Income from intangible personal property

(a) Items of income, gain, loss and deduction derived from or connected with Connecticut sources do not include such items attributable to intangible personal property of a nonresident individual, including annuities, dividends, interest, and gains and losses from the disposition of intangible personal property, except to the extent attributable to property employed in a business, trade, profession or occupation carried on in Connecticut.

Example: Taxpayer A, a resident of New York, owns 100% of the stock of X Corporation, which operates a store in Connecticut. In 1992, the corporation pays A a salary of $20,000, all of which was earned in Connecticut, and a dividend of $2,000. A's income from Connecticut sources is his salary of $20,000, since the dividend is not income derived from Connecticut sources.

(b) Intangible personal property is employed in a business, trade, profession or occupation carried on in this state if such property's possession and control have been localized in connection with a business, trade, profession or occupation in Connecticut, so that the property's substantial use and value attach to and become an asset of such business, trade, profession or occupation. An example is where a nonresident pledges stocks, bonds or other intangible personal property in Connecticut as security for the payment of indebtedness incurred in connection with a business being carried on in Connecticut by the nonresident. Another example is where a nonresident maintains a branch office in Connecticut and an interest-bearing checking account on which the agent in charge of the branch office may draw checks for the payment of expenses in connection with the activities in this state.

(c) If intangible personal property of a nonresident is employed in a business, trade, profession or occupation carried on in Connecticut, the entire income from such property, including gains from its sale, regardless of where the sale is consummated, is income derived from or connected with sources within this state. However, where a nonresident individual sells real or tangible personal property located in Connecticut and, as a result of such sale, receives intangible personal property (e.g., a note) which generates interest income and capital gain income, such interest income is generally not attributable to the sale of the real or tangible personal property but is attributable to the intangible personal property; however, such capital gain income is attributable to the sale of the real or tangible personal property located in Connecticut. See §§ 12-711(b)-3 and 12-711(b)-8 of this Part. Therefore, such interest income to a nonresident does not constitute income derived from or connected with Connecticut sources. However, interest income derived from an instrument received as a result of a sale of real or tangible personal property located in Connecticut, where the instrument is employed in a business, trade, profession or occupation carried on in this state, does constitute income derived from or connected with Connecticut sources.

(d) While this section pertains to Section 12-711(b) 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 12-701(c) of the general statutes.

(Effective November 18, 1994)

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