Conn. Agencies Regs. § 12-700(c)-1

Current through June 15, 2024

Section 12-700(c)-1 - Part-year resident individuals

(a) Individuals who change their resident status from resident to nonresident or from nonresident to resident shall compute their tentative Connecticut income tax liability as if they were resident individuals, except that, if they are required to accrue items under Section 12-717(c)(1) or (2) of the general statutes, those items, in accordance with this section, are added to or subtracted from, as the case may be, their Connecticut adjusted gross income before the computation of their tentative Connecticut income tax liability as if they were resident individuals. Thus, the modifications to federal adjusted gross income which are made by a resident individual in determining Connecticut adjusted gross income are also made by a part-year individual, but the Connecticut adjusted gross income of part-year resident individuals (1) changing their status from resident to nonresident is increased or decreased, as the case may be, by the items accrued under Section 12-717(c)(1) of the general statutes, to the extent not otherwise includible in Connecticut adjusted gross income for the taxable year and (2) changing their status from nonresident to resident is decreased or increased, as the case may be, by the items accrued under Section 12-717(c)(2) of the general statutes, to the extent included in Connecticut adjusted gross income for the taxable year. Then, after Connecticut adjusted gross income is so increased or decreased, any exemption allowed under Section 12-702 of the general statutes is taken, and the tax rate is applied, resulting in a tentative tax. After deduction of any credit allowed under Section 12-703 of the general statutes, the tentative tax is prorated by multiplying the tentative tax by a fraction, the numerator of which is the part-year resident's Connecticut adjusted gross income derived from or connected with sources within this state (see § 12-717(a)-1 of this Part) and the denominator of which is the part-year resident's Connecticut adjusted gross income from all sources, as increased or decreased under this subsection.

(b) In cases where a part-year resident individual's Connecticut adjusted gross income derived from sources everywhere, as increased or decreased under subsection (a) of this section, is less than his or her Connecticut adjusted gross income derived from or connected with sources within this state, then (1) such individual's Connecticut adjusted gross income derived from or connected with sources within this state, reduced by the amount of the exemption allowed under section 12-702 of the General Statutes, shall be such individual's Connecticut taxable income derived from or connected with sources within this state (to which amount the tax rate is applied) and (2) such individual's Connecticut adjusted gross income derived from or connected with sources within this state shall be such individual's Connecticut adjusted gross income for the purpose of determining the credit allowed under section 12-703 of the General Statutes (which credit is then subtracted from the amount to which the tax rate is applied).

(c) Examples: The following examples illustrate the application of this section. In each example, assume that, for federal income tax purposes, the taxpayer uses the cash receipts and disbursements method of accounting and uses the calendar year as his or her accounting period:

Example 1: On September 15, 1993, Taxpayer X, a resident unmarried individual, quits his job in Connecticut in anticipation of moving to Montana. X's 1993 wages from this job amount to $60,000, $55,000 of which X has received by the time that he moves. (The other $5,000 X receives after he has moved.) On September 10, 1992, X had sold undeveloped land that he held for investment purposes, taking back from the purchaser a purchase money mortgage calling for five equal installment payments on September 10, 1992, 1993, 1994, 1995 and 1996. By reason of X's use for federal income tax purposes of the installment method of accounting with respect to the recognition of gain from the sale of this land, X shall realize a capital gain of $10,000 each year for five years, or $50,000 in total. X moves to Montana on October 1, 1993, finds a job there and receives $20,000 therefrom during the rest of the taxable year. X does not post a bond or other security acceptable to the Commissioner under Section 12-717(c)(4) of the general statutes.

X's federal adjusted gross income (and his Connecticut adjusted gross income, before special accruals) for his 1993 taxable year is $90,000. In determining X's Connecticut adjusted gross income as a part-year resident individual, the amount required to be specially accrued under Section 12-700(c)(2)(A) of the general statutes is the $30,000 gain, which is added to X's Connecticut adjusted gross income. (Any deduction or loss required to be specially accrued would have been subtracted from X's Connecticut adjusted gross income.) This is the amount of the $50,000 gain that accrued prior to X's change of status not otherwise includible in X's Connecticut adjusted gross income for the 1993 taxable year. X's Connecticut adjusted gross income, as increased by the item of gain accrued under Section 12-717(c)(1) of the general statutes, is $120,000.

X's Connecticut adjusted gross income derived from or connected with Connecticut sources consists of three elements:

(1) X's Connecticut adjusted gross income during the period of residence (January 1, 1993 to September 30, 1993) is $65,000.

