Effective January 1, 2018, each payer of pension and annuity distributions, including distributions from an employer pension, an annuity, or similar instrument or plan, will be required to deduct and withhold Connecticut income tax from the taxable portion of such distributions if the payer (i) maintains an office or transacts business in Connecticut, and (ii) makes payment of any amount taxable in Connecticut to a resident individual.

On December 7, 2017, the Commissioner of Revenue Services released a memorandum (the “Memorandum”) clarifying the new withholding requirements and offering something of a safe harbor for payers making good faith efforts to comply during 2018. Specifically, the Memorandum provides that “[p]ayers that make good faith effort to implement the withholding requirements during calendar year 2018 will not incur any taxes, interest or penalties attributable to any non-compliance with these requirements during calendar year 2018.”

In order to comply with withholding, payers need to distribute Form CT-W4P to Connecticut residents who are receiving periodic payments. Although a payer need not solicit a Form CT-W4P from a recipient of a non-periodic distribution, the recipient may submit a Form CT-W4P to claim an exemption from withholding or to request a specific additional amount of withholding. If a recipient does not properly complete the Form CT-W4P, then the payer must withhold at the highest marginal rate. Payments exempt from tax, such as distributions from a Roth IRA, are not subject to withholding.

When determining whether a recipient is a Connecticut resident, the Memorandum provides that a payer may rely on the address of record for such recipient. A payer may also rely upon a written statement (including the Form CT-W4P) from the recipient regarding the recipient’s residency if the statement is signed under penalties of perjury.

The DRS plans to ask the legislature to amend the withholding statute to provide additional clarity and to provide for withholding at the maximum marginal rate for the taxable portion of non-periodic distributions. The DRS also intends to revise the Form CT-W4P and its instructions in an effort to make the withholding process more easily understood.

Earlier in 2017, a DRS press release stated that “current state law requires out of state sellers of goods that have an economic presence in the state to collect and remit sales tax.” The press release indicated that the state is stepping up its efforts to collect sales taxes not paid by on-line and other out-of-state retailers with a significant volume of sales in Connecticut.

In a speech on November 15, 2017, the Commissioner announced that the DRS intends to issue, in early 2018, new guidance and regulations on the “taxability of Connecticut destined e-commerce sales” targeted at e-retailers that have annual sales in Connecticut of $300,000 or more. The Commissioner indicated that the guidance is likely to incorporate the approach for the taxation of an “Internet vendor” adopted by Massachusetts in Regulation 830 CMR 64H.1.7.

The Connecticut budget bill included the implementation of the Fresh Start Program (the “Program”). The Program runs from October 31, 2017 through November 30, 2018, and allows the Commissioner of Revenue Services to grant certain relief to any “qualified taxpayer” who failed to file a tax return, or failed to report the full amount of tax properly due on a previously filed tax return, that was due on or before December 31, 2016.

If a taxpayer applies for, and is accepted into the Program, then the taxpayer can enter into a fresh start agreement which shall provide for a waiver of all penalties and 50% of the interest attributable to such failure, and may also provide for a limited look-back period. Lookback periods will generally be limited to three or four years. The program is similar to the still open and available Voluntary Disclosure Agreement program (“VDA”) with the most notable difference between the two programs being the fact that a VDA can be entered into anonymously, and typically includes payment of all interest due.

The Program covers all Connecticut taxes administered by the Department of Revenue Services, except the motor carrier road tax. Only certain taxpayers qualify as “eligible taxpayers” and more information can be found in the Shipman & Goodwin LLP November 2017 tax alert on or on the Department’s website.

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Photo of David O. Bigger David O. Bigger

David Bigger practices primarily in the areas of international, federal, state and local taxation, with particular emphasis on personal income tax, mergers and acquisitions, and matters involving the taxation of partnerships.  David has represented individuals and companies with regard to multi-state taxation issues…

David Bigger practices primarily in the areas of international, federal, state and local taxation, with particular emphasis on personal income tax, mergers and acquisitions, and matters involving the taxation of partnerships.  David has represented individuals and companies with regard to multi-state taxation issues, tax planning, reorganizations, enforcement and collection defense, and other federal and state tax controversies.

Photo of Ray Casella Ray Casella

Ray practices in all areas of federal, state and local tax law. He has extensive experience representing tax-exempt organizations including schools, private foundations and public charities. Ray regularly deals with federal and state income tax issues, Connecticut sales and use tax issues, federal…

Ray practices in all areas of federal, state and local tax law. He has extensive experience representing tax-exempt organizations including schools, private foundations and public charities. Ray regularly deals with federal and state income tax issues, Connecticut sales and use tax issues, federal and state payroll tax issues, and private foundation excise taxes.

Photo of Robert L. Day, III Robert L. Day, III

Robert is a member of the Tax and Employee Benefits Practice Group and practices primarily in the areas of federal, state and local taxation.  Robert regularly counsels a wide variety of taxpayers including individuals, manufacturers, insurers, media companies, financial institutions, hedge funds, and…

Robert is a member of the Tax and Employee Benefits Practice Group and practices primarily in the areas of federal, state and local taxation.  Robert regularly counsels a wide variety of taxpayers including individuals, manufacturers, insurers, media companies, financial institutions, hedge funds, and asset management funds.  He also has experience representing these clients in tax controversies before the Connecticut Department of Revenue Services and other taxing authorities.

Photo of Alan E. Lieberman Alan E. Lieberman

Alan Lieberman is Chair of the firm’s seven-person Management Committee and acts as the firm’s Managing Partner.

Alan’s practice involves counseling clients on matters involving international, federal, state and local taxation, and representing them in tax-related disputes in administrative and court proceedings. In…

Alan Lieberman is Chair of the firm’s seven-person Management Committee and acts as the firm’s Managing Partner.

Alan’s practice involves counseling clients on matters involving international, federal, state and local taxation, and representing them in tax-related disputes in administrative and court proceedings. In addition, Alan represents clients in the formation, reorganization, and liquidation of business entities and tax-exempt organizations.

Photo of Louis B. Schatz Louis B. Schatz

Louis Schatz serves as Chair of Shipman & Goodwin’s Tax and Employee Benefits Practice Group. From 2007 to 2017, Lou served on the firm’s seven-person Management Committee. He is the past Chair of the Tax Section of the Connecticut Bar Association.

Lou practices…

Louis Schatz serves as Chair of Shipman & Goodwin’s Tax and Employee Benefits Practice Group. From 2007 to 2017, Lou served on the firm’s seven-person Management Committee. He is the past Chair of the Tax Section of the Connecticut Bar Association.

Lou practices in the areas of federal and State of Connecticut tax with attention to the representation of closely held businesses organized as limited liability companies, partnerships and S corporations; real estate joint ventures; and the representation of taxpayers involved in federal and Connecticut tax controversies (at the audit, appellate and court levels). He is a frequent lecturer on federal and State of Connecticut tax, partnership and limited liability company issues.