Magazine article The CPA Journal

Contrasting Treatment of Nonresidents of New York State and Connecticut

Magazine article The CPA Journal

Contrasting Treatment of Nonresidents of New York State and Connecticut

Article excerpt

Connecticut Temporary Personal Income Tax Rules provide essentially similar income tax treatment to that prescribed by New York with regard to both residents and nonresidents. However. The following discussion highlights two significant differences between Connecticut and New York tax rules pertaining to nonresidents.

1. Unlike New York provisions dealing with the determination of the source of income of a) a nonresident conducting a trade or business in the state, or b) a nonresident employee rendering personal services in the state, Connecticut has a minimum "nexus" test which must be satisfied to impose tax on nonresidents. The Connecticut law provides the following criteria to determine taxability in dealing with Connecticut source income of nonresidents: Connecticut source adjusted gross income of a nonresident individual, who renders personal services as an employee or who conducts business other than as an employee consists of compensation or income included in Federal adjusted gross income which is derived from Connecticut activities which are not casual, isolated, or inconsequential.

2. In defining the nature of the nonresident's activities within Connecticut, the terms casual, isolated, or inconsequential are satisfied by meeting any one of three tests:

a) The gross income derived from Connecticut doesn't exceed $6,000 in the taxable year;

b) The nonresident's presence in Connecticut doesn't exceed ten days during the taxable year. However, regardless of the number of days present in Connecticut, if the earnings exceed $6,000, this safe harbor doesn't apply; or

c) The nonresident's presence in Connecticut is ancillary to his or her primary business or employment duties performed outside Connecticut (e.g., occasional presence in Connecticut for management reporting or planning, training, attendance at conferences, and other similar activities which are secondary to the nonresident's out-of-state duties).

Connecticut provides for alternative methods of taxation with regard to nonresident shareholders of S corporations and nonresident partners. These rules impose obligations upon the S corporation or the partnership.

The S Corporation (or partnership) may elect alternatively to a) file group returns and declarations of estimated tax, b) file agreements on behalf of nonresident shareholders (or partners) that the nonresident shareholders (or partners) will be responsible for reporting and paying any Connecticut tax liability, or c) file a composite return and pay Connecticut tax on behalf of the nonresident S shareholders (or partners). …

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