Connecticut
Taxes and business formation • USA 2025–2026
Corporation in Connecticut
Tax system of Connecticut
Income Tax
Connecticut uses a progressive personal income tax; as of 2024 the rates range from 3% to 6.99%. The tax applies to all types of income: wages, business income, rental income, and capital gains. The state offers tax credits and deductions, but the high rates make Connecticut one of the more burdensome states in terms of income tax, especially for high earners.
Sales Tax
The base sales tax rate is 6.35% and applies to many goods and services, including commercial real estate rentals, digital goods, certain services, and short-term car rentals. Elevated rates (up to 9.35%) apply to certain categories such as car rentals or hotel services. Some basic necessities, such as groceries and prescription medications, are exempt from the tax. Determining the taxable base and the correct sales tax rate can be quite complex and requires a professional approach and knowledge of state law. Our firm provides services for obtaining a Sales Tax Certificate and for preparing and filing the Sales and Use Tax Return. We advise business owners on all matters related to this tax, including registration, calculation, and reporting.
Property Tax
Connecticut has no property tax at the state level, but municipalities set their own rates, which are often among the highest in the country. The average effective rate is about 2.14%, especially in the New York City suburbs.
Business Taxes
C-corporations are subject to a corporate income tax at a rate of 7.5% — one of the highest in the U.S. Connecticut has also introduced the Pass-Through Entity Tax (PET), which is mandatory for certain flow-through structures (S-corporations, LLCs) and requires careful tax planning. The Annual Report is mandatory for all companies — LLCs, corporations, and nonprofit organizations — and is due each year by March 31. Businesses are also required to report tangible personal property each year.
Excise Taxes
The state imposes excise taxes on alcohol, tobacco, fuel, electricity, and transportation services, as well as taxes on hotel accommodations and car rentals. Separate licensing is required in a number of industries.
Estate / Inheritance Tax
Connecticut is one of the few states with an estate tax. As of 2023, it applies to estates valued above $12.92 million, with progressive rates that can reach 12%.
Favorable Tax Conditions
Despite the high tax rates, the state offers a stable business environment, well-developed infrastructure, and access to the Boston and New York markets. There are opportunities for tax optimization through the PET and deductions on the federal return, as well as a lower sales tax rate compared to neighboring New York and Rhode Island.
Compared to Other States
• High personal income tax, especially in the top brackets. • One of the highest property tax rates in the country. • Corporate tax is higher than in most states (7.5%). • A mandatory Annual Report and the Pass-Through Entity Tax make reporting more complex for small businesses. • An estate tax applies, which most states do not have. • Sales tax is lower than in New York but lacks full uniformity across rates.
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