Jun 15 Tax Alert: Connecticut Creates New Level of Tax on Pass-Through Entities
Connecticut Governor Dannel Malloy, signed on May 31, 2018 Senate Bill 11, a bill that is in response to the federal tax reform. This bill includes a new pass-through entity (PTE) tax at a rate of 6.99% on Connecticut source income which affects Partnerships, S-Corporations and LLC’s treated as a PTE. This new level of tax does not impact Publicly Traded Partnerships, Sole Proprietorships, or Single Member LLC’s treated as a disregarded entity for federal income tax purposes.
Beginning this year, a PTE is now required to pay estimates for Pass-Through Entity Tax Liability. For calendar year taxpayers, these are due on April 15th, June 15th, September 15th, and January 15th of the following year. For the calendar year 2018, Connecticut will allow for a catch-up payment due on June 15th, which will satisfy the first and second quarter estimates. Based on this late date of legislation, it is possible that Connecticut will provide relief for late paid June 15th estimates.
Connecticut Department of Revenue Services (DRS) will allow PTEs to re-characterize any of the estimated payments made by an individual partner in 2018 to be applied against the PTE’s 2018 tax. The re-characterization must be completed by December 31, 2018.
Connecticut’s current composite tax structure will no longer be applicable, with nonresident individuals not required to file a Connecticut return if the only income is generated from a PTE subject to tax.
This is one way a state is combating the new $10,000 SALT deduction cap enacted as part of the Tax Cuts and Jobs Act effective this year. Connecticut will provide for a partial credit to partners and shareholders of the PTE for their allocable share of taxes paid by the PTE.
Sax LLP will keep you up to date on this tax reform development impacting Connecticut and other states as additional details emerge. For any questions or issues, please reach out to a Sax advisor at (973) 472-6250 or visit us at www.saxllp.com.
