2023 Connecticut General Statutes › Title 12 - Taxation › Chapter 208 - Corporation Business Tax › Section 12-218e. - Combined group's net income. Apportionment percentage. Net operating loss. Carryover. Additional tax base. Nexus combined base tax.

(a) For purposes of this chapter, the combined group's net income shall be the aggregate net income or loss of each taxable member and nontaxable member of the combined group derived from a unitary business, which shall be determined as follows:
(1) For any member incorporated in the United States, included in a consolidated federal corporate income tax return and filing a federal corporate income tax return, the income to be included in calculating the combined group's net income shall be such member's gross income, less the deductions provided under section 12-217, as if the member were not consolidated for federal tax purposes.
(2) For any member not included in a consolidated federal corporate income tax return but required to file its own federal corporate income tax return, the income to be included in calculating the combined group's net income shall be such member's gross income, less the deductions provided under section 12-217.
(3) For any member not incorporated in the United States, not included in a consolidated federal corporate income tax return and not required to file its own federal corporate income tax return, the income to be included in the combined group's net income shall be determined from a profit and loss statement that shall be prepared for each foreign branch or corporation in the currency in which the books of account of the branch or corporation are regularly maintained, adjusted to conform it to the accounting principles generally accepted in the United States for the presentation of such statements and further adjusted to take into account any book-tax differences required by federal or Connecticut law. The profit and loss statement of each such member of the combined group and the apportionment factors related thereto, whether United States or foreign, shall be translated into or from the currency in which the parent company maintains its books and records on any reasonable basis consistently applied on a year-to-year or entity-by-entity basis. Income shall be expressed in United States dollars. In lieu of these procedures and subject to the determination of the commissioner that the income to be reported reasonably approximates income as determined under this chapter, income may be determined on any reasonable basis consistently applied on a year-to-year or entity-by-entity basis.
(4) (A) If the unitary business has income from an entity that is treated as a pass-through entity, the combined group's net income shall include its member's direct and indirect distributive share of the pass-through entity's unitary business income.
(B) The distributive share of income received by a limited partner from an investment partnership shall not be considered to be derived from a unitary business unless the general partner of such investment partnership and such limited partner have common ownership. To the extent that the limited partner is otherwise carrying on or doing business in Connecticut, it shall apportion its distributive share of income from an investment partnership in accordance with subdivision (2) of subsection (g) of section 12-218. If the limited partner is not otherwise carrying on or doing business in Connecticut, its distributive share of income from an investment partnership is not subject to tax under this chapter.
(5) All dividends paid by one member to another member of the combined group shall be eliminated from the income of the recipient.
(6) The principles set forth in the Treasury regulations promulgated under Section 1502 of the Internal Revenue Code, including the principles relating to deferrals, eliminations, and exclusions, shall apply to the extent consistent with the Connecticut combined group membership and combined unitary reporting principles. Upon the occurrence of either of the following events, deferred business income resulting from an intercompany transaction among members of a combined group shall be restored to the income of the seller and shall be included in the combined group's net income as if the seller had earned the income immediately before the event:
(A) The object of a deferred intercompany transaction is: (i) Resold by the buyer to an entity that is not a member of the combined group, (ii) resold by the buyer to an entity that is a member of the combined group for use outside the unitary business in which the buyer and seller are engaged, or (iii) converted by the buyer to a use outside the unitary business in which the buyer and seller are engaged; or
(B) The buyer and seller are no longer members of the same combined group, regardless of whether the members remain unitary.
(7) A charitable expense incurred by a member of a combined group shall, to the extent allowable as a deduction pursuant to Section 170 of the Internal Revenue Code, be subtracted first from the combined group's net income, subject to the income limitations of said section applied to the entire business income of the group. Any charitable deduction disallowed under the foregoing rule, but allowed as a carryover deduction in a subsequent year, shall be treated as originally incurred in the subsequent year by the same member and the rules of this section shall apply in the subsequent year in determining the allowable deduction for that year.
(8) Gain or loss from the sale or exchange of capital assets, property described by Section 1231(a)(3) of the Internal Revenue Code and property subject to an involuntary conversion shall be removed from the net income of each member of a combined group and shall be included in the combined group's net income as follows:
(A) For each class of gain or loss, whether short-term capital, long-term capital, Section 1231 of the Internal Revenue Code gain or loss, or gain or loss from involuntary conversions, all members' business gain and loss for the class shall be combined, without netting among such classes, and each class of net business gain or loss shall be apportioned to each member under subsection (b) of this section; and
(B) Any resulting income or loss apportioned to this state, as long as the loss is not subject to the limitations of Section 1211 of the Internal Revenue Code, of a taxable member produced by the application of subparagraph (A) of this subdivision shall then be applied to all other income or loss of that member apportioned to this state. Any resulting loss of a member apportioned to this state that is subject to the limitations of said Section 1211 shall be carried forward by that member and shall be treated as short-term capital loss apportioned to this state and incurred by that member for the year for which the carryover applies.
