Connecticut is one of many states that imposes a corporate income tax on the unrelated business taxable income of tax-exempt organizations. Tax-exempt organizations subject to this tax include charitable organizations, social welfare organizations, business leagues, trade associations, and social clubs. Unrelated business taxable income is income from a regularly-carried on trade or business activity of a tax-exempt organization that is unrelated to the organization’s tax-exempt purpose.

The Connecticut tax rate is equal to the corporate rate applicable to for-profit corporations under Connecticut’s Corporation Business Tax. That rate can be as high as 7.5%.

The Connecticut tax on unrelated business taxable income is based on an organization’s federal unrelated business taxable income with certain modifications including the following: (1) federal unrelated business taxable income is increased by any Connecticut unrelated business income tax paid during the year; and (2) federal unrelated business taxable income is decreased by refunds or credits of Connecticut unrelated business income tax during the taxable year and/or certain net operating losses.

Organizations subject to this tax must register with the Connecticut Department of Revenue Services on Form REG-1, Business Taxes Registration Application. Organizations with unrelated business taxable income attributable to a trade or business activity conducted in Connecticut must annually file a Form CT-990T, Connecticut Unrelated Business Income Tax Return. The due date of Form CT-990T is generally the due date of the related federal return, IRS Form 990-T, Exempt Organization Business Income Tax Return, which is the fifteenth day of the fifth month following the organization’s year end (May 15^th for calendar year organizations). The due date may be extended by the filing of Connecticut DRS Form CT-990T EXT, Application for Extension of Time to File Unrelated Business Income Tax Return, prior to the due date of the Form CT-990T, with payment of the total tax due.

Organizations subject to this tax whose tax for the year is more than $1,000 must make estimated tax payments. Quarterly estimated tax payments are made using Forms CT 990T ESA, ESB, ESC and ESD, 2019 Estimated Unrelated Business Income Tax Payment Coupon – Installments.

 The new federal tax rules from President Trump’s Tax Cuts and Jobs Act of 2017 that treat costs associated with employer-provided parking and other qualified transportation fringe benefits as unrelated business taxable income (see our previous blog post) can increase an organization’s Connecticut unrelated business taxable income.