Administrative Provisions

Administrative Appeals
Hearings by Commissioner of Revenue Services Provide Taxpayers with Chance to Challenge Assessments Administratively 1
Litigants May Rely on Most Recently Filed Annual Report for Service of Process Information 3

Assessments
Jeopardy Collection of Taxes 5

Audits & Investigations
Disputing Audit Sampling in State Tax Audits 7
Production of Records for Connecticut Sales and Use Tax Audits 10
Negotiating Connecticut Sales Tax Audit Sampling 13
Sales and Use Tax Audits: Alternative Procedures for Unavailable Documentation 15
Unclaimed Property Audits 17

Credits, Overpayments & Refunds
Offset of Tax Refunds 19
Refunds of State Taxes: Comptroller Authorized to Draw on Fund to Which Tax Is Credited 21
Suspension of Statute of Limitations for Filing a Claim for Refund of Taxes 22

Failure to Pay Tax
Late Tax Payments Trigger Significant Penalties 24
Interest & Penalties Offsetting of Overpayments and Underpayments of Taxes 26
Fraud Does Not Pay 28

Judicial Review
Judicial Appeals of Assessments 30

Settlements
Compromises and Voluntary Compliance Program 33
Abatement of State Taxes: There Is More Than One Way to Have a Tax Abated 36

Tax Liens
Liens on Personal Property as Security for Delinquent State Taxes 39

Tax Return Confidentiality
Confidentiality of Tax Return and Return Information 42

Tax Shelters
Connecticut Penalizes Failure to Disclose Listed Transactions and Abusive Tax Shelter Promotion 44

Taxpayer Bill of Rights
Taxpayer’s Bill of Rights 46

Taxpayer Protests
Tips for Individuals Who Intend to Protest Audit Adjustments Made by the Connecticut Department of Revenue Services 49

Corporate Income & Franchise Taxes

Allocation & Apportionment
Sourcing of Certain Intangibles for Manufacturing Companies 52
Corporate Income Tax Nexus: What Constitutes Doing Business in Connecticut? 55
Attributing Partnership Source Income to Corporate Partners 60
Three Factor Apportionment vs. Single Factor Apportionment 63
Apportionment of Net Income 66
Petition to File a Unitary Return as an Alternate Method of Combination 68
Sourcing of Accounts Receivables 70
Implementing FIN 48: U.S. Supreme Court Case Law Evaluating Unitary and Non-Unitary Factors 73
Implementing FIN 48: Evaluating Business and Non-Business Income Tax Positions and the Operational Connection Test 77
Understanding Mead and its Application to Business and Non-Business Income 81

Computation of Tax
Deciphering the Financial Accounting Standards Board Interpretation (FIN) 48 84

Consolidated & Combined Reports & Returns
Electing to File a Combined Return Is a Long-Term Commitment 87
Post-Apportionment Combination: the Connecticut Combined 89
Combined Return Giveth and the Preference Tax Taketh Away 91

Exemptions
Trade Shows at Connecticut Convention Center Get Tax Exemption 93

Imposition of Tax
Are You Carrying on Business in Connecticut? Are You Sure? 95
Tax on Capital: A Double-Edged Sword 97

Income Items & Deductions
Cancellation of Debt: Where Connecticut Differs from the Federal Rules 99
Determining Income Under the Corporation Business Tax 102
Post-Merger Net Operating Losses 104
Dividends Received Deduction 108
Restrictions on the Deductibility of Interest Expenses 111
Intercompany Transactions Affecting Connecticut Taxable Income Are Subject to Review by the Commissioner of Revenue Services 116
Restrictions on the Deductibility of Royalty and Other Intangible Expenses 119
Commissioner Discretion Relating to Intangible Holding Companies 122
Adjustments by the Commissioner of Revenue Services 125

Nexus
Implementing FIN 48: Intercompany Transactions, Economic Presence, and Affiliate Nexus 128
Third Party Gift Card Sales Can Contribute to Nexus 132
Implementing FIN 48: Attributional and Economic Nexus 135
Implementing FIN 48: Solicitation Activity 138
Implementing FIN 48: Overview of Sales and Support Activities in Nexus Analysis 141

Nontaxable & Taxable Entities
Tax Credit for Financial Institutions 144

Returns
Certain Foreign Corporations Need Not Obtain Certificate of Authority but May Be Subject to Other Filing Obligations 148