(9) Any expense of any member of the combined group that is directly or indirectly attributable to the income of any member of the combined group, which income this state is prohibited from taxing pursuant to the laws or Constitution of the United States, shall be disallowed as a deduction for purposes of determining the combined group's net income.
(b) A taxable member of a combined group shall determine its apportionment percentage as follows:
(1) Each taxable member shall determine its apportionment percentage based on the otherwise applicable apportionment formula provided in this chapter. In computing its denominators for all factors, the taxable member shall use the combined group's denominator for that factor. In computing the numerator of its receipts factor, each taxable member shall add to such numerator its share of receipts of nontaxable members assignable to this state, as provided in subdivision (3) of this subsection.
(2) The combined group shall determine its property and payroll factor denominators using the factors from all members, whether or not a member would otherwise apportion its income using such property and payroll factors.
(3) Receipts assignable to this state of each nontaxable member shall be determined based upon the apportionment formula that would be applicable to such member if it were a taxable member and shall be aggregated. Each taxable member of the combined group shall include in the numerator of its receipts factor a portion of the aggregate receipts assignable to this state of nontaxable members based on a ratio, the numerator of which is such taxable member's receipts assignable to this state, without regard to this subsection, and the denominator of which is the aggregate receipts assignable to this state of all the taxable members of the combined group, without regard to this subsection.
(4) In determining the numerator and denominator of the apportionment factors of taxable members, transactions between or among members of such combined group shall be eliminated.
(5) If any member of a combined group required to file a combined unitary tax return pursuant to section 12-222 is taxable without this state, or is a financial service company, as defined in section 12-218b, each taxable member shall be entitled to apportion its net income in accordance with this section.
(c) To calculate each taxable member's net income or loss apportioned to this state, each taxable member shall apply its apportionment percentage, as determined pursuant to subsection (b) of this section, to the combined group's net income.
(d) After calculating its net income or loss apportioned to this state, pursuant to subsection (c) of this section, each taxable member of a combined group required to file a combined unitary tax return pursuant to section 12-222 may deduct a net operating loss from its net income apportioned to this state as follows:
(1) For income years beginning on or after January 1, 2016, if the computation of a combined group's net income results in a net operating loss, a taxable member of such group may carry over its net loss apportioned to this state, as calculated under subsection (c) of this section, derived from the unitary business in a future income year to the extent that the carryover and deduction is otherwise consistent with subparagraph (A) of subdivision (4) of subsection (a) of section 12-217. Any taxable member that has more than one operating loss carryover shall apply the carryovers in the order that the operating loss was incurred, with the oldest carryover to be deducted first.
(2) Where a taxable member of a combined group has an operating loss carryover derived from a loss incurred by a combined group in an income year beginning on or after January 1, 2016, then the taxable member may share the operating loss carryover with other taxable members of the combined group if such other taxable members were members of the combined group in the income year that the loss was incurred. Any amount of operating loss carryover that is deducted by another taxable member of the combined group shall reduce the amount of operating loss carryover that may be carried over by the taxable member that originally incurred the loss.
(3) Where a taxable member of a combined group has an operating loss carryover derived from a loss incurred in an income year beginning prior to January 1, 2016, or derived from an income year during which the taxable member was not a member of such combined group, the carryover shall remain available to be deducted by that taxable member or other group members that, in the year the loss was incurred, were part of the same combined group as such taxable member under section 12-223a or same unitary group as such taxable member under subsection (d) of section 12-218d of the general statutes, revision of 1958, revised to January 1, 2015. Such carryover shall not be deductible by any other members of the combined group.
(e) Each taxable member shall multiply its income or loss apportioned to this state, as calculated under subsection (c) of this section and as further modified by subsection (d) of this section, by the tax rate set forth in section 12-214.
