§ 12-699 — Definitions. Election of tax. Rate.

Connecticut § 12-699

• Jurisdiction: Connecticut
• Title 12: Taxation
• Ch. 228z: Affected Business Entity Tax

Text

(a) As used in this chapter: (1) “Partnership” has the same meaning as provided in Section 7701(a)(2) of the Internal Revenue Code, as defined in section 12-213 , and regulations adopted thereunder. “Partnership” includes a limited liability company that is treated as a partnership for federal income tax purposes; (2) “S corporation” means a corporation or a limited liability company that is treated as an S corporation for federal income tax purposes; (3) “Affected business entity” means a partnership or an S corporation, but does not include a publicly-traded partnership, as defined in Section 7704(b) of the Internal Revenue Code, that has agreed to file an annual return pursuant to section 12-726 reporting the name, address, Social Security number or federal employer identification number and such other information required by the Commissioner of Revenue Services of each unitholder whose distributive share of partnership income derived from or connected with sources within this state was more than five hundred dollars; (4) “Member” means (A) a shareholder of an S corporation, (B) a partner in (i) a general partnership, (ii) a limited partnership, or (iii) a limited liability partnership, or (C) a member of a limited liability company that is treated as a partnership or an S corporation for federal income tax purposes; (5) “Taxable year” means the taxable year of an affected business entity for federal income tax purposes; (6) “Resident of this state” has the same meaning as provided in section 12-701 ; (7) “Resident portion of unsourced income” means unsourced income multiplied by a percentage equal to the sum of the ownership interests in the affected business entity owned by members who are residents of this state; (8) “Unsourced income” means the separately and nonseparately computed items, as described in Section 702(a) of the Internal Revenue Code with respect to a partnership or Section 1366 of the Internal Revenue Code with respect to an S corporation, of the affected business entity, excluding any item treated as an itemized deduction for federal income tax purposes, plus any item described in Section 707(c) of the Internal Revenue Code with respect to a partnership, regardless of the location from which such item is derived or connected, as increased or decreased by any modification described in section 12-701 , that relates to an item of the affected business entity's income, gain, loss or deduction, regardless of the location from which such item is derived or connected, less (A) Connecticut source income, and (B) (i) the separately and nonseparately computed items, as described in Section 702(a) of the Internal Revenue Code, of the affected business entity, excluding any item treated as an itemized deduction for federal income tax purposes, plus any item described in Section 707(c) of the Internal Revenue Code with respect to a partnership, to the extent any such items under this clause are derived from or connected with sources within another state that has jurisdiction to tax the affected business entity and actually imposes tax on the affected business entity or its members who are residents of this state, with respect to such items, (ii) as increased or decreased by any modification described in section 12-701 , that relates to an item of the affected business entity's income, gain, loss or deduction, to the extent derived from or connected with sources within another state that has jurisdiction to tax the affected business entity and actually imposes tax on the affected business entity or its members who are residents of this state, with respect to such items; (9) “Modified Connecticut source income” means Connecticut source income multiplied by a percentage equal to the sum of the ownership interests in the affected business entity owned by members that are (A) subject to tax under chapter 229, or (B) affected business entities to the extent such entities are directly or indirectly owned by persons subject to tax under chapter 229. A member that is an affected business entity shall be presumed to be directly or indirectly owned by persons subject to tax under chapter 229 unless the affected business entity that has elected to pay the tax under this section can establish otherwise by clear and convincing evidence to the satisfaction of the commissioner; and (10) “Connecticut source income” means (A) the separately and nonseparately computed items, as described in Section 702(a) of the Internal Revenue Code with respect to a partnership or Section 1366 of the Internal Revenue Code with respect to an S corporation, of the affected business entity, excluding any item treated as an itemized deduction for federal income tax purposes, plus any item described in Section 707(c) of the Internal Revenue Code with respect to a partnership, to the extent any such items under this subparagraph are derived from or connected with sources within this state, as determined under the provisions of chapter 229, (B) as increased or decreased by any modification described in section 12-701 that relates to an item of the affected business entity's income, gain, loss or deduction, to the extent derived from or connected with sources within this state, as determined under the provisions of chapter 229. (b) For taxable years commencing on or after January 1, 2024, an affected business entity that is required to file a return under the provisions of section 12-726 may elect to pay to the commissioner a tax as determined under this section. Any affected business entity making such election shall submit written notice of such election to the commissioner (1) not later than the due date or, if an extension of time to file has been requested and granted, the extended due date, of the return due from such entity, and (2) for each taxable year such entity makes the election under this subsection. Each affected business entity that has made the election under this subsection shall pay to the commissioner, on or before the fifteenth day of the third month following the close of each taxable year that such entity makes such election, a tax as determined under this section. (c) The tax due under subsection (b) of this section shall be equal to six and ninety-nine-hundredths per cent multiplied by the tax base. The tax base shall be equal to the resident portion of unsourced income plus modified Connecticut source income. (d) If an affected business entity, the lower-tier entity, is a member of another affected business entity, the upper-tier entity, the lower-tier entity shall, when calculating its Connecticut source income, subtract its distributive share of income or add its distributive share of loss from the upper-tier entity to the extent that the income or loss was derived from or connected with sources within this state. (e) Each affected business entity shall report to each of its members, for each taxable year, such member's direct share of the tax imposed under this section on such affected business entity and indirect share of the tax imposed on any upper-tier entity of which such affected business entity is a member. (f) (1) Each person that is subject to the tax imposed under chapter 229 and is a member of an affected business entity shall be entitled to a credit against the tax imposed under said chapter, other than the liability imposed by section 12-707 . Such credit shall be in an amount equal to such person's direct and indirect share of the tax due and paid under this section by any affected business entity of which such person is a member multiplied by eighty-seven and one-half per cent. If the amount of the credit allowed pursuant to this subdivision exceeds such person's tax liability for the tax imposed under said chapter, the commissioner shall treat such excess as an overpayment and, except as provided in section 12-739 or 12-742 , shall refund the amount of such excess, without interest, to such person. (2) Each person that is subject to the tax imposed under chapter 229 as a resident or a part-year resident of this state and is a member of an affected business entity shall also be entitled to a credit against the tax imposed under said chapter, other than the liability imposed by section 12-707 , for such person's direct and indirect share of taxes paid to another state of the United States or the District of Columbia, on income of any affected business entity of which such person is a member that is derived therefrom, provided the taxes paid to another state of the United States or the District of Columbia results from a tax that is substantially similar to the tax imposed under this section. Any such credit shall be calculated in a manner consistent with the provisions of section 12-704 . (g) Upon the failure of any affected business entity to pay the tax due under this section within thirty days of the due date, the provisions of section 12-35 shall apply with respect to the enforcement of this section and the collection of such tax. The warrant therein provided for shall be signed by the commissioner or an authorized agent of the commissioner. The amount of any such tax, penalty and interest shall be a lien, from the last day of the last month of the taxable year next preceding the due date of such tax until discharged by payment, against all real estate of the taxpayer within the state, and a certificate of such lien signed by the commissioner may be recorded in the office of the clerk of any town in which such real estate is situated, provided no such lien shall be effective as against any bona fide purchaser or qualified encumbrancer of any interest in any such property. When any tax with respect to which a lien has been recorded under the provisions of this section has been satisfied, the commissioner, upon request of any interested party, shall issue a certificate discharging such lien, which certificate shall be recorded in the same office in which the lien was recorded. Any action for the foreclosure of such lien shall be brought by the Attorney General in the name of the state in the superior court for the judicial district in which the property subject to such lien is situated, or, if such property is located in two or more judicial districts, in the superior court for any one such judicial district, and the court may limit the time for redemption or order the sale of such property or make such other or further decree as it judges equitable. (h) If any tax is not paid when due as provided in this section, there shall be added to the amount of the tax interest at the rate of one per cent per month or fraction thereof from the date the tax became due until it is paid. (i) The provisions of sections 12-723 , 12-725 and 12-728 to 12-737 , inclusive, shall apply to the provisions of this section in the same manner and with the same force and effect as if the language of said sections had been incorporated in full into this section and had expressly referred to the tax under this section, except to the extent that any such provision is inconsistent with a provision of this section.

