Connecticut — Corporate Income / Franchise Tax

Connecticut imposes an annual Corporation Business Tax on every company that is carrying on, or has the right to carry on, business in the state. The tax applies to businesses filing as C corporations for federal income tax purposes, including dissolved corporations that continue to conduct business, mutual savings banks, and savings and loan associations doing business in Connecticut. The tax is characterized as an excise on the corporate franchise for the privilege of carrying on or doing business, owning or leasing property within the state in a corporate capacity, or maintaining an office within the state.

Certain entities are exempt from the tax, including companies exempt from federal corporation net income tax, domestic international sales corporations (DISCs) electing DISC treatment under the Internal Revenue Code, companies subject to gross earnings taxes under Chapter 210 of the Connecticut General Statutes, cooperative housing corporations as defined for federal tax purposes, and corporate limited partners in investment partnerships that are not otherwise doing business in Connecticut.

Source: Conn. Gen. Stat. § 12-214 | Connecticut DRS – Corporation Business Tax

Connecticut imposes a 7.5% tax on the net income of corporations subject to the Corporation Business Tax, calculated on Connecticut-apportioned net income after deducting any allowable net operating loss carryforwards. Net income begins with federal taxable income and is then adjusted for Connecticut-specific modifications.

10% surtax on large corporations and combined groups

Corporations meeting either of the following two criteria must pay a surtax equal to 10% of their tax liability calculated under Conn. Gen. Stat. § 12-214, computed without regard to credits:

1. Corporations with $100 million or more in total income — The Connecticut Department of Revenue Services specifies that this threshold is measured by the amount reported on line 11 of federal Form 1120.

1. Taxable members of a combined unitary group — Any corporation filing as part of a combined unitary group under Conn. Gen. Stat. § 12-223a must pay the surtax, regardless of income level.

The surtax does not apply to corporations that pay only the $250 minimum tax. For corporations subject to the surtax, the combined effect of the 7.5% base rate and the 10% surtax produces an effective tax rate of 8.25% (7.5% × 1.10 = 8.25%).

Scheduled sunset

The surtax was extended through income years beginning on or after January 1, 2028, by 2025 legislation. Under current law, the surtax is scheduled to expire for income years commencing on or after January 1, 2029.

Source: Conn. Gen. Stat. § 12-214 | Conn. Gen. Stat. § 12-219 | Connecticut DRS – Corporation Business Tax

Connecticut multistate corporations apportion net income using a single sales factor for tax years beginning on or after January 1, 2016. The apportionment percentage is calculated by dividing Connecticut receipts by total receipts from all states. Receipts are sourced to Connecticut based on market-based sourcing rules; for services, receipts are assigned to Connecticut if the service is used at a location in the state. One exception exists: taxpayers receiving at least 75% of income from sales of tangible personal property to the U.S. government may elect a three-factor formula with double-weighted sales factor.

Source: Conn. Gen. Stat. § 12-218(b)

Connecticut imposes a minimum annual corporation business tax of $250 on every company subject to the tax. The minimum applies regardless of profitability or whether the net income tax calculation produces a lower amount. Each corporation included in a combined return must pay the $250 minimum. Tax credits allowed under the Corporation Business Tax cannot reduce a corporation's tax below $250.

Source: Conn. Gen. Stat. § 12-219 | Conn. Gen. Stat. § 12-223c

Connecticut's default apportionment method for multistate corporations is a single sales factor, effective for tax years beginning on or after January 1, 2016, under Conn. Gen. Stat. § 12-218(b). However, a narrow exception allows certain taxpayers selling tangible personal property to the federal government to elect an alternative three-factor apportionment formula.

75% threshold measurement

Under Conn. Gen. Stat. § 12-218(c)(3)(A), a taxpayer may elect the three-factor apportionment formula if "seventy-five per cent or more of [its] total gross receipts, as described in subsection (b) of this section, during the income year are from the sale of tangible personal property directly, or in the case of a subcontractor, indirectly, to the United States government." The threshold is measured against the taxpayer's total gross receipts from all sources during the income year—not Connecticut receipts or receipts from a specific line of business. Subsection (b) of § 12-218 defines gross receipts for apportionment purposes as receipts "from sales or other sources during the income year, computed according to the method of accounting used in the computation of [the taxpayer's] entire net income."