Tax Credits
Federal Empowerment Zone Tax Benefits for Connecticut Taxpayers 151
Claiming Connecticut Corporate Income Tax Credits. 153
Research Credit Exchange Program 156
The Application of Connecticut’s Apprenticeship Tax Credit 160
Research and Development Tax Credit 164
The Application of Connecticut’s Film Production Credit 170
Corporation Business Tax Credit for Personal Property Taxes Paid on Leased Electronic Data Processing Equipment May Be Claimed by Lessor 173
Connecticut Taxpayers Should Compare Other States’ EZ Benefits 175
Enterprise Zone Tax Benefits for Connecticut Taxpayers 178

Estate, Inheritance & Gift Taxes

Estate Tax
The Connecticut Estate Tax Statute Creates Both Planning Opportunities and Potential Pitfalls for Practitioners 181
Connecticut Residency Triggers Imposition of Estate Tax at Death 183
Ownership of Connecticut Real or Personal Property Triggers Estate Taxes for Nonresidents 185
Connecticut Estate Tax Includes Provision for “State QTIP” Marital Deduction: However, Inartful Drafting Has Led to Conflicting Interpretations 187
When Calculating Connecticut Estate Tax, Watch Out for “the Cliff” 189
Connecticut Law Presumes That All Decedents Are Residents of the State and Nonresident Estates Bear the Burden of Proving Their Nonresident Status 191
Executors Have an Ongoing Duty to Notify State Taxing Authorities if the Federal Estate Tax Return Is Audited or Amended 193
In Order to Determine a Nonresident Estate or Trust’s Income Within Connecticut, the Nonresident Beneficiary Generally Looks to the Nature of the Items of Income or Loss . 195

Generation-Skipping Transfer Taxes
Connecticut Has Not Enacted a “Decoupled” Generation Skipping Transfer Tax 198

Gift Tax
Connecticut Gift Tax: A Trap for the Unwary 200
Connecticut’s New Gift Tax Rates Provide Two Sets of Rules and One Big Cliff 203
The Connecticut Gift Tax Statute Creates Both Planning Opportunities and Potential Pitfalls for Practitioners 205

Personal Income Taxes

Accounting Methods & Periods
Connecticut Law Generally Follows the Federal Rules for Determining an Individual’s Taxable Year and Accounting Method Changes 207

Allocation & Apportionment
How Telecommuters’ Income Is Allocated Between Connecticut and Other States 210
Determining Nonresident Wage Apportionment Requires Careful Consideration 212

Computation of Income
Connecticut Trusts and Estates Begin Their Taxable Income Calculation with Their Federal Income 215
The Connecticut Fiduciary Adjustment Is Connecticut’s Method for Adjusting Federal Taxable Income Relating to Trusts 218
Computation of Connecticut Adjusted Gross Income Begins with the Federal Adjusted Gross Income, Then Is Modified to Reflect Connecticut Income Tax Law 221
The Connecticut Personal Exemption Amount Depends Upon Filing Status, Income Level and Possibly the Tax Year in Which It Is Filed 225

Computation of Tax
Connecticut’s Alternative Minimum Tax Merely Modifies the Federal Alternative Minimum Tax Calculation to Determine if Connecticut Minimum Tax Is Owed 227
The Connecticut Alternative Minimum Tax (AMT) Is a “Cliff” Tax Potentially Imposed Only if the Taxpayer Is Subject to the Federal AMT 230
Computation of Connecticut’s Alternative Minimum Tax Begins With Its Federal Equivalent, with Modifications to Reflect Connecticut Income Tax Law 232

Domicile & Residency
Change of Domicile Hinges on Key Factors 235
Connecticut Rules for Determination of Residency Are Based on a Taxpayer’s Domicile for the Year 237
Determination of Estate or Trust Residency for Income and Estate Tax Purposes 240

Income Items & Deductions
Special Tax Rules Apply to Members of the Armed Forces Serving in Combat Zones and Related Areas 242

Persons Subject to Tax
Director’s Fees Issues Affect Nonresidents and Residents of Connecticut 244

Innocent Spouse Provisions
Innocent Spouse Relief Elusive Under Connecticut Personal Income Tax Laws 246

Source of Income
The Rules for Determining Connecticut-Sourced Income Generally Look to the Location of the Asset or Service that Generated the Income 248

Tax Credits
Connecticut Allows Certain Taxpayers a Credit for Income Taxes Relating to the Same Income Paid to Other Taxing Jurisdictions 251
Computation of the Credit for Income Taxes Paid to Another State Is Not Necessarily Simple 254
Connecticut Allows Tax Credits for Certain Taxpayers on Property Taxes Paid on Their Primary Residence and/or Motor 256

Property Taxes

Abandoned & Unclaimed Property
The Gift Card Reporting Exemption Enacted Through Public Act No. 05-189 May Not Be as Broad as It Appears 258
A Fresh Look at State Jurisdiction to Escheat. 260
An Argument in Support of the Third Priority Rule for Unclaimed Property 265

