United States: Connecticut Governor Signs Favorable Tax Legislation For Connecticut-Based Businesses

Last Updated: July 13 2016
Article by Anthony J. Switajewski

Connecticut Governor Dannel Malloy recently signed a budget implementation bill which includes favorable income tax legislation for Connecticut-based businesses. Following is a brief summary of two enacted tax legislation changes: (1) utilization of a single sales factor to determine Connecticut taxable income; and (2) market-state sales factor sourcing of service and intangible property revenue.

Single Sales Factor Apportionment

Corporations and pass-through entities (such as S corporations, partnerships, and limited liability companies) will now be able to determine the portion of their taxable income subject to Connecticut income tax based solely on a single sales factor.  Previously, many businesses had to consider their Connecticut-based property and payroll when determining the amount of taxable income subject to Connecticut income taxes.  By removing the property and payroll factor from the apportionment percentage determination, Connecticut-based businesses should see the amount of their Connecticut taxable income and associated tax liability reduced.  The following example illustrates the potential favorable impact this legislation may have for a Connecticut-based business:

Example:  Corporation ABC (a C corporation) is based in Connecticut and has 95% of its property and payroll in Connecticut and 5% of its sales are to Connecticut customers.  Under the previous law, 50% of the corporation's taxable income was subject to tax.  Under the new law, only 5% of the corporation's taxable income is now subject to taxation.   

For Connecticut-based businesses, the formula change to determine the apportionment percentage to be applied to the business' taxable income can result in a substantial reduction in the business' Connecticut income tax liability and should encourage businesses to invest their new-found money in employees and property within the state.

For C corporations, this legislation is effective for tax years beginning on or after January 1, 2016. For pass-through entities, the legislation is effective one year later; i.e., for tax years beginning on or after January 1, 2017.

Market-State Sales Factor Apportionment

In general, the determination of a business' Connecticut sales for purposes of determining the Connecticut sales factor has been based on the destination of the property that is sold.  However, with respect to the sale of services, service revenue is not based on the destination of the service but has been based on where the work to render the service is performed. Services (and income derived from intangible assets) will now be sourced similarly to the sourcing of sales of goods; i.e., based on the destination of the service (generally, where the customer who receives the service is located).  This should have favorable income tax consequences for Connecticut-based service businesses, whereas additional tax revenue should be captured from non-Connecticut-based service businesses. The following example illustrates the impact this legislation will have on Connecticut and non-Connecticut based businesses:

Example:  Service Co. (a C corporation) is a Connecticut-based business that provides consulting services to customers throughout the world. Ninety percent (90%) of its consulting service revenue is derived from services that are provided at the company's Connecticut location (100% of the company's payroll and property are located in Connecticut); 10% of its revenue are from customers that are located in Connecticut.  Under the previous law, the company's sales factor to be applied to the company's taxable income was 90% (with an overall 95% apportionment factor).  Under the new law, only 10% of the company's taxable income will be subject to Connecticut income taxation (considering the recently enacted single sales factor).   The change to market-state sourcing of service revenue should benefit Connecticut-based service businesses that have a vast majority of their clientele outside Connecticut.  

If Service Co. were based outside of Connecticut, and did not provide any of its services in Connecticut, under the old law, 0% of its taxable income would be subject to Connecticut income taxation. However, under the new law, 10% of its taxable income is now taxable in Connecticut (assuming it has economic nexus in the state).

The so called "market-based sourcing" rule (applied to service and intangible revenue) applies to C corporations, effective for tax years beginning on or after January 1, 2016, and for pass-through entities, effective for tax years beginning on or after January 1, 2017.


As of January 1, 2017, apportionment methodologies will be consistent among all legal entity and tax types, regardless whether the legal entity is in the form of a corporation or a limited liability company (and other entities treated as pass-through entities for tax purposes). By providing favorable income tax legislation to Connecticut-based businesses, businesses that are already here should be able to invest their dollars in Connecticut people and property without the fear of increasing their Connecticut income tax liability.  Businesses that are not here, such as those looking to start-up or relocate, should find Connecticut's income tax regime a deciding factor when making its U.S. location decision.  

Connecticut-based and out-of-state businesses should begin to determine how their Connecticut income tax liabilities will be affected as a result of this legislation.  If you have any questions about how this legislation might affect your business or owners, please contact Tony Switajewski.  

(Note: Portions of the above apportionment legislation with respect to C corporations was enacted during the 2015 and the 2016 legislative session.  The apportionment legislation with respect to pass-through entities was enacted during the 2016 legislative session.  The discussion is a general explanation of the new tax provisions and the examples are for conceptual illustrative purposes only; please consult your tax advisor). 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions