Connecticut State Department of Revenue Services

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LSN-102

Special Notice Concerning Preference Tax on Companies Included in Combined Corporation Business Tax Returns

As a consequence of the passage of 1989 Conn. Pub. Acts 251,§ 23, companies included in a combined corporation business tax return will be subject to a combined return preference tax that is intended to recapture some or all of the tax benefit derived from the filing of a combined return. This preference tax will apply to income years commencing on or after January 1, 1990.

CALCULATION OF TAX

Generally, the preference tax will be the difference between the sum of the separate taxes of the companies included in a combined return and the combined tax.

The combined return preference tax shall be calculated by subtracting:

  • the combined tax due from the companies in the combined group as computed on the combined return (before the application of tax credits)

from:

  • the sum of the taxes that would be due (before the application of tax credits) from all of the companies in the combined group, if the companies had filed separate returns, and not a combined return [hereinafter, "the separate taxes"].

In no event shall the preference tax exceed $25,000, and, if the combined tax equals or exceeds the separate taxes, no preference tax shall be due.

THE SEPARATE TAXES

In calculating the separate tax of each company, the following rules apply:

A. The separate tax will be the greatest of:
  1. the tax (including the surtax) imposed on the net income base (§12-214) or
  2. the tax (including the surtax) calculated on the additional tax base (§12-219) or
  3. $250.00

(The separate taxes of some companies in a combined group may be the tax calculated on the additional tax base while, for other companies in the group, it may be the tax imposed on the net income base.)

B. The additional tax liability of any company described in Conn. Gen. Stat. §12-219(a) (1) shall not exceed $500,000. (The maximum additional tax may be due from more than one company in the combined group.)

C. In computing the property factor of any company in the combined group, the value of tangible property rented to it shall include the gross rents (multiplied by eight) payable to a lessor that is a member of the combined group.

D. In computing the receipts factor of any company in the combined group, its gross receipts shall include receipts from a payor that is a member of the combined group.

E. In computing the net income of any company in the combined group, dividends received (less the payee's expenses related to those dividends) from a payor that is a member of the combined group are deductible by the payee.

F. In computing the additional tax base of any company described in Conn. Gen. Stat. §12-219 (a) (1), the average value of any holdings of stock in a company that is a member of the combined group is deductible.

G. Whether any company has an operating loss (or has a deductible operating loss attributable to a preceding loss year) shall be determined as if the company had never been included in a combined return.

THE COMBINED TAX

In calculating the combined tax, the following rules apply:

A. The minimum tax required to be paid by each corporation pursuant to Conn. Gen. Stat. §12-223c ($250.00) shall be included.

B. The surtax due from the companies in the combined group shall be taken into account.

Whether a combined group has a combined operating loss (or has a deductible combined operating loss attributable to a preceding combined loss year) will in no way be affected by the imposition of the preference tax.

LSN-102 (NEW 01/18/90)