Scope of the election

The election applies only to sales of tangible personal property to the U.S. government. Services, intangible property, and sales to state or local governments do not qualify. The statute expressly covers both direct sales to the federal government and indirect sales through a subcontractor relationship where the tangible personal property is ultimately destined for the U.S. government.

Three-factor formula mechanics

A taxpayer that makes the election under § 12-218(c)(3)(A) apportions its net income using a three-factor formula under § 12-218(c)(3)(B). The formula is computed as the sum of (1) the property factor, (2) the payroll factor, and (3) a double-weighted sales factor, divided by four. This produces a formula in which sales counts twice and property and payroll each count once—often described as "property + payroll + (2 × sales) ÷ 4."

Election mechanics and duration

The taxpayer must make the election on or before the due date (or extended due date, if applicable) of its corporation business tax return for the income year. Once made, the election is irrevocable and applies for five successive income years under § 12-218(c)(3)(A). A taxpayer cannot revoke the election during the five-year period, even if its gross receipts profile changes and it no longer meets the 75% threshold in a subsequent year within the five-year window.

Strategic considerations

The three-factor election is beneficial to taxpayers with substantial property and payroll in Connecticut but significant out-of-state sales to the U.S. government. Under the default single sales factor, such taxpayers would apportion relatively little income to Connecticut if their sales are predominantly destined outside the state. The three-factor formula increases the Connecticut apportionment percentage by weighting in-state property and payroll. Conversely, taxpayers with minimal Connecticut property and payroll but high U.S. government sales delivered into Connecticut would see a lower apportionment percentage under the three-factor formula and should not elect it.

Effective date

The single sales factor default (and this three-factor exception) applies to income years commencing on or after January 1, 2016. For earlier income years, Connecticut used a different apportionment regime, and the three-factor government-contractor election operated under prior versions of the statute.

Source: Conn. Gen. Stat. § 12-218(b), (c)(3)

Connecticut imposes Corporation Business Tax on any company that derives income from sources within the state and has a substantial economic presence within Connecticut, evidenced by purposeful direction of business toward the state, without regard to physical presence. The Department of Revenue Services applies a bright-line threshold: a company has economic nexus when it has receipts from business activities attributable to Connecticut sources of $500,000 or more during a taxable year. The Department evaluates substantial economic presence based on the frequency, quantity, and systematic nature of a company's economic contacts with Connecticut. This rule applies to income years beginning on or after January 1, 2010. Public Law 86-272 may provide protection for certain companies engaged solely in the solicitation of sales of tangible personal property.

Source: Conn. Gen. Stat. § 12-216a | IP 2010(29.1), Q & A on Economic Nexus

Connecticut Corporation Business Tax returns are due on or before the fifteenth day of the month following the due date of the corporation's corresponding federal income tax return for the income year. For calendar-year corporations with a December 31 year-end, the due date is May 15. For corporations with a June 30 year-end, a special exception applies: the Connecticut return is due October 15. If the due date falls on a Saturday, Sunday, or legal holiday, the return is timely if filed on the next business day.

Extension of time to file

A corporation seeking additional time to file must submit Form CT-1120 EXT, Application for Extension of Time to File Connecticut Corporation Business Tax Return. Making an extension payment through myconneCT before the original due date does not by itself grant the extension; the taxpayer must timely file Form CT-1120 EXT to receive the extension. The extension provides additional time to file the return but does not extend the time to pay the tax — the tax payment remains due on the original return due date.

Electronic filing requirement

All Connecticut Corporation Business Tax returns, extensions, and estimated payments must be filed and paid electronically. Connecticut accepts electronic filing through myconneCT (the state's online tax portal) and through the IRS Modernized e-File (MeF) program for software providers. A corporation may request a waiver from the electronic filing and payment requirement by filing Form DRS-EWVR, Electronic Filing and Payment Waiver Request, no fewer than 30 days before the due date of its first electronic filing and payment, if the corporation can demonstrate that electronic filing and payment creates an undue hardship. The Commissioner of Revenue Services may grant a one-year waiver; paper returns may be filed only if such a waiver has been granted.

