Connecticut Enacts New Rules for Apportioning Income

With the signing of S.B. 502, Connecticut Governor Dannel P. Mallory enacted notable changes to the state's corporate and personal income tax statutes that are effective for tax years beginning on or after January 1, 2016. 

Corporation Business Tax

Under prior law, corporation business taxpayers that derived revenue from providing services were required to source that revenue to the state in which the service was provided.  However, under the new law, effective for tax years beginning on or after January 1, 2016, the revenue will be sourced using the market-based sourcing approach.  Under this approach, revenues that are derived from providing services are sourced to Connecticut if the service is used at a location in the state.

Personal Income Tax

Under current law, personal income taxpayers are required to utilize the traditional three-factor (property, payroll and sales) apportionment formula to calculate the portion of their business income that is derived from Connecticut sources.  As with the corporation business tax, revenue derived from providing services is to be sourced in the state in which the service is performed.  With the enactment of S.B. 502, effective for tax years beginning on or after January 1, 2017, personal income taxpayers will be required to utilize a single sales factor method for apportioning income, and revenues that are derived from providing services are to be sourced to Connecticut if the service is used at a location in the state.

If you conduct business in Connecticut and have questions about how these changes may affect you, please contact a member of our State and Local Tax Team.

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