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Substitute Senate Bill No. 513

PUBLIC ACT NO. 96-111

AN ACT CONCERNING REGULATED INVESTMENT COMPANIES.

Be it enacted by the Senate and House of Representatives in General Assembly convened:

Section 1. Section 12-218 of the general statutes is amended by adding subsections (f) and (g) as follows:

(NEW) (f) (1) Any taxpayer that provides management, distribution or administrative services, as defined in this subsection, to or on behalf of a regulated investment company, as defined in Section 851 of the Internal Revenue Code of 1986, or any subsequent corresponding internal revenue code of the United States, as from time to time amended, may elect, on or before the due date or, if applicable, the extended due date, of its corporation business tax return for an income year commencing on or after January 1, 1996, to apportion its net income derived, directly or indirectly, from providing management, distribution or administrative services to or on behalf of a regulated investment company, including net income received directly or indirectly from trustees, and sponsors or participants of employee benefit plans which have accounts in a regulated investment company, in the manner provided in this subsection. The election, if made by the taxpayer, shall be irrevocable for, and applicable for, five successive income years. Income derived by such taxpayer from sources other than the providing of management, distribution or administrative services to or on behalf of a regulated investment company shall be apportioned as provided in this section.

(2) The numerator of the apportionment fraction shall consist of the sum of the Connecticut receipts, as described in subdivision (3) of this subsection. The denominator of the apportionment fraction shall consist of the total receipts from the sale of management, distribution or administrative services to or on behalf of all the regulated investment companies. For purposes of this subsection, "receipts" means receipts computed according to the method of accounting used by the taxpayer in the computation of net income. (3) For purposes of this subsection, Connecticut receipts shall be determined by multiplying receipts from the rendering of management, distribution or administrative services to or on behalf of each separate regulated investment company by a fraction (A) the numerator of which shall be the average of (i) the number of shares on the first day of such regulated investment company's taxable year, for federal income tax purposes, which ends within or at the same time as the taxable year of the taxpayer, that are owned by shareholders of such regulated investment company then domiciled in this state and (ii) the number of shares on the last day of such regulated investment company's taxable year, for federal income tax purposes, which ends within or at the same time as the taxable year of the taxpayer, that are owned by shareholders of such regulated investment company then domiciled in this state; and (B) the denominator of which shall be the average of the number of shares that are owned by shareholders of such regulated investment company on such dates. (4) (A) For purposes of this subsection, "management services" include, but are not limited to, the rendering of investment advice directly or indirectly to a regulated investment company, making determinations as to when sales and purchases of securities are to be made on behalf of the regulated investment company, or the selling or purchasing of securities constituting assets of a regulated investment company, and related activities, but only where such activity or activities are performed (i) pursuant to a contract with the regulated investment company entered into pursuant to 15 USC Section 80a-15(a), as from time to time amended, (ii) for a person that has entered into such contract with the regulated investment company, or (iii) for a person that is affiliated with a person that has entered into such contract with a regulated investment company. (B) For purposes of this subsection, "distribution services" include, but are not limited to, the services of advertising, servicing, marketing or selling shares of a regulated investment company, but, in the case of advertising, servicing or marketing shares, only where such service is performed by a person that is, or, in the case of a closed end company, was, either engaged in the service of selling such shares or affiliated with a person that is engaged in the service of selling such shares. In the case of an open end company, such service of selling shares shall be performed pursuant to a contract entered into pursuant to 15 USC Section 80a-15(b), as from time to time amended. (C) For purposes of this subsection, "administrative services" include, but are not limited to, clerical, fund or shareholder accounting, participant record keeping, transfer agency, bookkeeping, data processing, custodial, internal auditing, legal and tax services performed for a regulated investment company but only if the provider of such service or services during the income year in which such service or services are provided also provides, or is affiliated with a person that provides, management or distribution services to such regulated investment company. (D) For purposes of this subsection, a person is "affiliated" with another person if each person is a member of the same affiliated group, as defined under Section 1504 of the Internal Revenue Code of 1986, or any subsequent corresponding internal revenue code of the United States, as from time to time amended, without regard to subsection (b) of such section. (E) (i) For purposes of this subsection, except as provided in (ii) of this subparagraph, the domicile of a shareholder shall be presumed to be such shareholder's mailing address as shown in the records of the regulated investment company except (ii) for purposes of this subsection, if the shareholder of record is an insurance company which holds the shares of the regulated investment company as depositor for the benefit of a separate account, then the taxpayer may elect, in the same manner and at the same time as the election under subdivision (1) of this subsection, to treat as the shareholders the contract owners or policyholders of the contracts or policies supported by such separate account. An election made under this subparagraph shall apply to all shareholders that are insurance companies and shall be irrevocable for, and applicable for, five successive income years. In any year that such an election is applicable, it shall be presumed that the domicile of a shareholder is the mailing address of the contract owner or policyholder as shown in the records of the insurance company.

(NEW) (g) (1) Any taxpayer that provides securities brokerage services, as defined in this subsection, may elect, on or before the due date or, if applicable, the extended due date, of its corporation business tax return for an income year commencing on or after January 1, 1996, to apportion its net income derived, directly or indirectly, from rendering securities brokerage services in the manner provided in this subsection. The election, if made by the taxpayer, shall be irrevocable for, and applicable for, five successive income years. Income derived by such taxpayer from sources other than the rendering of securities brokerage services shall be apportioned as provided in this subsection.

(2) The numerator of the apportionment fraction shall consist of the brokerage commissions and total margin interest paid on behalf of brokerage accounts owned by the taxpayer's customers who are domiciled in this state during such taxpayer's income year, computed according to the method of accounting used in the computation of net income. The denominator of the apportionment fraction shall consist of brokerage commissions and total margin interest paid on behalf of brokerage accounts owned by all of the taxpayer's customers, wherever domiciled, during such taxpayer's income year, computed according to the method of accounting used in the computation of net income. (3) For purposes of this subsection, "security brokerage services" means services and activities including all aspects of the purchasing and selling of securities rendered by (A) a broker, as defined in 15 USC Section 78c(a)(4) and registered under the provisions of 15 USC Sections 78a to 78kk, inclusive, as from time to time amended, to effectuate transactions in securities for the account of others, and (B) a dealer, as defined in 15 USC Section 78c(a)(5) and registered under the provisions of 15 USC Sections 78a to 78kk, inclusive, as from time to time amended, to buy and sell securities, through a broker or otherwise. Security brokerage services shall not include services rendered by a bank, or any other person buying or selling securities for such person's own account, either individually or in some fiduciary capacity, but not as part of a regular business carried on by such person. (4) For purposes of this subsection, "securities" means security, as defined in 15 USC Section 78c(a)(10), as from time to time amended. (5) For purposes of this subsection, "brokerage commission" includes, but is not limited to, all sales fees on agency or principal transactions whether charged explicitly or implicitly. (6) For purposes of this subsection, the domicile of a customer shall be presumed to be such customer's mailing address as shown in the records of the taxpayer.

Sec. 2. This act shall take effect from its passage and shall be applicable to income years commencing on and after January 1, 1996.

Approved May 24, 1996. Effective May 24, 1996, and applicable as provided in section 2.

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