Source: Conn. Gen. Stat. § 12-222 | Connecticut DRS – Corporation Business Tax Information | Connecticut DRS – Corporation Business Tax FAQs | Connecticut DRS – Other Helpful Corporation Business Tax Information

Connecticut requires mandatory combined unitary reporting for groups of commonly owned corporations engaged in a unitary business, where at least one member is subject to the Corporation Business Tax. This requirement has applied to income years beginning on or after January 1, 2016. The combined reporting regime replaced Connecticut's prior elective combined filing system under Conn. Gen. Stat. § 12-223a.

Common ownership and unitary business test

A combined group consists of corporations that satisfy two tests: (1) common ownership, and (2) engagement in a unitary business. The Department of Revenue Services applies the unitary business definition articulated by the U.S. Supreme Court in Mobil Oil Corp. v. Vermont, 445 U.S. 425 (1980)—a unitary business is characterized by significant flows of value evidenced by functional integration, centralization of management, and economies of scale. Connecticut does not require substantial intercorporate transactions (the additional requirement that previously existed under the old elective combined-return statute); the unitary business test alone, based on Mobil Oil factors, determines whether corporations must combine.

Mandatory vs. elective filing

Combined unitary reporting is mandatory, not elective. If commonly owned corporations are engaged in a unitary business with a company subject to Connecticut's Corporation Business Tax, they must file Form CT-1120CU, Combined Unitary Corporation Business Tax Return. A company that is individually subject to the Corporation Business Tax but does not meet the criteria to file on a combined unitary basis files Form CT-1120, not the combined return.

Filing basis options: water's-edge, worldwide, and affiliated group

Combined groups may select among three filing bases, which determine which entities are included in or excluded from the combined group:

• Water's-edge (default): The combined group includes U.S. corporations and certain foreign corporations with substantial U.S. business activities; it generally excludes foreign corporations without such ties.

• Worldwide (elective): The group includes all members of the unitary business, including foreign corporations, regardless of their level of U.S. activity.

• Affiliated group (elective): The group is limited to members that would be included in a federal affiliated group under Internal Revenue Code § 1504(a), narrowing the group beyond what common ownership and unitary business alone would require.

The water's-edge basis applies unless the group affirmatively elects worldwide or affiliated group basis by checking the appropriate box on Form CT-1120CU.

Taxable and nontaxable members

Once the combined group is identified, members are divided into taxable members (those with Connecticut nexus) and nontaxable members (those without nexus). Both taxable and nontaxable members' income from the unitary business is included in calculating the combined group's net income under Conn. Gen. Stat. § 12-218e, but only taxable members have Connecticut tax liability.

Pass-through entities

The business conducted by a pass-through entity is treated as conducted by its members to the extent of each member's distributive share of the pass-through entity's income. A member's pro-rata share of a pass-through entity's income, capital, and apportionment factors derived from the unitary business is included in the combined group's tax calculation. Passive holding companies that directly or indirectly control one or more operating companies engaged in a unitary business are themselves deemed to be engaged in a unitary business with those companies.

Interaction with the 10% surtax

Connecticut imposes a 10% surtax on corporations with $100 million or more in total income and on any corporation filing as part of a combined unitary group, regardless of income level. All taxable members of a combined group pay the surtax, even if the combined group's total income is below $100 million. This surtax rule is codified at Conn. Gen. Stat. § 12-219(b)(8)(B) and effectively increases the combined rate from 7.5% to 8.25% (7.5% × 1.10) for all combined filers.

Designated taxable member

The combined group must select a designated taxable member to file the return, make payments, and perform other acts on behalf of the group. The designated taxable member must be a taxable member (i.e., have Connecticut nexus) and must have a Connecticut Tax Registration Number. If the common parent is a taxable member, it must serve as the designated taxable member; otherwise, any taxable member may be selected.

