On Dec. 29, 2015, Gov. Dan Malloy signed into law Senate Bill 1601 (S1601) that includes substantial amendments to Connecticut’s new unitary filing regime. The changes generally are effective for tax years beginning on or after Jan. 1, 2016.
Unitary Tax Liability Cap
The tax calculated for a unitary group prior to surtax and credits may not exceed the nexus combined base tax by more than $2.5 million. The nexus combined base tax equals either of the following:
- The tax measured on the sum of the separate net income or loss of each taxable member
- The minimum tax base of each taxable member as if such members were not required to file a combined unitary tax return, but only to the extent that the income, loss, or minimum tax base of any taxable member is separately apportioned to Connecticut
Elimination of Requirement to Include Certain Intangibles Companies in Water’s-Edge Group
The new law eliminates the requirement that combined groups filing on a water's-edge basis include any member that earns more than 20 percent of its gross income directly or indirectly from intangible property or service-related activities.
Narrowed Definition of a Tax Haven
The requirement that the Commissioner of Revenue Services publish a list of jurisdictions that are considered to be tax havens is eliminated. In addition, the bill provides that a tax haven does not include a jurisdiction that has entered into a comprehensive income tax treaty with the United States, which the Secretary of the Treasury has determined is satisfactory for purposes of the Internal Revenue Code.
Tax Credit Limitations Changes
The current law allows taxpayers to offset only 50.01 percent of their liability with credits. The limit increases to 55 percent in 2016 for taxpayers with research and experimental expenditures tax credits, research and development expenses tax credits, or urban and industrial site reinvestment tax credits. It will continue to increase by 5 percent each year until 2019, when it reaches 70 percent.
Other Amendments Targeting Specific Large Taxpayers
Combined groups with more than $6 billion in unused net operating losses (NOLs) from pre-2013 tax years can make a one-time election to relinquish 50 percent of their pre-2015 tax year NOLs and use the balance to reduce their tax liability – up to $2.5 million in any income year beginning on or after Jan. 1, 2015.
Effective Jan. 1, 2016, another election allows manufacturers that derive at least 75 percent of their receipts from sales to the federal government to apportion their Connecticut income by using the three-factor apportionment formula in lieu of the standard single-factor sales apportionment.