Connecticut Business Tax – Complete Guide

Connecticut Business Tax

In the state of Connecticut, you can form a wide variety of businesses, including limited liability companies, C corporations, partnerships, and sole proprietorships. Now, different businesses will have different tax obligations in the state based on the entity structure as well as activities. Connecticut business tax encompasses the various taxes prevalent in this state, including individual income taxes and corporate taxes. Business taxes in Connecticut play a pivotal role in maintaining the financial health of a business while generating revenue for the government and shaping the business landscape. There is no one tax for all business entities, and it can even vary according to the local jurisdiction in which your company is based. A Connecticut business tax calculator is quite handy in determining all your tax obligations in this state.

What taxes do businesses pay in Connecticut?

If you are planning to start a new business in this state, then the taxes will vary according to the type of entity structure chosen. The Connecticut LLC taxes may even be different from those of a corporation or a partnership. Hence, taxes are often taken into consideration while choosing an entity structure. You can even register a foreign entity in this state. The most common forms of taxes applicable in the state are:

Corporate income tax

The corporate business tax is one of the most important taxes in this state. This is commonly referred to as a “tax on the privilege of carrying on a business in a corporate capacity in Connecticut.” This can also be considered the Connecticut corporate income tax, and the rate is a flat 7.5 percent. The applicability of this tax is governed by the 2024 Connecticut General Statutes, Title 12 – Taxation, Chapter 208 – Corporation Business Tax. If the amount of tax due is less than $250 or if there is no taxable amount, then your company will be required to pay an Alternative Minimum Tax (AMT) of $250. This is an integral part of Connecticut Corporation taxes, and if your gross income is more than $100 million, then such income will be subject to a temporary 10% surtax. The effective tax rate will be 8.25 percent instead of 7.5 percent.

Pass-Through Entity (PTE) Tax

The Pass-Through Entity (PTE) Tax is a form of state tax that is normally paid at the entity level, and it helps in reducing the federal income of such entities. It is not applicable in all states of the USA. It is applicable in certain states, such as Connecticut, Colorado, California, Louisiana, and Michigan, among others. The Connecticut Pass-Through Entity Tax (CT PTET) is an optional tax and can be opted for by businesses through an annual election. This is a fairly new Connecticut business tax that imposes a rate of 6.99 percent on any Connecticut-sourced income. This comes into existence for tax years beginning on or after January 1, 2018.

Franchise/Privilege Tax

According to the 2024 Connecticut General Statutes, CT Gen Stat § 33-618. (2024), the Secretary of the State will charge and collect a franchise tax from corporations based on the number of shares that such a business issues. This is a part of Connecticut Corporation taxes, and the tax rate will be one cent per share. The tax rate will be one-half cent per share for each authorized share if the company issues between 10,000 shares and 100,000 shares. The tax rate will be one-half cent per share for each authorized share, and the slab is between 100,00 shares and one million shares.

Sales and Use Tax

The sales and use tax is a form of Connecticut business tax. This is the most common type of tax applicable to different businesses in all states of the US, including Connecticut. However, the rules and regulations for the application of this tax and the rate of tax will vary from one state to another. The general sales and use tax rate in Connecticut is currently 6.35 percent. The CT sales tax is levied on the sale of tangible goods and specific services. This tax will be collected on behalf of the state by the seller and then remitted to the state. This form of Connecticut LLC taxes will be applicable to your business if you:

• Have a nexus in Connecticut
• You are selling taxable goods or services to Connecticut residents
• You are a buyer who is required to pay sales tax

If you qualify to file sales tax, then you will need to register with the state tax authority. You will receive a Sales and Use Tax Permit, which will authorize you to collect these taxes. It is important to note that the general use tax rate is also 6.35 percent. However, there are certain items that are subject to a tax rate of 7.75 percent, like motor vehicles exceeding $50,000 or clothing exceeding $1,000.

Withholding Tax

The 2024 Connecticut General Statutes, Title 12 – Taxation, CT Gen Stat § 12-705. (2024) states that each employer maintaining an office or transacting business in Connecticut is required to register for withholding tax. You will have to register with the CT Department of Revenue Services (DRS). As an employer, you will be required to withhold Connecticut income tax from employee wages at the time you pay the wages. You will have to begin withholding taxes from each employee at the highest marginal rate of 6.99 percent. You will have to file Form CT 941 – Quarterly Reconciliation every quarter. A Connecticut business tax calculator will help you calculate the amount of quarterly taxes to be filed.