Source: Conn. Gen. Stat. § 12-218e | Conn. Gen. Stat. § 12-219 | Connecticut DRS – Combined Unitary Frequently Asked Questions (OCG-3) | Connecticut DRS – Corporation Business Tax Information | Mobil Oil Corp. v. Vermont, 445 U.S. 425 (1980)

Connecticut historically imposed a capital base tax as an alternative minimum tax on corporations subject to the Corporation Business Tax. Under Conn. Gen. Stat. § 12-219, corporations paid the greater of (1) the tax on net income under § 12-214, or (2) a tax on the corporation's capital base. The capital base tax is calculated on "the amount derived . . . by adding (I) the average value of the issued and outstanding capital stock, including treasury stock at par or face value . . . and amounts received on subscriptions to capital stock in excess of par or face value and not included in capital stock or capital surplus, (II) paid-in or capital surplus, and (III) retained earnings . . . and by deducting from the sum so obtained the average value in accordance with subparagraph (B) of subdivision (1) of section 12-218 of stocks and bonds which, under the laws of the United States, are exempt from taxation," then apportioned to Connecticut under § 12-219a.

Phaseout schedule

Conn. Gen. Stat. § 12-219(a) enacts a multi-year phaseout of the capital base tax with rates declining to zero. The statutory schedule provides:

• Income years commencing prior to January 1, 2024: 3.1 mills per dollar (0.31%)
• Income year commencing on or after January 1, 2024, and prior to January 1, 2025: 2.6 mills per dollar (0.26%)
• Income year commencing on or after January 1, 2025, and prior to January 1, 2026: 2.1 mills per dollar (0.21%)
• Income year commencing on or after January 1, 2026, and prior to January 1, 2027: 1.6 mills per dollar (0.16%)
• Income year commencing on or after January 1, 2027, and prior to January 1, 2028: 1.1 mills per dollar (0.11%)
• Income years commencing on or after January 1, 2028: 0 mills per dollar — complete elimination

The capital base tax will be fully eliminated for income years commencing on or after January 1, 2028. The 2027 income year is the last year to which the capital base tax applies.

Greater-of calculation through 2027

For income years through 2027, corporations subject to the Corporation Business Tax must calculate both the net income tax under § 12-214 (including any applicable surtax under § 12-219(b)(8)) and the capital base tax under § 12-219(a) (also subject to the surtax), then pay the greater amount. Corporations with substantial allocated capital but low or negative Connecticut net income may owe tax based on their capital base rather than net income during these phaseout years. The $250 minimum tax under § 12-219 applies regardless of whether liability is determined under the net income base or the capital base; corporations paying only the $250 minimum are not separately subject to the capital base calculation.

Surtax application to capital base tax

The 10% surtax on Corporation Business Tax liability, codified at Conn. Gen. Stat. § 12-219(b)(8), applies to the tax calculated under both the net income base and the capital base. For income years through 2027, a corporation subject to the surtax (either because it has $100 million or more in federal gross income, or because it is a member of a combined unitary group) must apply the 10% surtax to whichever base — net income or capital — produces the greater pre-surtax liability. The Connecticut Department of Revenue Services confirmed that the capital base tax phaseout continued in income year 2025 with a reduction of the tax rate from 0.0026 to 0.0021, consistent with the statutory schedule.

Source: Conn. Gen. Stat. § 12-219 | Conn. Gen. Stat. § 12-214 | Conn. Gen. Stat. § 12-218 | Conn. Gen. Stat. § 12-219a | Connecticut DRS – Corporation Business Tax Information

Connecticut corporations subject to the Corporation Business Tax must make quarterly estimated tax payments if the current year tax exceeds $1,000 after applying corporation business tax credits. The requirement applies to the tax calculated under both the net income base and the capital base during years when the capital base tax remains in effect.

Threshold and installment schedule

The estimated tax requirement is triggered when the corporation's current year tax exceeds $1,000. Corporations meeting this threshold must make four required installments during the income year, due on the 15th day of the third, sixth, ninth, and twelfth months of the income year under Conn. Gen. Stat. § 12-242d(a). For a calendar-year corporation, the installment due dates are March 15, June 15, September 15, and December 15.