Personal Property Taxes
Favorable Tax Treatment Available to Farmers Only Upon Application to Assessor 269
Declaration Forms for Personal Property May Be Filed Under Protest Accompanied by the Taxpayer’s Own Estimate of Value 272
Personal Property of Nonresidents Is Not Taxable Unless It Has a Situs in Connecticut, Regardless of How Frequently It Returns to the State 275
Good Recordkeeping Can Avoid Penalties and Interest in the Event of an Audit of Personal Property Tax Declarations 277
Manufacturers and Traders Need Not Include Goods Owned by Others and Wholesale and Retail Business Inventories on Their Personal Property Tax Declarations 280
What Personal Property Is Taxable and What Is Not 282
Telecommunications Companies May Elect to Have Their Personal Property Tax Assessed by the State 285
Mobile Manufactured Homes May Be Taxed as Personal Property Under Certain Circumstances 287

Real Property Tax
Golf Courses May Qualify as Open Space Land 289
All Property Is Valued and Assessed Even if Tax-Exempt 291
Timely Appeal to the Board of Assessment Appeals Is a Prerequisite to Challenging Overvaluation in Court 293
Naming the Proper Parties in Property Tax Appeals 296
Conn. Gen. Stat. Sec. 12-119 May Provide Taxpayers With an Alternative Remedy in Some Cases 299
The Redeeming Party in a Tax Sale Pays Simple, Not Compound Interest on the Sale Price Plus the Overdue Taxes, Interest and Costs 302
Changes in Legal Status of Real Property May Significantly Affect Its Valuation 304
Assessment of New Construction May Significantly Increase Property Tax Liability from One Installment to the Next Over the Course of the Assessment Year 306
Taxpayers Can Force Correction of Clerical Errors in Assessment Only if Error Was Truly Unintentional 308
The Revaluation of Real Property Every Five Years Is the Exclusive Remedy for Variations in Market Conditions on the Valuation 311
The Fees Paid in Connecticut to Property Tax Bounty Hunters Are Explored 314
FAS 157 “Fair Value” Includes Market Value Measured at Highest and Best Use of Asset 317
Both Actual and Market Rents May Be Considered in the Taxation of Rental Properties . 320
Avoiding the Statutory Penalty: Taxpayers Should Provide Accurate and Complete Income and Expense Information Upon Receipt of a Request from the Assessor 323
A Double-Edged Sword Prohibiting Change in the Assessed Value of a Parcel of Real Property Solely on the Basis of Its Sale Price 325
A Reduction in the Assessment of Contaminated Property May Be Disallowed if the Current Owner Acquired the Property with Knowledge of the Contamination Even if No Notice Has Been Filed on the Land Records 327
Taxing Times Ahead for Not-For-Profits? 330
Providing Proper Proof of Entitlement to the Veteran’s Exemptions 334
For the “Charitable” Exemption to Apply, Property Must Not Be Used “More than Incidentally” for Non-Charitable Purposes 336
Purchasers of Tax-Exempt Property Pay a Prorated Share of Property Tax Subsequent to Transfer 339
Municipalities May Make Property Tax Exemptions Effective Between the Date of Acquisition and the End of the Assessment Year in Which the Acquisition Occurred 341
Challenging Denial of Tax-Exempt Status 343

Real Property Transfer & Recordation Taxes
Conveyance Tax Is Based on the Consideration That the Transferor Actually Receives, Not the Consideration That the Transferee Receives 345
Calculating the Conveyance Tax Due on Transfers of “Unimproved Land” 348
The “Mansion Tax” Applies to Transfers of Residential Real Property for More Than $800,000, Regardless of the Number of Deeds Used to Effectuate the Transfer 350
Transfers of Partnership Property to “Continuing Partnership” Under 26 U.S.C. Sec. 708 Not Subject to Conveyance Tax 352
Exemption from Conveyance Tax For Inter-Spousal Transfers Does Not Apply to a Transfer to a Trust 355
Any Non-Exempt Sale of Land Classified As Farm Land, Forest Land, or Open Space Land Initiates a New Holding Period 357
When the Transfer of Land Initiates a New Holding Period for Conveyance Tax Purposes 360
The Controlling Interest Transfer Tax Closes the Loophole Left by Conn. Gen. Stat. Section 12-494 When a Controlling Interest in an Entity Possessing Real Estate, Rather than Real Estate Itself, Is Transferred 362

