Connecticut Responds To The Federal Repatriation Tax

Earlier this month, Connecticut Governor Dan Malloy released his Governor's Bill addressing the various state tax implications of the federal tax reform bill enacted by Congress in December 2017, commonly referred to as the "Tax Cuts and Jobs Act." Among other things, the Governor's Bill addresses Connecticut's treatment of the foreign earning deemed repatriation tax provisions of amended section 965 of the Internal Revenue Code (IRC). While the Governor's Bill does not explicitly provide that the addition to federal income under IRC section 965 is an actual dividend for purposes of Connecticut's dividend received deduction, the bill does protect Connecticut's ability to tax at least part of the income brought into the federal tax base under the federal deemed repatriation tax provisions by defining nondeductible "expenses related to dividends" as 10 percent of the amount of the dividend.

Currently, Connecticut provides a 100 percent dividend received deduction for foreign dividends not otherwise deducted from federal gross income. Conn. Gen. Stat. §12-217(a)(1)(D). While there is no explicit guidance in Connecticut regarding whether the amount included in federal income under the new deemed repatriation provisions in the Tax Cuts and Jobs Act will be deemed a dividend for purposes of Connecticut income tax, certain proposed provisions in the Governor's Bill are aimed to make sure that, if such amount is considered a dividend, Connecticut would, effectively, get to tax a material portion of the amount deemed repatriated, despite the 100 percent dividend received deduction, through the disallowance of expenses related to such dividend (which the bill would define as 10 percent of the dividend).

Under the...