Connecticut Administrative Code › Title 12 - Taxation › 740(a) - INCOME TAX › Part II - Nonresident individuals › Section 12-711(c)-4 - Allocation and apportionment of income from a business, trade, profession or occupation carried on partly within and partly without Connecticut

Current through July 10, 2024
(a)
General
. If a nonresident
				individual, or a partnership of which a nonresident individual is a member,
				carries on a business, trade, profession or occupation (as distinguished from
				personal services as an employee) both within and without Connecticut, the
				items of income, gain, loss and deduction attributable to such business, trade,
				profession or occupation shall be allocated (as provided in subsection (b) of
				this section) or apportioned (as provided in subsection (c) of this section) to
				Connecticut on a fair and equitable basis in accordance with generally accepted
				accounting principles. Once an individual uses either method (allocation or
				apportionment), he or she shall continue to use that method unless, after
				application in writing to the Commissioner, the Commissioner determines that
				the method used no longer reflects income which is fairly attributable to
				Connecticut. See §
									12-711(c)-5
				of this Part for rules regarding the allocation and apportionment of
				compensation paid to nonresident employees and officers.
(b)
Allocation by books and
				records
. If the books of the business are kept so as regularly to
				disclose, to the satisfaction of the Commissioner, the proportion of the net
				amount of the items of income, gain, loss and deduction derived from or
				connected with Connecticut sources, the Connecticut nonresident income tax
				return of the nonresident individual shall disclose the total amount of such
				items, the net amount of such items allocated to Connecticut, and the basis
				upon which such allocation is made. If income is reported using this method,
				such individual shall consistently allocate the amounts of income on returns
				filed with any other states in which such individual carries on business, where
				such states permit allocation on the basis of separate books and records.
Example: A plumber, who is a resident of Rhode Island,
				  carries on his business from an office in Danielson, Connecticut. He has
				  maintenance contracts with housing authorities in the Worcester, Massachusetts
				  area which require him to regularly perform his services at various locations
				  in and around Worcester. Assume that this taxpayer allocated, on the basis of
				  separate books and records, the income derived from his plumbing business on
				  his Connecticut nonresident return as follows: 60% to Connecticut and 40% to
				  Massachusetts. Therefore, on his Massachusetts return, this taxpayer shall also
				  allocate 60% of this income to Connecticut and 40% to Massachusetts, since
				  Massachusetts permits allocation on the basis of separate books and
				  records.
(c)
Apportionment
. If the books and records of the business do not
				disclose, to the satisfaction of the Commissioner, the proportion of the net
				amount of the items of income, gain, loss and deduction attributable to the
				activities of the business carried on in Connecticut, such proportion shall,
				except as provided in §
									12-711(b)-8
				of this Part, be determined by multiplying the net amount of the items of
				income, gain, loss and deduction of the business by the average of the
				percentages described in subsections (d) to (f), inclusive, of this
				section.
(d)
Property
				percentage
.
(1) General. The property
				percentage is computed by dividing the average of the values, at the beginning
				and end of the taxable year, of real and tangible personal property connected
				with the business and located within Connecticut, by the average of the values,
				at the beginning and end of the taxable year, of all real and tangible personal
				property connected with the business and located both within and without
				Connecticut. Property, the income or gain from the sale, exchange or other
				disposition of which is allocated pursuant to §
										12-711(b)-8
				of this Part, is disregarded in computing the property percentage described in
				this subsection. For purposes of this subsection, the term "property" includes
				real and tangible personal property rented to the taxpayer and used in the
				business, and, except as provided in subdivision (2) of this subsection, the
				term "value" means fair market value for real property and book value for
				tangible personal property.
(2)
				Rented Property.
(A) The value of property,
				both within and without Connecticut, which is rented to the nonresident
				individual is determined by multiplying the gross rents payable during the
				taxable year by eight.
(B) "Gross
				rent," as used in this subdivision, is the actual sum of money or other
				consideration payable directly or indirectly by, or for the benefit of, the
				nonresident individual for the use or possession of the property, and includes:
(i) any amount payable for the use or
				possession of property, or any part thereof, whether designated as a fixed sum
				of money or as a percentage of sales, profits or otherwise;
(ii) any amount payable as additional rent or
				in lieu of rent, such as interest, taxes, insurance, repairs or any other
				amount required to be paid by the terms of a lease or other arrangement;
				and
(iii) a proportionate part of
				the cost of any improvement to real property made by or on behalf of the
				nonresident individual which reverts to the owner or lessor upon termination of
				a lease or other arrangement, based on the unexpired term of the lease
				commencing with the date the improvement is completed (or the life of the
				improvement if its life expectancy is less than the unexpired term of the
				lease); provided, however, that where a building is erected on leased land by
				or on behalf of the nonresident individual, the value of the land is determined
				by multiplying the gross rent by eight, and the value of the building is
				determined in the same manner as if owned by such individual. The proportionate
				part of the cost of an improvement (other than a building on leased land) is
				generally equal to the amount of amortization allowed in computing Connecticut
				adjusted gross income, whether the lease does or does not contain an option of
				renewal.
(C) "Gross
				rent" does not include:
(i) any portion of a
				payment or credit, to the nonresident individual as the proprietor of the
				business or as a partner in the partnership conducting the business, for the
				use of property;
(ii) amounts
				payable by the nonresident individual as separate charges for water and
				electric service furnished by the lessor;
(iii) amounts payable by the nonresident
				individual for storage, where no designated space under the control of such
				individual as a tenant is rented for storage purposes; or
(iv) that portion of any rental payment which
				is applicable to property subleased by the nonresident individual and not used
				by such individual in the carrying on of the business.
(3) The method that is provided in
				subdivision (1) of this subsection is presumed to result in fair and equitable
				valuations, and any nonresident individual, proposing an alternate method of
				valuation, shall bear the burden of establishing that the method that is
				provided in subdivision (1) of this subsection results in unfair and
				inequitable valuations. A request for an alternative method may be made at the
				time the Connecticut nonresident income tax return to which the request relates
				is filed. A request is made by using, and fully explaining, the proposed method
				in the income tax return. Any request shall contain all facts with respect to
				the property forming the basis for the proposed valuation and also a
				computation of the value of the rented property based on gross rents in
				accordance with subdivision (2) of this subsection. Once approved by the
				Commissioner, such basis or such other method shall be used for subsequent
				years until the facts upon which it is based are materially changed.