What ownership level was required for Connecticut's sales-tax exemption for services between affiliated corporations?

Plain-English summary

Management company A was owned by five individuals. Three of those five people owned various Connecticut corporations that received business-management services from A.

DRS explained that the affiliated-corporation exemption for service sales required either 100% parent-subsidiary ownership and control or 100% brother-sister ownership and control. The legislature had chosen 100% control rather than the 80% threshold allowed under the Internal Revenue Code.

What this means for you

The historical exemption required complete corporate ownership or control in one of the two stated structures. Partial or overlapping ownership by individuals did not satisfy the rule described by DRS.

Common questions

What parent-subsidiary ownership was required? 100%.

What brother-sister ownership was required? 100%.

Did the ruling use the federal 80% controlled-group threshold? No.

Citations and references

• Conn. Gen. Stat. § 12-412(62), as cited in the ruling.

Source

• Landing page: Connecticut DRS Rulings
• Ruling: Ruling 89-215

Original ruling text

Ruling 89-215, Affiliated Corporations

Ruling 89-215

Affiliated Corporations

This is in reply to your request for a ruling on the application of section 12-412(62) of the Connecticut General Statutes.

The above section entitled, "services rendered between parent companies and wholly-owned subsidiaries", was enacted during the special session of the Connecticut General Assembly in 1987.

You have provided a factual situation concerning a management company ["A"], the stock of which is 100% owned by five individuals. Three of those five individuals own 100% of various Connecticut corporations that receive business management services from the management company ["A"].

Section 12-412(62) of the Connecticut General Statutes provides, in part, that the sale of services:

which are rendered for a corporation affiliated with the corporation rendering such service in such manner that (1) either corporation in such transaction owns or controls either directly or indirectly not less than one hundred per cent of the capital stock of the other corporation or (2) either corporation in such transaction is owned or controlled either directly or indirectly by interests which own or control either directly or indirectly not less than one hundred per cent of the capital stock of the other corporation. . .

A review of the call to special session and the proceedings of the House and Senate clearly indicates that the aforesaid exemption was to apply to parent-subsidiary controlled corporations or brother-sister controlled corporations with the exception that 100% ownership of stock was deemed to be controlled rather than the 80% allowed under the Internal Revenue Code.

Accordingly, it is hereby ruled that for the purposes of exemption from the sale of services under section 12-412(62) of the Connecticut General Statutes, the transactions must be between two corporations which are either a 100% parent-subsidiary ownership and control or 100% brother-sister ownership and control.

LEGAL DIVISION

November 15, 1989