse
- Delivering merchandise inventory on consignment to its distributors or dealers
- Owning or leasing (as lessee) personal property which is not related to solicitation of orders
- Participating in the approval of servicing distributors and dealers where its customer or user of its product can have such product serviced or repaired.
Having the right to carry on business means:
- For companies incorporated or organized under the laws of this state, the Secretary of the State has endorsed its certificate of incorporation.
- For companies incorporated or organized under the laws of another state, the Secretary of the State has issued to it a certificate of authority.
Economic Nexus
If your company has a substantial economic presence in Connecticut, it must file a Corporation Business Tax return, see IP 2010(29.1), Q & A on Economic Nexus.
In addition to any tax filing obligations, your company may also be required to register with the Connecticut Secretary of the State.
Exempt Entities
Certain types of companies are specifically exempt from the Corporation Business Tax. If your company is exempt, it is not subject to the Corporation Business Tax, but may be required to file a return.
The following companies are exempt from the Corporation Business Tax and from filing Form CT-1120 or being included in Form CT-1120CU:
- Insurance companies
- Companies exempt by the federal corporation net income tax law (Provide the DRS a copy of the IRS exempt status determination letter)
- Domestic International Sales Corporations electing to be treated as a DISC under the I.R.C.
- Companies subject to gross earnings taxes under Chapter 210
- Cooperative housing corporations as defined for federal tax purposes
- Corporate limited partners in one or more investment partnerships that are not otherwise doing business in Connecticut
- Non-U.S. corporations whose sole activity in Connecticut is trading in stocks, securities or commodities for their own account.
The following companies are exempt from the Connecticut Corporation Business Tax but must file Form CT-1120 to claim the exemption:
- Certain political organizations exempt under I.R.C. §527 filing federal Form 1120-POL
- Homeowners Associations filing federal Form 1120-H
- Financial service companies whose corporate headquarters are located in the export zone in the City of Hartford and conduct all of their business outside the United States
- Passive investment companies (PICs), defined under Conn. Gen. Stat. §12-213(a)(27) must file Form CT-1120 PIC in place of Form CT-1120.
How to register your corporation
Corporations that must file a Corporation Business Tax Return must register with DRS by completing the appropriate section of Form REG-1, Business Taxes Registration Application. There is no fee for registering for the Corporation Business Tax.
If the corporation elects S corporation status with the Internal Revenue Service after it registers for corporation business tax, it must notify DRS of the change in its status by filing an amended Form REG-1.
What return to file
You must file Form CT-1120, Corporation Business Tax Return, unless your corporation engages in a unitary business with other commonly owned corporations.
If your corporation engages in a unitary business with other commonly owned corporations, you must file Form CT-1120CU, Combined Unitary Corporation Business Tax Return. See SN 2016(1), Combined Unitary Legislation, for more information.
When are returns due
Tax Due Dates and Extensions
Your Connecticut return is due on the fifteenth day of the month following the due date of the federal return. The due date generally will be the fifteenth day of the fifth month after the end of your corporation’s year. For example, if your corporation has a December 31st year end, the return is due on May 15th.
Exception for June 30th year ends : If your corporation has a June 30th year end, the return is due on October 15th.
|
Year End |
Original Due Date |
Extended Due Date |
|
Anything except June 30 |
15th day of 5 th month after year end |
15th day of 11th month after year end |
|
June 30 |
15th day of 4th month after year end |
15th day of 11th month after year end |
Yes, you must also file Form CT-1120 EXT, Application for Extension of Time to File Corporation Business Tax Return.
How to file and pay
You are required to file your Corporation Business Tax Return and make payments electronically. Payments and Form CT-1120 may be filed at the Taxpayer Service Center (TSC).
If you cannot file and/or pay electronically, you need to request a waiver by filing Form DRS-EWVR, Electronic Filing and Payment Waiver Request.
If your corporation’s tax liability, after credits, will exceed $1,000, you must make quarterly estimated payments. Estimated payments are due on the 15th day of the 3rd, 6th, 9th and 12th months of the year (March, June, September and December if your corporation has a December 31st yearend). See IP 2018(9), Q&A on Estimated Corporation Business Tax and Worksheet CT-1120AE for additional information.
Tax Calculation and Credits
Your Corporation Business Tax liability is the greater of your:
Companies whose total income reported on line 11 of federal Form 1120 equals or exceeds $100 million, or who file as part of a combined unitary group must pay a surtax of 10% of the tax without regard to credits and tax credit recapture. The surtax does not apply to the minimum tax of $250.
Tax Credits
You may qualify for tax credits that can reduce your Corporation Business Tax liability. In general, credits cannot reduce your corporation’s tax by more than 50.01%. The Guide to Business Tax Credits provides information on credits available to corporations.
