On June 30, 2015, Connecticut Governor Dan Malloy (D) signed into law House Bill 7061 and Senate Bill 1502, which together enact significant changes to the corporate income tax law, including the adoption of mandatory unitary combined reporting for tax years beginning after December 31, 2015, more restrictive limitations on the use of net operating loss carryforwards and tax credits for tax years beginning after December 31, 2014, the extension of the 20% corporate income tax surcharge through 2017, and the adoption of a 10% surcharge beginning in 2018. The enactment of these bills also causes several changes to: (i) the sales and use tax law (e.g., a change to the payment and return due date for monthly filers, and the expansion of taxable services to include creation, development, hosting, and maintenance of a website); and (ii) the personal income tax law (e.g., increases in tax rates, and delays to the increase in the personal exemption and the income thresholds used for purposes of reducing personal income tax credits).
Corporate Tax Changes
Mandatory Unitary Combined Reporting
Effective tax years beginning after December 31, 2015, a corporation with Connecticut nexus is required to report income on a unitary combined basis with its “combined group.” A “combined group” for these purposes, unless elected otherwise, is determined on a water’s-edge basis and is generally comprised of the following types of corporations that have “common ownership” and are engaged in a “unitary business”: (i) U.S. corporations with 80% or more of their property and payroll located in the U.S.; (ii) non-U.S. corporations with 20% or more of their property and payroll in the U.S. or that are incorporated in tax haven jurisdictions; and (iii) corporations that derive more than 20% of their income from payments for intangible property or service-related activities deductible from the income of other members of the combined group (but only to the extent of the related income and the apportionment factors).
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This article originally appeared in BDO USA, LLP’s BDO Knows: SALT – July 2015. Copyright © 2015 BDO USA, LLP. All rights reserved. www.bdo.com