May 23, 2016
From KPMG TaxWatch
Under legislation enacted last year, effective for tax years beginning on or after January 1, 2016, most Connecticut corporate taxpayers are required to apportion their income to Connecticut using single-sales factor apportionment. Senate Bill 502, the budget implementer bill, which has been agreed to by the House and Senate, adopts market-based sourcing provisions. Under current law, the Connecticut sales factor numerator includes “receipts from services performed within the state, rental and royalties from properties situated within the state, royalties from the use of patents or copyrights within the state, interest managed or controlled within the state, net gains from the sale or other disposition of intangible assets managed or controlled within the state, net gains from the sale or other disposition of tangible assets situated within the state, and all other receipts earned within the state.”
Under the new market-based sourcing rules, gross receipts from services will be assigned to Connecticut if and to the extent the market for the service is in the state. Other new rules address different categories of receipts. Specifically, gross receipts from the rental, lease or license of real or tangible personal property will be assigned to Connecticut to the extent the property is situated within the state. Gross receipts from the rental, lease or license of intangible property will be assigned to Connecticut if and to the extent the property is used in the state. Intangible property utilized in marketing a good or service to a consumer will be considered used in Connecticut if the good or service is purchased by a consumer in this state. Gross receipts from interest managed or controlled within Connecticut will continue to be assigned to the sales factor numerator, as under existing law. All gross receipts not specifically addressed will be attributed to Connecticut to the extent the taxpayer’s market for the sale is in the state.
There is a complete exclusion from the sales factor for gross receipts from the sale or other disposition of real property, tangible personal property, or intangible property if such property is not held by the taxpayer primarily for sale to customers in the ordinary course of the taxpayer's trade or business.
A taxpayer that cannot reasonably assign its receipts under the revised law may petition the Commissioner for approval to use a methodology that reasonably approximates the assignment of such receipts. Any such petition must be submitted no later than sixty days prior to the original (i.e., non-extended) due date of the return for the first income year to which the petition applies. The Commissioner must grant or deny the petition before the due date of the return.
In addition to adopting market-based sourcing provisions for Corporation Business Tax purposes, Senate Bill 502 adopts similar market-based sourcing rules and single-sales factor apportionment for individual income tax purposes. These provisions are effective for tax years beginning on or after January 1, 2017.
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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.
The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.