Net Income Base Tax Calculation - Summary
In general, the net income base calculation begins with federal taxable income, which is found on Line 28 of Form 1120, U.S. Corporation Income Tax Return. Certain Connecticut specific adjustments are then made to arrive at Connecticut net income. Companies that engage in business in multiple states are permitted to apportion their income. Accrued net operating losses derived from prior years are then deducted. The tax rate of 7.5% is then applied to arrive at the net income base tax.
|
Net Income Base Tax Example |
|
Federal Taxable Income |
$88,000 |
|
|
Add |
Connecticut Specific Addition Modifications |
12,000 |
|
Subtract |
Connecticut Specific Subtraction Modifications |
(16,000) |
|
Equals |
Connecticut Net Income |
84,000 |
|
Multiply by |
Apportionment Fraction |
.20250 |
|
Equals |
Apportioned Connecticut Net Income |
17,010 |
|
Subtract |
Net Operating Loss (NOL) Deduction |
(7,010) |
|
Equals |
Apportioned Net Income Subject to Tax |
10,000 |
|
Multiply by |
Tax Rate of 7.5% |
.075 |
|
Equals |
Net Income Base Tax |
$750 |
Adjustments to determine Connecticut net income
To calculate your net income base tax, you must make certain modifications to your company’s federal taxable income. These modifications may be additions or subtractions.
Additions
Companies must add back certain items deducted in arriving at federal taxable income, such as:
- Exempt interest income
- State and local income taxes
- Royalties or interest paid to a related member
- Bonus Depreciation
- 80% of I.R.C. §179 deduction
Subtractions
Companies may deduct certain items from federal taxable income, such as:
- Certain dividends less 5% related expense
- Capital losses carryovers not deducted in computing federal gain
- Deferred cancellation of debt income
- I.R.C. §163(j) interest deduction disallowed for federal tax purposes
- Contributions from Connecticut or its municipalities included in federal taxable income
Certain additional adjustments are required for companies that file a Form CT-1120CU, Combined Unitary Corporation Business Tax Return. See SN 2016(1), Combined Unitary Legislation, for more information.
Net Income Apportionment
Companies that conduct business in multiple states are allowed to apportion their net income. In general, Connecticut requires companies to apportion their income based upon the percentage of their sales made in Connecticut. Connecticut provides special apportionment rules and forms for certain types of companies, including:
- Air Carriers
- Broadcasters and Production Entities
- Credit Card Companies
- Financial Service Companies
- Limited Partners
- Manufacturing Companies
- Motor Bus and Motor Carrier Companies
- Security Brokerage Companies
- Income from Services to Regulated Investment Companies.
Combined Unitary filers
Groups of companies that file a Form CT-1120CU, Combined Unitary Corporation Business Tax Return, also generally apportion their income based upon the percentage of their sales made in Connecticut. Use Form CT-1120A-CU, Apportionment Computation for Combined Unitary Filers, and SN 2016(1), Combined Unitary Legislation, for more information.
Net Operating Losses (NOLs)
Companies that report negative apportioned net income (i.e., NOLs) in a prior year, may carry forward such NOLs and deduct them from positive apportioned net income in future years. An NOL deduction may not exceed 50% of a company’s pre-NOL income. NOLs may be carried forward until utilized, up to a maximum of 20 years.
Capital Base Tax Calculation - Summary
The capital base tax calculation begins with the average value of a company’s capital. Surplus Reserves are then added and holdings of stock in corporations are deducted to arrive at the capital base. Companies that engage in business in multiple states are permitted to apportion their capital base. The tax rate of 0.31% is then applied to the apportioned capital base to arrive at the capital base tax.
Certain companies are exempt from calculating the capital base tax:
- Real estate investment trusts
- Regulated investment companies
- Financial service companies are only subject to a capital base tax of $250.
|
Capital Base Tax Example |
|
Average* amounts from Line 22a, 22b, 23, 24 and 25 Schedule L, Federal Form 1120 |
$2,500,000 |
|
|
Add |
Average* Surplus Reserves** |
250,000 |
|
Subtract |
Average* Holdings of Stock in Corporations*** |
(500,000) |
|
Equals |
Capital Base |
2,250,000 |
|
Multiply by |
Apportionment Fraction |
.470 |
|
Equals |
Apportioned Capital Base |
1,057,500 |
|
Multiply by |
Tax Rate of 0.31% |
.0031 |
|
Equals |
Capital Base Tax (cannot be less than $250) |
$3,278 |
|
* |
Average of beginning and end of year balances |
|
** |
A surplus reserve is an amount set aside or deducted from current or retained earnings for meeting future liabilities |
|
*** |
Holdings of stock includes all non-governmental corporations, whether closely or publicly held, including treasury stock. |
Companies that conduct business in multiple states are allowed to apportion their capital base. Companies apportion their capital base based upon the percentage of their total tangible and intangible assets located in Connecticut. A tangible asset is in Connecticut when it is physically located within the state. An intangible asset is presumed to be in Connecticut if the company’s principal place of business is in Connecticut unless it can be clearly established that some or all of such assets are held in connection with business conducted outside of Connecticut.
