Connecticut Income tax / Franchise Tax: New law imposes economic nexus, 10% corporate surcharge, IRC §199 decoupling

H.B. 6802 , effective 9/8/09 (i.e., five days from general assembly passage w/o governor's signature). Effective immediately and applicable to income years commencing on or after January 1, 2010, new law states that any company that derives income from sources within Connecticut, or that has a "substantial economic presence" within Connecticut as "evidenced by a purposeful direction of business toward [Connecticut], examined in light of the frequency, quantity and systematic nature of a company's economic contacts with [Connecticut], without regard to physical presence," and to the extent permitted by the U.S. Constitution is liable for Connecticut's corporation business tax on its apportioned income. This same economic nexus standard applies in determining whether partnerships and "S" corporations are "doing business" in Connecticut for purposes of nonresident partner/shareholder individual income tax withholding.

Effective immediately and applicable to income years commencing on or after January 1, 2009 and prior to January 1, 2012, the law also imposes a 10% surcharge on Connecticut's corporation business tax. This new surcharge does not apply to companies whose corporation income tax liability equals the $250 minimum tax, or whose gross income for the income year is less than $100 million (however, note that this gross income exemption does not apply to companies filing state combined and/or unitary returns).

Effective immediately, the law also increases the maximum preference tax for companies filing combined corporation business tax returns from $250,000 to $500,000.

Effective immediately and applicable to income years commencing on or after January 1, 2009, the new law decouples from the federal qualified domestic production activities deduction under Internal Revenue Code Sec. 199.