(f) The additional tax base of taxable and nontaxable members of a combined group required to file a combined unitary tax return pursuant to section 12-222 shall be calculated as follows:
(1) Except as otherwise provided in subdivision (2) of this subsection, members of the combined group shall calculate the combined group's additional tax base by aggregating their separate additional tax bases under subsection (a) of section 12-219 provided (A) intercorporate stockholdings in the combined group shall be eliminated, (B) no deduction shall be allowed under subparagraph (B)(ii) of subdivision (1) of subsection (a) of section 12-219, for such intercorporate stockholdings, and (C) assets and liabilities attributable to transactions with another member of the combined group, including, but not limited to, a financial service company, as defined in section 12-218b, shall be eliminated. In calculating the combined group's additional tax base, the separate additional tax bases of nontaxable members shall be included, as if those nontaxable members were taxable members. The amount calculated under this subdivision shall be apportioned to those members pursuant to subdivision (1) of subsection (g) of this section.
(2) Members of the combined group that are financial service companies, as defined in section 12-218b, shall not be included in the calculation of the combined group's additional tax base set forth in subdivision (1) of this subsection. Financial service companies that are taxable members shall calculate their additional tax liability under subsection (d) of section 12-219.
(g) A taxable member of a combined group required to file a combined unitary tax return pursuant to section 12-222 shall determine its apportionment percentage under section 12-219a as follows:
(1) A taxable member whose separate additional tax base is included in the calculation of the combined group's additional tax base under subdivision (1) of subsection (f) of this section shall apportion the combined group's additional tax base using the otherwise applicable apportionment formula provided in section 12-219a. However, the denominator of such apportionment fraction shall be the sum of subdivisions (1) and (2) of subsection (a) of said section 12-219a for all members whose separate additional tax bases are included in the calculation of the combined group's additional tax base under subdivision (1) of subsection (f) of this section. The numerator of such apportionment fraction shall be the sum of subparagraph (A) of subdivision (1) of subsection (a) of said section 12-219a and subparagraph (A) of subdivision (2) of subsection (a) of said section 12-219a for such taxable member.
(2) Taxable members of the combined group that are financial service companies, as defined in section 12-218b, shall each have an additional tax liability as described in subdivision (2) of subsection (h) of this section.
(h) (1) A taxable member whose separate additional tax base is included in the calculation of the combined group's additional tax base under subdivision (1) of subsection (f) of this section shall multiply the combined group's additional tax base, as calculated under subdivision (1) of subsection (f) of this section, by such member's apportionment fraction determined in subdivision (1) of subsection (g) of this section, by the tax rate set forth in subsection (a) of section 12-219. In no event shall the aggregate tax so calculated for all members of the combined group exceed one million dollars, nor shall a tax credit allowed against the tax imposed by this chapter reduce a taxable member's tax calculated under this subsection to an amount less than two hundred fifty dollars.
(2) Taxable members of the combined group that are financial service companies, as defined in section 12-218b, shall each have an additional tax liability of two hundred fifty dollars. In no event shall a tax credit allowed against the tax imposed by this chapter reduce a financial service company's tax calculated under this subsection to an amount less than two hundred fifty dollars.
(3) To the extent that the aggregate amount of tax calculated on each taxable member's additional tax base exceeds one million dollars, each taxable member will prorate its tax, in proportion to the group's tax calculated without regard to the one-million-dollar cap, such that the group's aggregate additional tax equals one million dollars.
(i) If the aggregate amount of tax calculated on each taxable member's apportioned net income under subsection (e) of this section equals or exceeds the aggregate amount of tax calculated on each taxable member's apportioned additional tax base under subsection (h) of this section, each taxable member shall be subject to tax on its net income. If the aggregate amount of tax calculated on each taxable member's apportioned additional tax base under subsection (h) of this section exceeds the aggregate amount of tax calculated on each taxable member's apportioned net income under subsection (e) of this section, each taxable member shall be subject to tax on its additional tax base.
(j) (1) Each taxable member of a combined group required to file a combined unitary tax return pursuant to section 12-222 shall separately apply the provisions of sections 12-217ee and 12-217zz in determining the amount of tax credit available to such member.
(2) If a taxable member of a combined group earns a tax credit in an income year beginning on or after January 1, 2016, then the taxable member may share the credit with other taxable members of the combined group. Any amount of credit that is utilized by another taxable member of the combined group shall reduce the amount of credit carryover that may be carried over by the taxable member that originally earned the credit. If a taxable member of a combined group has a tax credit carryover derived from an income year beginning on or after January 1, 2016, then the taxable member may share the carryover credit with other taxable members of the combined group, if such other taxable members were members of the combined group in the income year in which the credit was earned.
(3) If a taxable member of a combined group has a tax credit carryover derived from an income year beginning prior to January 1, 2016, or derived from an income year during which the taxable member was not a member of such combined group, the credit carryover shall remain available to be utilized by such taxable member or other group members which, in the year the credit was earned, were part of the same combined group as such taxable member under section 12-223a or the same unitary group as such taxable member under subsection (d) of section 12-218d of the general statutes, revision of 1958, revised to January 1, 2015.