Legislative History

(P.A. 18-49, S. 1; P.A. 19-117, S. 333; 19-186, S. 1; P.A. 22-117, S. 15; P.A. 23-204, S. 360; P.A. 24-151, S. 102.) History: P.A. 18-49 effective May 31, 2018, and applicable to taxable years commencing on or after January 1, 2018; P.A. 19-117 amended Subsec. (g) by replacing 93.01 per cent credit multiplier rate with 87.5 per cent rate, effective June 26, 2019, and applicable to taxable and income years commencing on or after January 1, 2019; P.A. 19-186 amended Subsec. (c)(1)(A) by adding provision re itemized deduction exclusion and addition of item described in Internal Revenue Code Sec. 707(c), amended Subsec. (e) by deleting Subdiv. (1) designator, replacing “affected business entity or entities file and pay the tax due under this section” with provision re nonresident individual member's tax under Ch. 229 that would be fully satisfied by credit allowed under Subsec. (g)(1)(A), and deleting former Subdiv. (2) re nonresident individual who is member of affected business entity that elects to file its return on combined basis, amended Subsecs. (f) and (j)(3) by deleting “pro rata”, amended Subsec. (g) by adding “due and” re share of tax in Subdiv. (1)(A), and deleting “pro rata”, amended Subsec. (l)(2)(B) by redefining “unsourced income” and adding subclause (I) and (II) designators, effective July 1, 2019, and applicable to taxable years commencing on or after January 1, 2019; P.A. 22-117 amended Subsec. (a) by making definitions applicable to chapter rather than section and Sec. 12-699a, effective May 27, 2022; P.A. 23-204 amended Subsec. (a) by adding Subdivs. (6) to (10) defining “resident of this state”, “resident portion of unsourced income”, “unsourced income”, “modified Connecticut source income” and “Connecticut source income”, substantially revised Subsecs. (b) to (d) by replacing mandatory tax provisions with provisions re elective tax for taxable years commencing on or after January 1, 2024, and making conforming changes, deleted former Subsec. (e) re filing of income tax return by nonresident individual who is member of affected business entity, redesignated existing Subsecs. (f), (h), (i) and (m) as Subsecs. (e), (g), (h) and (i), respectively, redesignated existing Subsec. (g) as Subsec. (f) and amended same by redesignating existing Subdiv. (1)(A) and (B) as Subdivs. (1) and (2), deleting “the commissioner determines” and replacing “calculated in the manner prescribed by the commissioner, which shall be” with “calculated in a manner” in redesignated Subdiv. (2), and deleting former Subdiv. (2) re credit against tax imposed under Ch. 208, and deleted former Subsec. (j) re filing of combined return, former Subsec. (k) re alternative basis for calculation of tax, and former Subsec. (l) re rate of tax due for alternative basis calculation and associated definitions, effective January 1, 2024, and applicable to taxable years commencing on or after January 1, 2024; P.A. 24-151 amended Subsec. (f) by replacing “tax imposed under section 12-707” with “liability imposed by section 12-707”.