Required annual payment—safe harbors

Connecticut provides two alternative safe harbor methods for calculating the "required annual payment," which is the total amount that must be paid in estimated installments to avoid underpayment interest. The corporation's required annual payment is the lesser of:

1. 90% of the current year tax — ninety per cent of the tax shown on the return for the income year, or, if no return is filed, ninety per cent of the tax for such year; or

1. 100% of the prior year tax — if the preceding income year was an income year of twelve months and if the company filed a return for the preceding income year showing a liability for tax, one hundred per cent of the tax shown on the return for the next preceding income year without regard to any credit under Chapter 208.

These safe harbors are codified at Conn. Gen. Stat. § 12-242d(e). A corporation that pays estimated tax equal to the lesser of these two amounts, in the installment pattern described below, will not owe underpayment interest even if its actual tax liability for the year exceeds the estimated payments made. If the prior income year was less than twelve months, or if no return showing a liability for tax was filed for the preceding year, the second safe harbor is unavailable and the corporation must use the 90% current-year test.

Installment percentages

The four required installments are not equal. Under Conn. Gen. Stat. § 12-242d(b), the installments must be paid in the following proportions of the required annual payment:

• First installment (month 3): 30% of the required annual payment
• Second installment (month 6): 40% of the required annual payment
• Third installment (month 9): 10% of the required annual payment
• Fourth installment (month 12): 20% of the required annual payment

The front-loaded pattern (30% and 40% in the first and second installments, totaling 70% by mid-year) reflects Connecticut's accelerated estimated tax payment structure. These percentages are cumulative; each installment represents an additional payment, not a cumulative percentage of the total liability.

Annualized income installment method

Corporations that do not receive income evenly throughout the year may use the annualized income installment method to reduce one or more installments during periods of low income. Under Conn. Gen. Stat. § 12-242d(f)(1), "in the case of any required installment, if the company establishes that the annualized income installment is less than the amount determined under subsection (b) of this section, the amount of such required installment shall be the annualized income installment." Any reduction in a required installment resulting from the application of the annualized method is recaptured by increasing the amount of the next required installment by the amount of the reduction, and by increasing subsequent required installments as necessary. The Department of Revenue Services provides Worksheet CT-1120AE, Connecticut Corporation Business Tax Annualized Estimated Worksheet, for corporations electing this method.

Underpayment interest

Conn. Gen. Stat. § 12-242d(c) imposes interest on any underpayment of estimated tax at the rate of one per cent per month or fraction thereof, applied to the amount of the underpayment, for the period of the underpayment. The underpayment amount is "the excess of the required installment, over the amount, if any, of the installment paid on or before the due date for the installment" under § 12-242d(d). The interest period runs from the due date for the installment to whichever of the following dates is earlier: (1) the fifteenth day of the fifth month of the next succeeding income year (the normal return due date for calendar-year corporations), or (2) the date on which the underpayment is paid. Payments of estimated tax are credited against unpaid required installments in the order in which the installments are required to be paid. Interest on estimated tax underpayments is computed using Form CT-1120I, Computation of Interest Due on Underpayment of Estimated Tax, and cannot be waived.

Combined unitary groups

For corporations filing on a combined unitary basis, Conn. Gen. Stat. § 12-242d(g)(2) provides that "the designated taxable member of a combined group shall be responsible for paying estimated tax installments, at the times and in the amounts specified in this section, on behalf of the taxable members of the combined group and in the form and manner prescribed by the Commissioner of Revenue Services." Each taxable member remains jointly and severally liable for the tax under the combined reporting statute (Conn. Gen. Stat. § 12-218e), but the installment payments are made centrally by the designated taxable member.

Electronic filing requirement

All Corporation Business Tax estimated payments must be filed and paid electronically. Connecticut accepts electronic filing and payment through myconneCT (the Department of Revenue Services' online portal). A corporation may request a waiver from the electronic filing and payment requirement by filing Form DRS-EWVR, Electronic Filing and Payment Waiver Request, at least 30 days before the due date of its first electronic payment, if the corporation can demonstrate that electronic payment creates an undue hardship. The Commissioner of Revenue Services may grant a one-year waiver.

Source: Conn. Gen. Stat. § 12-242d | Connecticut DRS – Corporation Business Tax Information