Unemployment Insurance Tax

The Unemployment Insurance (UI) Tax is a payroll tax paid by employers. The primary objective of this tax is to fund unemployment compensation for those workers who have lost their jobs without being at fault. This type of Connecticut business tax has two components, and they are:

• Federal Unemployment Tax (FUTA)
• State Unemployment Insurance (SUI)

The taxable wage base for the state unemployment tax (SUTA) is $26,100 per employee. If you are a new employer, then your base rate will be 2.2 percent (reduced from 2.5 percent). The minimum rate that can be charged is 0.1 percent, and the maximum standard rate is 10 percent.

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How are Connecticut Businesses taxed?

You can choose to form a wide variety of entities in this state, and the structure will determine the type of Connecticut corporate income tax levied on your company. Your company may be subject to multiple taxes, but you can reduce your overall tax burden by applying for tax incentives and credit programs in this state. You may be required to file tax returns depending on the business activity and location. Let us look at the various entities and their tax obligations in Connecticut.

Taxes for an LLC

If you are planning to start a limited liability company in Connecticut, then, for taxation purposes, it will be considered a pass-through entity. Hence, the most important of all Connecticut LLC taxes will be the filing of individual income tax returns. If your LLC has two or more owners, then it can be taxed as a Partnership. It will thus be required to file a Business Entity Tax of $250. An LLC treated as a partnership can also elect to be taxed under the Pass-Through Entity (PTE) Tax. The Connecticut business tax rate for this is a flat 6.99 percent.

If your LLC is selling products or promoting specific services in Connecticut to residents, then sales and use tax may be applicable. Apart from this, another form of Connecticut LLC taxes that may be applicable is the CT Payroll Taxes. This is relevant for businesses that have employees.

Taxes for a C Corporation

If you are thinking of establishing a Connecticut C Corporation, then your company will be subject to some form of Connecticut corporate income tax. The foremost among them is the corporate income tax. It is also known as the corporation business tax, and the tax rate is 7.25 percent. The net income of corporations is subject to this tax. However, it is worth noting that smaller corporations are exempt from this tax. Smaller corporations are required to file an “entity tax” of $250. There are certain other forms of Connecticut Corporation taxes that your company may be required to file, depending on business activity and industry. These include Sales and Use Tax, Withholding Tax, and Unemployment Insurance Tax.

Taxes for S Corporation

If you elect S Corporation tax status in Connecticut, being a pass-through entity, the owners or shareholders will be required to file personal income tax. An S Corporation will be subject to the same type of Connecticut corporate income tax that is applicable to LLCs. As a result, individual income tax returns have to be filed. There is a Pass-Through Entity (PTE) Tax, but it is optional for S Corporations. If an S-Corp chooses to file this tax, then you will need to submit the Connecticut Pass-Through Entity Tax Return using the CT-PET 2024 form. The other types of Connecticut Corporation taxes that your Subchapter S-corporation may be required to file depend on the business activity and the number of employees. Hence, the taxes will be quite similar to those of an LLC.

Taxes for a Sole Proprietorship

One of the easiest businesses to form and operate in Connecticut is a sole proprietorship. A sole proprietorship is a single-owner-run business and hence not considered a legal entity. If you form a sole trader business, then you will have to file the individual income tax return. The income tax rate varies from 2 percent to 6.5 percent depending on the income earned in this state. There are 2 individual taxpayer slabs for this type of Connecticut business tax, and they are a 3 percent rate for the first $20,000 and a 5 percent bracket on any additional income. Apart from this, you will also be required to file sales and use tax if you are selling tangible property or services. Certain taxes for a sole proprietorship are quite similar to those of Connecticut LLC taxes, and if you hire employees, then you may be required to file payroll taxes.

Taxes for Partnerships

If you form a partnership company in the state of Connecticut, then such a company will be required to file Connecticut business tax, quite similar to that of an LLC. In Connecticut, there are two basic tax options for partnerships. One is to file an individual income tax return, and the other is to opt for the Pass-Through Entity (PTE) Tax. Apart from this, just like any other entity, a partnership company will be required to file withholding taxes and sales and use taxes.

Ready to Incorporate your Connecticut Company?

You can choose a wide variety of entity structures in Connecticut, right from a sole proprietorship to a C corporation, LLC, or partnership. You can also elect for S Corporation status. The new business formation process can be exhaustive depending on the type of structure you choose. Taxes are an important annual requirement, and you will need to file some form of Connecticut business tax each year. IncParadise, one of the top incorporation service providers in the state, can provide you with meaningful assistance. We can help to register your LLC or corporation in Connecticut.

Once you have formed a new business, there are several important annual requirements that your company will be required to be compliant with. Hence, IncParadise offers additional services to fulfill such requirements like foreign qualification and filing a DBA, among others.