(2) X's Connecticut adjusted gross income derived from or connected with sources within Connecticut during the period of nonresidence (October 1, 1993 to December 31, 1993) is $0. (No item that is accrued to the portion of the taxable year prior to the change of status is taken into account in determining Connecticut adjusted gross income derived from or connected with Connecticut sources for the portion of the taxable year after the change of status.)

(3) The amount of the special accruals that are required by Section 12-717(c)(1) of the general statutes and that are added to X's Connecticut adjusted gross income during the period of residence is $35,000-the $30,000 gain and the $5,000 wages. This is the amount of the $50,000 gain and the amount of the wages that accrued prior to X's change of status and that did not otherwise properly enter into X's federal adjusted gross income for the portion of the taxable year prior to such change of status or a prior taxable year under X's method of accounting.

X's tentative tax is $5,400 ($120,000 multiplied by 4.5%). X's tentative tax is multiplied by a fraction, the numerator of which is $100,000-X's Connecticut adjusted gross income derived from or connected with Connecticut sources, and the denominator of which is $120,000-X's Connecticut adjusted gross income, as modified by Section 12-700(c)(2)(A) of the general statutes. Thus, X's tax is $4,500.

Example 2: On February 1, 1993, Taxpayer Y, a nonresident unmarried individual, in anticipation of moving to Connecticut, closes her Florida business that she has conducted as a sole proprietor. Y's only income received to that point in the taxable year has been derived from this business and amounts to $30,000. This does not include one large account receivable from 1992 in the amount of $40,000. Y moves from Florida on February 15, 1993, still not having collected the account receivable and still owing $5,000 for the December 1992 rent and $5,000 for the January 1993 rent to the proprietorship's landlord. Y obtains a job in Connecticut and receives $80,000 therefrom during the rest of her 1993 taxable year. On July 1, 1993, the full amount of the receivable is paid to Y who then immediately pays her Florida landlord the $10,000 rent due.

Y's federal adjusted gross income (and her Connecticut adjusted gross income, before special accruals) for her 1993 taxable year is $140,000 (consisting of the profit from the Florida proprietorship of $60,000 and the earnings of $80,000 from her Connecticut job). In determining Y's Connecticut adjusted gross income as a part-year resident individual, the amount required to be specially accrued under Section 12-700(c)(2)(B) of the general statutes is the $40,000 account receivable, which is subtracted from Y's Connecticut adjusted gross income, and the $10,000 rental expense, which is added to Y's Connecticut adjusted gross income. The $40,000 account receivable accrued prior to Y's change of status and is included in Y's Connecticut adjusted gross income for her 1993 taxable year. The $10,000 rental expense also accrued prior to Y's change of status and is included in Y's Connecticut adjusted gross income for her 1993 taxable year. Y's Connecticut adjusted gross income, as increased and decreased by the items of income and deduction accrued under Section 12-717(c)(2) of the general statutes, is $110,000.

Y's Connecticut adjusted gross income derived from or connected with Connecticut sources consists of three elements:

(1) Y's Connecticut adjusted gross income derived from or connected with sources within Connecticut during the period of nonresidence (January 1, 1993 to February 14, 1993) is $0.

(2) Y's Connecticut adjusted gross income during the period of residence (February 15, 1993 to December 31, 1993) is $110,000.

(3) The amount of the special accruals that are required by Section 12-717(c)(2) of the general statutes and that are subtracted from Y's Connecticut adjusted gross income during the period of nonresidence is $30,000-the $40,000 account receivable is subtracted therefrom and the $10,000 rental expense is added thereto. This is the amount of the $40,000 receivable and the amount of the $10,000 rental expense that accrued prior to Y's change of status and that did not otherwise properly enter into Y's federal adjusted gross income for the portion of the taxable year prior to such change of status or a prior taxable year under Y's method of accounting.

Y's tentative tax is $4,950 ($110,000 multiplied by 4.5%). Y's tentative tax is multiplied by a fraction, the numerator of which is $80,000-Y's Connecticut adjusted gross income derived from or connected with Connecticut sources, and the denominator of which is $110,000--Y's Connecticut adjusted gross income, as modified by Section 12-700(c)(2)(B) of the general statutes. Thus, Y's tax is $3,600.

(d) While this section pertains to Section 12-700(c) of the general statutes, for purposes of supplementary interpretation, as the phrase is used in Section 12-2 of the general statutes, the adoption of this section is authorized by Section 12-740(a) of the general statutes.

Conn. Agencies Regs. § 12-700(c)-1

Effective November 18, 1994