DRS Forms State Tax-issue Working Groups

The state Department of Revenue Services (DRS) has established several working groups to solicit input from the taxpayer community. Below are brief updates on three of the working groups that CBIA and our members are involved in at this time.

Nonresident contractor working group

Last fall, state Department of Revenue Services Commissioner Richard Nicholson asked the CBIA Tax Committee to provide suggestions on how to improve the statutory and administrative procedures for nonresident contractors to meet their tax obligations to the state, including sales and use tax and payroll tax.

After providing suggestions to the department in late 2009, the Tax Committee recently received responses to those suggestions with additional comments. The proposed revisions should significantly improve the nonresident contractor process for both property owners and contractors.

DRS has reserved a placeholder in its 2010 legislative package for possible legislation implementing those proposals.

Pass-through entity working group

At the CBIA/CSCPA Liaison Dinner with the Department of Revenue Services last Fall, a number of issues concerning the treatment of pass-through entities under the Connecticut Income Tax were identified, such as the apportionment of income, treatment of multi-tiered partnerships, etc.

An ad hoc subcommittee of CBIA Tax Committee and CSCPA State Tax Committee met with representatives of the Department in late 2009 to identify issues for further discussion.  The ad hoc committee has submitted responses to the Department, and a second meeting of the working group is expected during the first quarter of 2010.

Economic nexus working group

Last year, the General Assembly enacted provisions that would extend the Connecticut corporation business tax and the state personal income tax to out-of-state corporations and the individual owners of out-of-state S corporations, partnerships and limited liability companies that have a “substantial economic presence” in Connecticut—even if those entities or owners have no physical presence in Connecticut (such as an office, employees, etc.).

These so-called “economic nexus” provisions provide that an out-of-state entity has “substantial economic presence” in Connecticut if the out-of-state entity’s activities evidence “a purposeful direction of business toward this state, examined in light of the frequency, quantity and systematic nature of [the entity’s] economic contacts with this state. . . .”

The Commissioner of Revenue Services has said he intends to publish guidance on the application of the new “economic nexus” provisions to out-of-state businesses and individuals and has constituted a working group to solicit the input of the taxpayer community on these issues. The taxpayer representatives, which include representatives of the CBIA, submitted proposed guidance on a wide range of issues to the commissioner for his consideration.