SB 502 (Sections 199-201) – For multi-state companies that are service-based the legislation creates market-based sourcing rules for calculation of corporate and personal income tax liabilities.

By law, multi-state companies must determine where their sales are made in order to calculate the portion of their income that is attributed to Connecticut and thus subject to tax. Current law establishes “sourcing rules” that companies must use to determine which sales are sourced (i.e., assigned) to Connecticut. The bill requires companies to use market-based sourcing to determine which service sales are attributable to Connecticut for corporation and personal income tax purposes. Under market-based sourcing rules, companies source service sales based on where their customers are located or receive the benefit of the services. Current law requires them to source service sales based on where the services are performed (i.e., origination-based sourcing).

The bill generally applies the same sourcing rules to the corporation and personal income tax, with the exception of sourcing receipts derived from real property sales, rentals, leases, and licenses.

By law, unchanged by the bill, companies must use destination-based sourcing to determine how sales of tangible personal property are sourced to Connecticut for both corporation and personal income tax purposes. Under these rules, sales are sourced to the state if the property is delivered or shipped to a purchaser here.

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