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 15th 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.