(4) To the extent a taxable member has more than one corporation business tax credit that it may utilize in an income year, whether such credits were earned by said member or are available to said member in accordance with subdivisions (2) and (3) of this subsection, the credits shall be claimed in the same order as provided in section 12-217aa.
(k) (1) In no event shall the tax calculated for a combined group on a combined unitary basis, prior to surtax and application of credits, exceed the nexus combined base tax described in subdivision (2) of this subsection by more than two million five hundred thousand dollars.
(2) (A) The nexus combined base tax equals the tax measured on the sum of the separate net income or loss of each taxable member or the minimum tax base of each taxable member as if such members were not required to file a combined unitary tax return, but only to the extent that such income, loss or minimum tax base of any taxable member is separately apportioned to Connecticut in accordance with the applicable provisions of section 12-218, 12-218b, 12-219a or 12-244. In computing such net income or loss, intercorporate dividends shall be eliminated, and in computing the combined additional tax base, intercorporate stockholdings shall be eliminated.
(B) In computing such net income or loss, any intangible expenses and costs, as defined in section 12-218c, any interest expenses and costs, as defined in section 12-218c, and any income attributable to such intangible expenses and costs or to such interest expenses and costs shall be eliminated, provided the corporation that is required to make adjustments under section 12-218c for such intangible expenses and costs or for such interest expenses and costs, and the related member or members, as defined in section 12-218c, are both taxable members of the combined group. If any such income and any such expenses and costs are eliminated as provided in this subparagraph, the intangible property, as defined in section 12-218c, of the corporation eliminating such income shall not be taken into account in apportioning under the provisions of section 12-219a the tax calculated under subsection (a) of section 12-219 of such corporation.
(C) In computing the apportionment fraction under this subdivision:
(i) Intercompany rents shall not be included in the computation of the value of property rented if the lessor and lessee are both taxable members in the combined unitary tax return; and
(ii) Intercompany business receipts, receipts by a taxable member included in a combined unitary tax return from any other taxable member included in such return, shall not be included.
(P.A. 15-244, S. 139; June Sp. Sess. P.A. 15-5, S. 139, 142, 143; Dec. Sp. Sess. P.A. 15-1, S. 36.)
History: P.A. 15-244 effective June 30, 2015, and applicable to income years commencing on or after January 1, 2015; June Sp. Sess. P.A. 15-5 changed effective date of P.A. 15-244, S. 139, from June 30, 2015, and applicable to income years commencing on or after January 1, 2015, to January 1, 2016, and applicable to income years commencing on or after that date, effective June 30, 2015, and amended Subsec. (d) by making Subdivs. (1) and (2) applicable to income years beginning on or after January 1, 2016, and Subdiv. (3) applicable to operating loss carryover derived from loss incurred in income year beginning prior to January 1, 2016, and amended Subsec. (j) by making Subdiv. (2) applicable to tax credit earned in income year beginning on or after January 1, 2016, and to tax credit carryover derived from income year beginning on or after January 1, 2016, and by making Subdiv. (3) applicable to tax credit carryover derived from income year beginning prior to January 1, 2016, and to refer to same unitary group as taxable member under Sec. 12-218d(d), effective January 1, 2016, and applicable to income years commencing on or after that date; Dec. Sp. Sess. P.A. 15-1 amended Subsec. (a) by designating existing provision as Subpara. (A) and adding Subpara. (B) re consideration of distributive share of income received by limited partner from investment partnership in Subdiv. (4), and replacing provision re deferral of business income from intercompany transaction among members of same combined group to be similar to deferral under 26 CFR 1.1502-13 with provision re application of principles set forth in Treasury regulations promulgated under Sec. 1502 of Internal Revenue Code in Subdiv. (6), amended Subsec. (b) by adding reference to Secs. 12-218e to 12-218g in Subdiv. (1) and adding reference to financial service company in Subdiv. (5), amended Subsec. (f) by adding Subpara. designators (A) and (B) and adding Subpara. (C) re elimination of assets and liabilities attributable to transactions with another member of combined group in Subdiv. (1), and rewriting provisions re calculation of additional tax liability re financial services companies in Subdiv. (2), amended Subsec. (h) by adding reference to Secs. 12-218e to 12-218g in Subdivs. (1) and (2), and added Subsec. (k) re calculation of and cap on nexus combined base tax, effective January 1, 2016, and applicable to income years commencing on or after that date.