Many businesses expanding into Connecticut wonder about the state's franchise tax. Understanding Connecticut's unique approach matters for businesses managing multi-state operations, as you'll face different compliance requirements than traditional franchise tax states.
Key points to know:
Connecticut doesn't impose a traditional franchise tax. Instead, the Corporation Business Tax (CBT) serves as the practical equivalent, taxing businesses for the privilege of doing business within Connecticut.
The CBT applies to C-corporations (domestic and foreign), LLCs taxed as corporations, and certain financial institutions. The system has a 7.5% tax rate on net income with a $250 minimum tax requirement.
Connecticut's CBT applies to both domestic and foreign entities conducting business in the state:
Out-of-state businesses trigger filing obligations when exceeding $500,000 in Connecticut receipts while systematically targeting Connecticut customers, even without physical presence.
Exempt entities include:
S-corporations, partnerships, and most LLCs avoid the CBT, instead facing Connecticut's Pass-Through Entity Tax (PET) at 6.99%.
A Certificate of Good Standing is required for major business activities like acquisitions and loan applications.
All Connecticut corporations must maintain compliance with both tax filing requirements through the Department of Revenue Services and Connecticut annual report obligations through the Secretary of State. These are separate processes with different deadlines.
CBT returns are due on or before the 15th day of the month following your federal corporate return due date. For calendar-year filers, this means May 15th when federal returns are due April 15. Connecticut requires estimated quarterly payments if you expect to owe more than $1,000.
Annual reports are due during your anniversary month and remain separate from tax deadlines. Extensions are available through Form CT-1120 EXT but require an estimated tax payment with the request.
Connecticut uses a net income-based calculation starting with federal taxable income and applying the 7.5% rate after state adjustments. All filers face a $250 minimum tax regardless of profitability.
Most businesses use Connecticut's three-factor apportionment formula:
(Payroll Factor + Property Factor + 2 × Sales Factor) ÷ 4
Sales receives double weight, significantly impacting businesses with substantial Connecticut revenue.
Note that Connecticut uses a single-sales factor for manufacturers, broadcasters, and financial services companies; the three-factor formula with double-weighted sales applies to other corporations.
Connecticut offers several credits that can reduce liability, including Human Capital Investment, Film Production (10% – 30% on qualified spend), Housing Program Contribution, and Historic Homes Rehabilitation credits.
Connecticut requires Form CT-1120 for Corporation Business Tax through mandatory electronic filing via the myconneCT portal using your FEIN and basic business details.
Multi-state businesses must carefully calculate apportionment percentages, and federal taxable income from Form 1120 Line 28 must match Connecticut reporting exactly. Foreign corporations must maintain active registration with the Secretary of State alongside tax compliance.
Late filing triggers 10% penalties on unpaid tax plus 1% monthly interest, often exceeding $2,500 for significant oversights.
Common costly mistakes:
Foreign entities face monthly penalties for operating without proper registration, plus the inability to maintain lawsuits and potential personal liability for officers.
Some entities are completely exempt from Connecticut's CBT, including 501(c)(3) non-profits, insurance companies, REITs, and religious/charitable corporations not engaged in business for profit.
S-corporations, partnerships, and most LLCs avoid the CBT. These entities may elect to pay Connecticut's Pass-Through Entity Tax (PET) at 6.99%, which became optional starting with the 2024 tax year. Electing entities must notify the Department of Revenue Services with each return.
Form CT-1120 EXT provides a six-month filing extension but requires an estimated tax payment with the request. Annual report deadlines remain unaffected by tax extensions.
Amendments are available for three years from the original due date, and federal changes must be reported within specific timeframes through the electronic filing system.
Complex situations require CPAs or tax attorneys specializing in Connecticut business taxation for proper apportionment calculations and compliance.
Connecticut's Corporation Business Tax involves complex apportionment formulas and filing requirements that are typically reserved for tax professionals. While we can’t help you with this particular filing, Discern automates state compliance with automated annual report filings, registered agent service, and deadline tracking across multiple jurisdictions.
Our platform helps businesses stay compliant with Connecticut's CBT requirements alongside other state obligations.
Book a demo to see how Discern can streamline your Connecticut compliance.
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