Connecticut offers many benefits to business owners, but it is also known for its complex tax code. Through Priori Legal's on-demand marketplace, you can connect with vetted Connected tax attorneys whose experience and expertise matches your needs.
Connecticut State Taxes on Businesses
There are many types of taxes levied on businesses in Connecticut. Depending on your size, industry, type of entity, and operations, your company may owe any combination of the following.
Business Entity Tax
All registered businesses in Connecticut must pay the Business Entity Tax (BET) every two years, simply as a consequence of operating in the state. This tax is first due one you get a tax ID from the Connecticut Department of Revenue Services and then biennially afterwards. You can register for the BET and other Connecticut taxes either online or on paper using Form REG-1.
Corporation Business Tax
Connecticut’s corporation business tax is what is known generally as its corporate income tax. Only C-corps are responsible for this tax, which is set at a flat rate of 7.5% of a corporation’s income with a minimum tax of $250. Because Connecticut has no franchise taxes or privilege taxes, S-Corps, LLCs, partnerships and other pass-through tax entities (business entities whose profits are only taxed upon distributions at the personal level) do not owe any form of income tax.
Sales and Use Tax
Connecticut has a sales and use tax that applies to most tangible goods. This is a flat rate statewide at 6.35%. Unlike many states, Connecticut does not permit local jurisdictions to add additional sales tax, so tax will be the same whether you are in New Haven or Hartford. Most services are exempt from sales and use tax. The most important exemption is website, computer, and data processing services. These services, including the creation, development, hosting, and maintenance of a website, have a 1% sales and use tax.
Many industries and products have unique taxes in Connecticut that must also be filed. The following are some of the most common taxes that may apply to your company, depending on its operations. The best way to ensure that you cover all relevant taxes is to discuss this with a qualified Connecticut tax lawyer.
Controlling interest transfer tax
Real estate conveyance tax
Motor vehicle fuels tax
Motor carrier road tax
Rental surcharge tax
How U.S. Federal Taxes Affect Connecticut Businesses
As well as Connecticut state taxes, all corporations must pay federal corporate income taxes, according to how much money you earn throughout the year. In addition, all companies with any employees must withhold social security taxes on behalf of the federal government, regardless of whether you owe corporate income taxes. If you are unsure of your federal tax responsibilities, a Connecticut tax attorney can help.
Being Audited in Connecticut
No matter how carefully you file your taxes, you may be selected for a federal tax audit by the IRS or a Connecticut Department of Revenue Services audit. This does not necessarily mean that your company is suspected of wrongdoing— many audits are completely random. Your tax lawyer and accountant can work together to minimize the impact of an audit on your daily business operations.
How does tax reform under Connecticut HB 7061 affect my business?
Connecticut HB 7061 was a sweeping reform bill that affects each business in many ways, especially complicating the way taxes are filed by small businesses that are pass-through entities. Changes include required unitary taxation, caps on losses that can be reported on state taxes, and a large tax surcharge on large corporations. If you are unsure how these reforms impact your company’s bottom line, a tax attorney may be able to help clarify this law.
How can I minimize the corporate taxes that affect my Connecticut small business?
While you may not be able to avoid taxes entirely, tax planning allows your company to minimize its tax burden. Tax lawyers can help you lower your immediate tax payments and even reduce your long-term tax responsibilities. With the right legal and financial strategy in place, you can mitigate the impact of Connecticut’s complex and often confusing tax laws.
Do I owe any taxes outside of Connecticut?
If your business has a “nexus” or significant presence outside of Connecticut, you may owe taxes in other states, too. The best way to find where you may have additional tax obligations is to discuss your unique business situation with a Connecticut tax attorney.
How do I know what taxes I owe in Connecticut?
Connecticut has a somewhat complex tax structure with many individual taxes that may apply to each business. The best way to ensure that you are fully complying with all relevant taxes is to discuss your business with a Connecticut tax lawyer and qualified accountant.