Sales & Use Taxes

Definitions
Are You a Connecticut Retailer? Are You Sure? 364
Are You Engaging in Business in Connecticut? 366
The Good News: Sale of Services Is not Taxable; The Bad News: Except the Services Listed Here 368
Unless You Sold It for Resale, Chances Are It Was a Retail Sale 370
What the “Sales Price” Includes and What it Does Not 372
How Are Gross Receipts Calculated? 374
The Implicit Exemption from the Connecticut Sales and Use Tax for Casual or Isolated Sales 376
Have You Conducted a Sale in Connecticut? 379
Exemptions Commercial Fishing Vessels and Machinery or Equipment for Use Thereon 381
Sales of Certain Services May Be Exempt as Sales for Resale, but Taxpayers Must Maintain Certain Records to Preserve Their Exemption 383
Connecticut Offers a 50 Percent Sales and Use Tax Exemption for Items Used in Manufacturing, Including Many Items of Tangible Personal Property Not Qualifying for the 100 Percent Exemptions 386
Exemption for Machinery Used in Manufacturing 389
Exemption for Certain Motion Picture, Video, Television and Radio Production and Broadcast Equipment 391
Connecticut Allows a Sales and Use Tax Exemption for Sales in Connecticut of Motor Vehicles and Vessels to Nonresidents Who “Do Not Maintain a Permanent Place of Abode” in Connecticut and Who Do Not Attempt to Register the Vehicle or Vessel in Connecticut . 393
Tax-Exempt Organizations Need Present a Permit to Claim Connecticut Sales Tax Exemption, But Must Use Correct Forms 397
IRC Section 501(C)(3) Exemption Allows Organizations to Claim Sales and Use Tax Exemption on Qualifying Purchases 399

Failure to Pay Tax
The Right of Contribution Between Persons Responsible for the Admissions or Dues Tax Is Not Statutory and Should Be Provided for by Agreement 401

Computation of Tax
Failure by the Purchaser of a Business to Obtain a Tax Clearance Certificate May Result in Assuming the Seller’s Sales and Use Tax Liabilities 403
Items Subject to Tax Sales and Use Taxation of Management Services 406
Computer and Data Processing Services Eligible for Reduced Rate in Connecticut 409
Application of Sales Tax to Meals Varies Depending on the Establishment Selling the Meal 412
Connecticut Provides a Sales and Use Tax Exemption for Property Used to Renovate Low- Income Housing 415
Qualifying Computer Equipment May Be Eligible for Full or Partial Manufacturing Exemptions in Connecticut 417
Materials, Tools, Fuel, Machinery and Equipment in Aircraft Manufacturing Facilities 420
Persons Doing Business with Nonresident Contractors Are Faced with Significant Compliance Requirements 422
In-State Companies That Deliver Wine from Either In-State or Out-of-State Wineries Risk Criminal Penalties for Failure to Comply with New Rules 425
Shipping or Carrying Alcoholic Beverages, Including Wine into Connecticut Takes Planning to Avoid Fines and/or Imprisonment and Seizure and Destruction of the Alcoholic Beverages 428
The Amount of the Admission Tax Should Not Be Refunded When Refunding the Price Charged for a Ticket for Admission to a Place of Amusement, Entertainment or Recreation 431
Dues for Capital Improvements, Construction, Furnishing and Fixtures Are Exempt from the Dues Tax, But Must Be Specifically Demonstrated to Be Separate and Apart from General Dues 433
Untested Challenge to Controlled Substance Tax Assessments 435

Nexus
Vendors Who Contract with Connecticut State Agencies Are Required to Contractually Concede Nexus for Purposes of the Use Tax 437

Transactions Subject to Tax
If It Is Interactive and Communicated Electronically, It Constitutes Telecommunications Services and Is Taxable as Such 439
Taxation of Telecommunications Services: Where Does It Start, Where Does It End? 441
Sales and Use Taxation of Services Between Wholly-Owned Entities 443

Use Tax
The Sourcing of Services 446
Sales and Use Tax Might Not Be Due on Property Brought into Connecticut if That Property Is To Be Subsequently Shipped Outside Connecticut 449
Creating Efficiencies with Direct Pay Permits 451

Miscellaneous Taxes

General Overview
Appearing Pro Hac Vice in Connecticut Courts Makes You Subject to the Connecticut Attorney’s Occupational Tax 453
Cigarette & Tobacco Products Tax DRS Steps Up Audits of Tobacco Tax Returns and Increases Enforcement of Criminal Laws 455
Connecticut Is Aggressively Enforcing Its Cigarette Tax, Including Sales of Cigarettes Through the Internet 457