Groups of companies that file a Form CT-1120CU, Combined Unitary Corporation Business Tax Return, also generally apportion their capital base based upon the percentage of their tangible and intangible assets in Connecticut. See Form CT-1120A-CU, Apportionment Computation for Combined Unitary Filers, and SN 2016(1), Combined Unitary Legislation, for more information.
Connecticut provides special capital base apportionment rules for air carriers.
Amended Returns and IRS Changes
To amend your Form CT-1120, Corporation Business Tax Return, or Form CT-1120U, Unitary Corporation Business Tax Return, use Form CT-1120X, Amended Corporation Business Tax Return.
To amend your Form CT-1120CR, Combined Corporation Business Tax Return, or Form CT -1120CU, Combined Unitary Corporation Business Tax Return, check the “Amended” box on the front of the Form CT-1120CR or Form CT-1120CU and file the return as amended.
Select the appropriate return at Forms and Instructions.
- When to file an amended return
Generally, an amended tax return must be filed within three years of the due date of the original return or, if an extension of time was granted, three years from the extended due date.
- Reporting Federal Changes
A company whose income is changed by the IRS or who files an amended return with the IRS must report the adjustments to DRS by filing an amended Connecticut return within 90 days of the final determination by the IRS.
Are you being audited?
The purpose of conducting an audit is to verify that the correct tax was paid and to ensure compliance with Connecticut law. During the audit, you may be required to provide the auditor with whatever records are necessary to verify the information that was provided on the tax return.
Taxpayer Rights
You have the right to:
- Be informed of the audit process, the audit procedures, and appeal rights if selected for an audit
- Have the audit conducted at a reasonable place and time, and completed in a timely manner
- Be provided with an explanation of any changes made during an audit.
Additional rights are described in PS 2017(1), Your Rights as a Connecticut Taxpayer.
Desk Audits and Examinations
Many examinations of returns are conducted by correspondence. Typically, an auditor will write to you to request additional information about items on your tax return, or to notify you of errors that need to be adjusted. You will have the opportunity to respond to the notice of proposed adjustments before a bill is issued.
Field Audits
An auditor will notify you by phone or correspondence that your Corporation Business Tax Return has been selected for audit. Field audits are scheduled in advance to enable enough time for you to assemble the required records.
A written confirmation of the appointment date and location, and a description of the books and records to be made available to start the audit, will be forwarded to you.
Audit Interview
At the initial meeting with you, the auditor will explain the audit approach and procedures, describe the audit process, make you aware of your appeal rights, and answer any questions that you may have about the audit. The auditor will ask you to sign the Audit Letter of Understanding and will make sure that you have a copy of Your Rights as a Connecticut Taxpayer.
Waivers/Statute of Limitations
The statute of limitations for auditing a Corporation Business Tax return is generally three years, beyond which the Department needs a written consent from the taxpayer. The auditor may ask you to sign an agreement, Consent to Extend the Statute of Limitations, which is commonly called a waiver.
Informal Conference
If you disagree with the proposed audit changes, you may request an informal conference by contacting the manager or the supervisor in the office that conducted the audit. The informal conference may be conducted by phone or in our office. You should be prepared to discuss all disputed issues and to submit the documentation necessary to support your position.
Appeal Process
If you disagree with the results of the audit, you may file a protest with our Appellate Division by using Form APL-002, Appellate Division Protest Form. The protest must be filed within 60 days of the notice of assessment.
Penalty Waiver
If you receive a bill with a penalty that is the result of filing a tax return, you can request a penalty waiver by submitting a completed Form DRS-PW, Request for Waiver of Civil Penalty. For more information concerning penalty waiver requests, please see PS 2019(3), Requests for Waiver of Civil Penalties.
If you receive a bill with a penalty that is the result of an audit, the penalty is not subject to waiver. However, the penalty can be protested to the Appellate Division by completing and timely filing Form APL-002, Appellate Division Protest Form , within 60 days of the Notice of Assessment. Even if the only issue with the audit is the penalty, you must timely file a protest with the Appellate Division.