Connecticut Controlling Interest Transfer Tax

The Connecticut Controlling Interest Transfer Tax (“CITT”), which was established by Conn. Gen. Stat. § 12-638b, imposes a tax on the sale (or other transfer, though I will generally say sale or seller for the remainder of this post, the terms are interchangeable for CITT purposes) of a controlling interest in any entity which possesses, directly or indirectly, an interest in real property in Connecticut when the value of the interest in real property equals or exceeds two thousand dollars. The tax is payable by the person or entity transferring the controlling interest. The tax rate is 1.11% of the value of the interest possessed by the entity.

For these purposes a controlling interest is more than fifty per cent of the total combined voting power of all classes of stock of a corporation, or more than fifty per cent of the capital, profits or beneficial interest in a partnership, association, trust or other entity.

A taxable sale of a controlling interest may occur in one transaction or in a series of transactions. Transactions which occur within six months of each other are presumed to be a series of transactions unless shown to be otherwise.

A taxable sale of a controlling interest may be made by one seller or may be made by a group of sellers acting in concert. Sellers who are related to each other by blood or marriage are presumed to be acting in concert, unless shown to the contrary.

The CITT does not apply to otherwise taxable transfers (1) made to effectuate a mere change of identity or form of ownership or organization where there is no change in beneficial ownership and (2) upon that portion of real property which is located in an enterprise zone as established in Conn. Gen. Stat. § 32-70. Though not stated in the statute, the directions to the CITT return say that a return must be filed to claim either of the aforementioned exemptions.

Readers familiar with the Connecticut Real Estate Conveyance Tax (see Conn. Gen. Stat. § 12-494) may have realized that the CITT was established, at least in part, to prevent sellers of real estate from placing the real estate in a legal entity and then selling the entity itself to avoid the Real Estate Conveyance Tax. Due to rate difference between the two taxes there may still be situations in which it is beneficial to transfer an interest in a legal entity instead of real property directly but I caution people considering such a strategy to be aware of any liabilities that might also transfer with said legal entity.