[16392]
July 31, 2003
TO: TAX COMMITTEE No. 48-03
RE: AUGUST 1ST CONFERENCE CALL ON CONNECTICUT STATE TAX
DEVELOPMENTS
The state budget for Connecticut for fiscal years 2004-2005 was introduced in, and
passed by, the state House of Representatives yesterday. The bill is expected to be passed by
the state Senate today, and signed by the Governor shortly. A conference call has been
scheduled for August 1, 2003 at 2:00 pm (Eastern) to discuss the impact of this legislation on
Institute members, as outlined below.
Section 91 of the budget bill provides a list of factors, including: (1) 50 percent or more of
the taxpayer’s gross income is derived from business conducted with affiliated corporations, or
50% of an affiliated corporation’s gross income is derived from business conducted with a
taxpayer and other related entities; (2) three or more of a specified list of services (including
advertising, accounting, distribution, sales, and legal services) are provided between the
taxpayer and related entities; and (3) 20% of the debt owed by or to the taxpayer is debt owed
by or to related entities.
A taxpayer satisfying any one of these factors is required to file an “alternate combined
report,” treating the taxpayer and any affiliated corporation satisfying the factor as a single
corporation for Connecticut state tax purposes. In addition, the state Commissioner of Revenue
has the discretion to include (or exclude) any other affiliated corporation in the alternate
combined report. The taxpayer is required to pay the higher of the tax that would be imposed
under the alternate combined report, or the taxpayer’s usual return (whether a separate return
or a combined return).
It appears under this legislation that if a fund’s distributor files a Connecticut tax return,
then any fund affiliate that satisfies one of the above factors could be subject to tax in
Connecticut on its income. Connecticut uses a single sales factor for mutual fund service
providers, so any affiliates would be taxed based on the residence of the underlying mutual
fund shareholder, without regard to the affiliate’s lack of payroll or property in Connecticut.
2
If you plan to participate in the conference call to discuss this legislation, please fill out
the attached response form and return it to Ezella Wynn by fax (202/326-5841) or email
(ewynn@ici.org).
David Orlin
Assistant Counsel
Attachment no. 1 (in .pdf format)