Franchise Tax
Certain Corporate Documents Filed With Secretary of State May Rely on Facts Ascertainable Outside of Those Documents 459
Franchise Tax Does Not Apply to Shares Authorized Under Bankruptcy Reorganization . 462

Fuels & Gasoline Tax
Sales of Motor Fuels to Federally Recognized Federal Indian Tribes Need to Be Documented to Qualify for Exemption from Tax 464

Initial Taxes
Foreign Corporations Must Obtain Certificate of Authority to Transact Business in Connecticut 466
Limitation of Liability for Directors of Connecticut Corporations Subject to Certain Exceptions 468
Omission of Powers in Articles of Organization May Prevent Corporation from Exercising Such Powers 470
Foreign Corporations Transacting Business in Connecticut Without the Authority to Do So Have Impaired Legal Rights and May Be Subject to Financial Penalties 473

Insurance Companies Tax
Connecticut Requires Special Procedures to Claim Insurance Premium Tax Refund for New York and Illinois Insurance Companies 476
Certain Domestic Insurance Companies Allowed Credit Against Insurance Premium Tax 478
Connecticut Allows Certain Exemptions from the Insurance Premium Tax Applicable to Health Care Centers 480
Connecticut Utilizes Reasonable Cause Standard for Penalty Waiver of Insurance Premium Tax 483
Insurance Premium Tax Due on Premium Renewals Even Where No New Contracts Are Written in Connecticut 485
Connecticut Expands Scope of Retaliatory Taxes Against Foreign Insurers 487

Road Carrier Tax
Connecticut Does Not Permit Annual Reporting for IFTA 489

Pomp, Richard D

Richard D. Pomp is the Alva P. Loiselle Professor of Law at the University of Connecticut School of Law. He is a summa cum laude graduate of the University of Michigan and a magna cum laude graduate of Harvard Law School. He has taught at Harvard, NYU, Texas, and BC. In addition, he has been a Distinguished Professor in Residence, Chulalongkorn Law School, Bangkok, Thailand, and a Visiting Scholar at the University of Tokyo Law School and at Harvard Law School.

From 1981 to 1987, Professor Pomp was Director of the New York Tax Study Commission, a period during which New York restructured its personal and corporate income tax, and created an independent tax tribunal. Professor Pomp serves as an expert witness in various courts throughout the country and as a litigation consultant to law firms, corporations, accounting firms, and state tax administrations. He has participated in various capacities in Supreme Court litigation.

Professor Pomp has also served as a consultant to cities, states, the Multistate Tax Commission, the Navajo Nation, the U.S. Congress, the U.S. Treasury, the Department of Justice, the IRS, the United Nations, the IMF, the World Bank, and numerous foreign countries, including the People's Republic of China, the Republic of China, Indonesia, the Gambia, Zambia, Mexico, the Philippines, Pakistan, India, and Viet Nam.

He is the co-author of the leading casebook on state taxation, which has been used in more than 60 schools and by state tax administrations and major accounting firms for their internal training. He is also the author of more than 60 articles, numerous chapters in books, and various books and monographs. His books and monographs include State and Local Taxation, 5th ed. 2005 (with Oldman); Taxing Smarter and Fairer: Proposals for Increased Accountablity and Transparency in the Connecticut Tax Structure; Connecticut Tax Handbook (ed.); People's Republic of China: Taxation and the Rule of Law (with Li et al.); Corporate Tax Policy and the Right to Know: Improving State Tax Policymaking by Enhancing Legislative and Public Access; The Reverse Transfer of Technology: Legal and Administrative Aspects of Compensation, Taxation and Related Measures; and Tax Preferences for Extractive Industries (with McIntyre). Besides the usual academic journals, his writings have appeared in the New York Times, the Wall Street Journal, and the Financial Times.

In addition to the local and regional media, Professor Pomp has been interviewed by NPR, The New York Times, The Wall Street Journal, The Washington Post, the Christian Science Monitor, the Los Angeles Times, the Minneapolis Star Tribune, the Sacramento Bee, The Baltimore Sun and The International Herald Tribune. He has been described as "one of the giants in the field" (19 State Tax Notes 425); "one of the preeminent scholars in the field" (12 State Tax Notes 1405); "the most knowledgeable person on state corporate income taxation in the country" (28 State Tax Notes 353); "one of the top minds in the profession" (21 State Tax Notes 716); one of the "legends" in the field (25 State Tax Notes 869); and referred to as "few people on the planet understand state taxation as well as Professor Pomp" (36 State Tax Notes 270).

In 2007 the NYU Institute on State and Local Taxation presented him with its ¿Outstanding Achievement in State and Local Taxation¿ award.