You asked for a comparison of the corporate income tax rate, revenue, and business tax burdens in Connecticut and other states. You also asked how many corporations are headquartered in Connecticut, especially in Fairfield County, and how this compares to other states.

SUMMARY

Connecticut is one of 44 states that have a corporate income tax and one of 30 states that tax all corporate income at a flat rate. Flat corporate income tax rates range from a low of 4.63% in Colorado to a high of 9.99% in Pennsylvania. The average state rate is 7.24%. Connecticut's 7.5% is slightly higher than the average and ranks 13^th highest out of the 30 states.

Connecticut is not highly dependent on annual corporation tax revenue. In FY 08, the state derived only 4% of its total state revenue from the corporation tax, compared to an overage of 6.9% for all states with such taxes. Of the 44 states with a corporate income tax, only four receive a lower share of state revenue from the tax than Connecticut.

Finally, Connecticut ranked 49^th out of 50 states in combined state and local business tax burden, according to an annual report by the Council on State Taxation (COST), an association of large corporations operating in many states. According to COST, taxes on business contribute 32.3% of all state and local tax revenue in Connecticut compared to an average of 47.1% for all 50 states.

Many large multistate and multinational corporations are headquartered in Connecticut. Of the companies listed in Fortune Magazine's list of the 1,000 largest companies, 26 have their corporate headquarters in the state. Of these, 14 are headquartered in Fairfield County. Connecticut ranks 12^th in the number of Fortune 500 company headquarters with 11.

CONNECTICUT'S CORPORATION TAX

Connecticut's corporation tax applies only to companies that are organized as so-called “C” corporations and that do business in the state. It does not apply to other types of business entities, such as partnerships and limited partnerships, sole proprietorships, limited liability companies, limited liability partnerships, or S corporations.

Corporations must calculate tax liability in two ways. One method uses net income and the other the company's so-called “capital base” (outstanding stock, profits, and reserves). The net income calculation uses the company's federal taxable income as its staring point and therefore incorporates most federal income definitions, deductions, rules, and exclusions.

Companies that do business in other states as well as Connecticut pay taxes only on the share of their net income or capital base attributable to Connecticut. This share is determined by apportionment formulas specified in Connecticut law that compare a company's Connecticut activity with its overall operations. For most corporations, apportionment is based on three factors: sales, payroll, and property, with a double weight in the formula given to sales. For financial services companies, manufacturers, and broadcasters, apportionment is determined solely by sales, that is, their sales in Connecticut as a proportion of their national sales.

Connecticut's corporation tax is 7.5% of net income or 3.1 mills per dollar of capital base, whichever produces the larger tax, but no less than $250. A company can reduce the amount it has to pay by subtracting any corporation tax credits for which it may be eligible. But the reduction for credits is limited to 70% of its total liability and, in any event, every company must pay the minimum tax of $250.

STATE CORPORATION TAX RATES

Connecticut is one of 44 states that impose corporate income taxes. Of the remaining six states, five have no state corporation tax (Nevada, South Dakota, Texas, Washington, and Wyoming), while Ohio has a tax on business gross receipts called a business activity tax.

Of the states with corporate income taxes, 30, including Connecticut, impose a flat rate tax on all taxable income and 15 have graduated taxes, with tax rates increasing above various income levels. Table 1 shows state corporate income tax rates as of July 1, 2009. For states with more than one tax rate, we show the range of rates and income threshold for the highest rate.

TABLE 1: STATE CORPORATE INCOME TAX RATES

Source: The Tax Foundation, Facts & Figures: Mid-Year Update, July, 2009

STATE CORPORATION TAX REVENUE AND BUSINESS TAX BURDEN

Of the $587.4 billion in revenue states and localities collected from businesses in FY 08, corporate income taxes made up 9.6% or $56.6 billion. In most states, including Connecticut, businesses paid more in property, sales, and excise and gross receipts taxes than in corporate income taxes.

Corporation Tax Revenue as a Percentage of Total State Revenue

Connecticut does not rely as heavily as most other states on its corporation tax. Of the states with corporate income taxes, New Hampshire is by far the most dependent on it, with corporation tax revenue making up more than 27% of its total state revenue in FY 08. The following five most dependent are, in order: Alaska, West Virginia, Delaware, California, and Massachusetts. By contrast, only a relatively low percentage of Connecticut's total state revenue came from the corporation tax in FY 08 (4%). Other states in the same range as Connecticut are Arkansas and Maryland (both 4.5%) and Oklahoma (4.2%). Hawaii takes in the lowest share from corporation taxes followed by Vermont, Missouri, and South Carolina.

Table 2 shows each state's corporate income tax revenue for FY 08 and the percentage of each state's revenue it receives from the tax.

TABLE 2: CORPORATION TAX REVENUE AS A SHARE OF TOTAL STATE REVENUE

Sources:

● FY 08 Revenue: National Association of State Budget Officers, Fiscal Survey of the States: June 2009

● Percentage of Total State Revenue: Federation of Tax Administrators, 2008 State Tax Collection by Source, revised June 25, 2009

Corporation Tax Share of State and Local Business Tax Burden

To assess the relative burden corporate income taxes place on each state's businesses, it is helpful to see the share of total tax revenue states and localities collect from taxes on business and the share of the total business tax revenue coming from the corporate income tax. This type of state-by-state information is available from the Council on State Taxation's annual report on state business tax burdens. COST is a nonprofit trade association of over 600 multistate corporations engaged in interstate and international business. Its annual report is prepared by the accounting firm Ernst & Young.

Among other things, COST's report includes figures showing amounts of state and local business taxes collected in the following categories: (1) property taxes, (2) sales taxes, (3) excise and gross receipts taxes, (4) corporate income taxes, (5) unemployment insurance taxes, (6) personal income taxes on business income, and (7) license and other taxes. The report also includes a calculation of the share each of these taxes contributes to the total state and local taxes businesses pay in each state. Table 3 shows COST's figures for each state. Unlike the other tables in this report, Table 3 compares state business tax burdens in all 50 states, even those without state corporation taxes.

COST's statistics indicate that Connecticut's overall business tax burden is lower than the burden in most other states, including states with no corporation taxes, such as Nevada, Texas, and South Dakota.

TABLE 3: BUSINESS TAX BURDEN, FY 2008

Source: Council on State Taxation, Total State and Local Business Taxes, 50 State Estimates for Fiscal Year 2008, January, 2009.

CORPORATIONS HEADQUARTERED IN CONNECTICUT

Twenty-six Fortune 1000 companies are headquartered in Connecticut. Of these, 14 are headquartered in Fairfield County, seven in Hartford County, three in New Haven County, and one in Tolland County (see Table 4).

TABLE 4: FORTUNE 1000 COMPANIES HEADQUARTERED IN CONNECTICUT

Source: Reference USA

Connecticut ranks 12^th among states in the number of Fortune 500 company headquarters, with 11 (see Table 5).

TABLE 5: FORTUNE 500 COMPANY HEADQUARTERS BY STATE

2008

Source: money.cnn.com/magazines/fortune

JL:ts