Connecticut Administrative Code › Title 12 - Taxation › 740(a) - INCOME TAX › Part I - Resident individuals › Section 12-701(a)(20)-3 - Modifications reducing federal adjusted gross income

Current through July 10, 2024
(a) The
				following items are to be subtracted from federal adjusted gross income in
				computing the Connecticut adjusted gross income of a resident individual:
(1)
(A) Any
				income with respect to which taxation by any state is prohibited by federal
				law, to the extent properly includible in gross income for federal income tax
				purposes. Such income is from obligations issued by or on behalf of the United
				States, as defined in subparagraph (B) of this subdivision, or from other
				obligations, as discussed in subparagraph (B) of this subdivision, the taxation
				of which by states has been expressly prohibited by Congress, and is to be
				subtracted from federal adjusted gross income in computing Connecticut adjusted
				gross income. On the other hand, such income does not include income discussed
				in subparagraph (D) of this subdivision which is not includible in gross income
				for federal income tax purposes and which is not to be subtracted from federal
				adjusted gross income in computing Connecticut adjusted gross income.
(B) The type of credit instrumentalities that
				the United States Supreme Court has recognized as being constitutionally exempt
				from state and local taxation have been characterized by (1) written documents,
				(2) the bearing of interest, (3) a binding promise by the United States to pay
				specified sums at specified dates and (4) specific Congressional authorization,
				which also pledged the faith and credit of the United States in support of the
				promise to pay.
Smith
v.
Davis,
323 U.S. 111,
				114-15 (1944). For example, United States savings bonds meet the four criteria
				to be considered obligations of the United States. Interest on those bonds is
				includible in gross income for federal income tax purposes. The amount of such
				interest is, therefore, subtracted from federal adjusted gross income in
				computing Connecticut adjusted gross income. Other obligations do not meet the
				criteria established in
Smith
v.
Davis,
but,
				nonetheless, Congress has expressly prohibited states from taxing income
				derived from such obligations. For example, obligations of the Home Owners'
				Loan Corporation do not meet the four criteria to be considered obligations of
				the United States, but Congress has expressly prohibited States from taxing
				income from such obligations. Interest on these obligations is includible in
				gross income for federal income tax purposes. The amount of such interest is,
				therefore, subtracted from federal adjusted gross income in computing
				Connecticut adjusted gross income.
(C) Examples of obligations described in
				subparagraph (B) of this subdivision, the interest income from which is
				includible in gross income for federal income tax purposes and, therefore, is
				subtracted from federal adjusted gross income in computing Connecticut adjusted
				gross income include, but are not limited to, obligations issued by or on
				behalf of Banks for Cooperatives, Federal Intermediate Credit Banks, Federal
				Land Banks, Production Credit Associations, the Student Loan Marketing
				Association, the Tennessee Valley Authority, the United States Postal Service,
				the Federal Deposit Insurance Corporation and the Resolution Trust Corporation,
				and United States Treasury bonds, bills, notes and certificates.
(D) Examples of obligations described in
				subparagraph (B) of this subdivision, the interest income from which is not
				includible in gross income for federal income tax purposes and, therefore, is
				not subtracted from federal adjusted gross income in computing Connecticut
				adjusted gross income include, but are not limited to, obligations issued by or
				on behalf of the Commodity Credit Corporation, Federal Home Loan Banks, Federal
				Savings and Loan Insurance Corporation, The Resolution Funding Corporation,
				Guam, Puerto Rico and the Virgin Islands.
(E) Examples of income that is includible in
				gross income for federal income tax purposes but that is not subtracted from
				federal adjusted gross income in computing Connecticut adjusted gross income
				include, but are not limited to:
(i) interest
				paid on federal income tax refunds or on open accounts and other unsettled
				claims or demands,
(ii) interest
				paid by federal credit unions to depositors or by the Federal Home Loan Bank on
				demand deposits,
(iii) interest
				paid by a seller-borrower to a purchaser-lender under a repurchase agreement,
				and
(iv) interest paid on an
				obligation where the United States is merely an insurer or guarantor and has
				only a secondary or contingent liability, and is not the primary
				obligor.
(F)
Example:
Income described in this subparagraph includes, but
				is not limited to, obligations guaranteed and insured by the Federal National
				Mortgage Association and the Government National Mortgage Association, and
				obligations issued by or on behalf of the International Bank for Reconstruction
				and Development, the National Consumer Cooperative Bank and New Community
				Development Corporations.