DRS Issues CARES Act State Tax Guidance

The state Department of Revenue Services this week issued guidance to help businesses and individuals that got assistance through the federal Coronavirus Aid, Relief, and Economic Security Act determine its impact on their Connecticut taxes.

The DRS guidance issued July 6 addresses several issues including:

• Whether PPP loans, which are forgiven under the CARES Act, are subject to Connecticut’s corporate business tax or individual tax (they aren’t)
• How the federal five-year net operating loss carryback provision enacted as part of the CARES Act impacts the state corporate business tax and individual income tax
• Tax implications of the act’s provision that relates to the excess business loss limitation applicable to noncorporate taxpayers, including pass-through entities and S corporations, under the IRS Code

The guidance also addresses tax implications of a provision of the CARES Act relating to the taxability of coronavirus-related distributions from qualified retirement accounts and whether they are subject to state income tax withholding (in general, yes).

Depreciation Changes

The DRS also issued guidance on the depreciation of qualified improvement property for Connecticut tax purposes under the CARES Act.

The act revised the IRS Code to provide QIP with a depreciable life of 15 years under the general depreciation system and a depreciable life of 20 years under the alternative depreciation system.

Before the CARES Act, the depreciable life of QIP for federal purposes was 39 years.

The guidance addresses calculating depreciation for corporate business tax, individual income tax, and pass-through entity tax.

More information is available at the DRS website or contact the agency’s legal division (legal.division@po.state.ct.us; 860.297.4911).