Effective for tax years beginning on or after January 1, 2010, any companies, partnerships, and S corporations that derive income from Connecticut or have a substantial economic presence within Connecticut, in either case attributable to the purposeful direction of business activities toward Connecticut, will be subject to tax in Connecticut.

To provide guidance to taxpayers, Connecticut released an "Informational Publication 2010(29)."  The publication provides answers to several questions taxpayers have about the application of Connecticut's economic nexus standard. 

According to the publication, the purposeful direction of business activities toward Connecticut will be evaluated based on the frequency, quantity and systematic nature of the business’s economic contacts in Connecticut.The publication also provides taxpayer examples and a "bright line test." 

A company, partnership or S corporation that is not otherwise subject to income taxation or a requirement to file a return in this state under Chapter 208 or Chapter 229 of the Connecticut General Statutes shall not be deemed to have economic nexus for a taxable year if the frequency, quantity and systematic nature of the business’s economic contacts with the state are such that it has receipts from business activities that are less than $500,000 attributable to Connecticut sources during such taxable year. This bright line test does not preclude the Commissioner from contending that a company, partnership or S corporation has an obligation to file a return or pay a tax under Chapter 208 or Chapter 229 of the Connecticut General Statutes as a matter of law other than attributable to the Economic Nexus Legislation. Note: The determination as to whether a pass-through entity, including, but not limited to, partnerships and S corporations, satisfies the bright line test shall be made at the entity level.Regardless of the economic nexus standard, it is important to remember that Federal Public Law 86-272 does provide protection to businesses that have economic nexus in Connecticut against Connecticut taxation.  According to the publication, P.L. 86-272, 15 U.S.C. 381-384, restricts Connecticut from imposing an income tax on income derived within its borders from interstate commerce if the only business activity of the business within Connecticut consists of the solicitation of orders for sales of tangible personal property, which orders are to be sent outside Connecticut for acceptance or rejection, and, if accepted, are filled by shipment or delivery from a point outside Connecticut. P.L. 86-272 protection is not afforded to transactions other than sales of tangible personal property. In addition, P.L. 86-272 does not apply to taxes that are not based on income.

Example: Catalog Corp., an out-of-state corporation that is not otherwise subject to Connecticut income taxation, remotely solicits (i.e. by mail and telephone) orders for the company’s tangible products from Connecticut customers. Sales are approved and shipped via common carrier from outside Connecticut. Although Catalog Corp. may have a substantial economic presence within Connecticut, it is nevertheless immune from Connecticut income taxation pursuant to P.L. 86-272.

As stated in other posts, the "economic nexus" standard is a growing trend among states.  If you have questions how this standard impacts your business, please contact me.