On May 31, 2018, Connecticut enacted a pass-through entity tax under Senate Bill 11 resulting in the repeal of the current composite tax regime for periods beginning on or after Jan. 1, 2018. One of the most significant impacts from the shift from a composite filing to an entity level tax is the necessity for estimated quarterly payments during the course of the year. Specifically, the regime requires equal quarterly payments for the tax to be made on the 15th day of the fourth, sixth, ninth and first month of the preceding year. Due to the timing of the enactment and effectiveness of the new tax, the Connecticut Department of Revenue Services recently released Special Notice SN 2018(4) outlining options for how taxpayers may comply with estimated tax payment requirements for the 2018 tax year as follows:
- Making a “catch-up” payment with the June 15, 2018, estimated payment that satisfies both the first and second estimated payment requirements;
- Making three estimated payments (by June 15, 2018, Sept. 15, 2018, and Jan. 15, 2019), each equal to 22.5 percent of the tax liability (the full amount of tax remains due by the return due date); or
- Annualizing their estimated payments for the taxable year
In accordance with the options noted above, the department has indicated that they will also allow taxpayers to elect to re-characterize any income tax payments made by individual partners through Sept. 15, 2018. Any amounts re-characterized will be treated as being made on the original date by the individual partner.
Payments to be made by a pass-through entity for purposes of the June 15 estimated payment date should utilize an estimated tax payment coupon. Payments relating to subsequent payment dates can be made utilizing the Tax Service Center.
Note: Additional guidance regarding specific taxability is expected to be provided by the DRS over the coming months, this guidance likely should address applicability of items as they relate to specific taxpayer situations.
Takeaways
Due to the pass-through entity tax provisions having been enacted six months into the calendar year and affecting the 2018 tax year, both the department and taxpayers have had limited time to address the impact of the new regime. Accordingly, impacted entities should review the new law and guidance provided by the department and contact their tax advisers as soon as possible.
For more information on federal and state tax reform, please see RSM’s Tax Reform Resource Center.
