Substitute Senate Bill No. 1205
         Substitute Senate Bill No. 1205

              PUBLIC ACT NO. 97-119


AN  ACT  CONCERNING  THE  CORPORATION BUSINESS TAX
TREATMENT OF DIVIDENDS RECEIVED FROM  REAL  ESTATE
INVESTMENT TRUSTS.


    Be  it  enacted  by  the  Senate  and House of
Representatives in General Assembly convened:
    Section  1.  Subsection  (a) of section 12-217
of  the  general  statutes  is  repealed  and  the
following is substituted in lieu thereof:
    (a)  (1)  In arriving at net income as defined
in section 12-213, whether or not the taxpayer  is
taxable  under  the federal corporation net income
tax, there shall be deducted  from  gross  income,
(A)   all  items  deductible  under  the  [federal
corporation net income tax law]  INTERNAL  REVENUE
CODE effective and in force on the last day of the
income year except [(1)]  (i)  any  taxes  imposed
under  the  provisions  of  this chapter which are
paid or accrued in the  income  year  and  in  the
income   year  commencing  January  1,  1989,  and
thereafter, any taxes in any state of  the  United
States or any political subdivision of such state,
or  the  District  of  Columbia,  imposed  on   or
measured by the income or profits of a corporation
which are paid or accrued in the income year,  and
[(2)]  (ii)  deductions  for  depreciation,  which
shall be allowed as provided in subsection (b)  of
this section, and (B) additionally, in the case of
a regulated investment company, the sum  of  [(1)]
(i)  the  exempt-interest dividends, as defined in
the  [federal  corporation  net  income  tax  law]
INTERNAL  REVENUE  CODE,  and [(2)] (ii) expenses,
bond premium, and interest related  to  tax-exempt
income that are disallowed as deductions under the
[federal corporation net income tax law]  INTERNAL
REVENUE  CODE,  and  (C) in the case of a taxpayer
maintaining an international banking  facility  as
defined  in  the  laws of the United States or the
regulations of  the  Board  of  Governors  of  the
Federal  Reserve  System, as either may be amended
from time to time, the gross  income  attributable
to  the  international banking facility, provided,
no   expense   or   loss   attributable   to   the
international   banking   facility   shall   be  a
deduction under any provision of this section, and
(D)  additionally,  in  the case of all taxpayers,
all dividends as defined in  the  [federal  income
tax  law]  INTERNAL  REVENUE CODE effective and in
force on the last  day  of  the  income  year  not
otherwise  deducted  from  gross income, including
dividends received from a DISC or former  DISC  as
defined  in  Section  992  of the Internal Revenue
Code [of 1986,  or  any  subsequent  corresponding
internal  revenue  code  of  the United States, as
from time to time amended,] and  dividends  deemed
to  have been distributed by a DISC or former DISC
as  provided  in  Section  995  of  said  Internal
Revenue  Code,  other  than  thirty  per  cent  of
dividends received from a domestic corporation  in
which  the taxpayer owns less than twenty per cent
of the total voting power and value of  the  stock
of such corporation. [; except no]
    (2)  NO  deduction  shall be allowed for [(1)]
(A)  expenses  related  to  dividends  which   are
allowable  as  a  deduction  or  credit  under the
[federal corporation net income tax law]  INTERNAL
REVENUE CODE and [(2)] (B) federal taxes on income
or profits, losses of  other  calendar  or  fiscal
years,  retroactive  to  include  all  calendar or
fiscal years  beginning  after  January  1,  1935,
interest  received  from  federal, state and local
government securities, if any such deductions  are
allowed by the federal government.
    (3)  NOTWITHSTANDING  ANY  PROVISION  OF  THIS
SECTION TO THE CONTRARY, NO DIVIDEND RECEIVED FROM
A REAL ESTATE INVESTMENT TRUST SHALL BE DEDUCTIBLE
UNDER THIS SECTION BY  THE  RECIPIENT  UNLESS  THE
DIVIDEND  IS:  (A) DEDUCTIBLE UNDER SECTION 243 OF
THE INTERNAL REVENUE CODE; OR (B)  RECEIVED  BY  A
QUALIFIED DIVIDEND RECIPIENT FROM A QUALIFIED REAL
ESTATE INVESTMENT TRUST AND, AS OF THE LAST DAY OF
THE  PERIOD  FOR  WHICH  SUCH  DIVIDEND  IS  PAID,
PERSONS,  NOT  INCLUDING  THE  QUALIFIED  DIVIDEND
RECIPIENT  OR  ANY PERSON THAT IS EITHER A RELATED
PERSON TO, OR AN  EMPLOYEE  OR  DIRECTOR  OF,  THE
QUALIFIED  DIVIDEND  RECIPIENT,  HAVE  OUTSTANDING
CASH CAPITAL CONTRIBUTIONS TO THE  QUALIFIED  REAL
ESTATE  INVESTMENT  TRUST  THAT, IN THE AGGREGATE,
EXCEED FIVE PER CENT OF THE FAIR MARKET  VALUE  OF
THE AGGREGATE REAL ESTATE ASSETS, VALUED AS OF THE
LAST DAY OF THE PERIOD FOR WHICH SUCH DIVIDEND  IS
PAID,  THEN  HELD  BY  THE  QUALIFIED  REAL ESTATE
INVESTMENT TRUST. FOR PURPOSES OF THIS SECTION,  A
"RELATED  PERSON" IS AS DEFINED IN SUBDIVISION (7)
OF SUBSECTION (a) OF SECTION 12-217m, "REAL ESTATE
ASSETS"  IS  AS  DEFINED  IN  SECTION  856  OF THE
INTERNAL  REVENUE  CODE,  A  "QUALIFIED   DIVIDEND
RECIPIENT"  MEANS  A  DIVIDEND  RECIPIENT  WHO HAS
INVESTED IN A  QUALIFIED  REAL  ESTATE  INVESTMENT
TRUST  PRIOR  TO  APRIL  1, 1997, AND A "QUALIFIED
REAL ESTATE INVESTMENT TRUST" MEANS AN ENTITY THAT
BOTH  WAS INCORPORATED AND HAD CONTRIBUTED TO IT A
MINIMUM OF FIVE HUNDRED MILLION DOLLARS  WORTH  OF
REAL  ESTATE  ASSETS  PRIOR  TO APRIL 1, 1997, AND
THAT ELECTS TO BE A REAL ESTATE  INVESTMENT  TRUST
UNDER  SECTION  856  OF  THE INTERNAL REVENUE CODE
PRIOR TO APRIL 1, 1998.
    (4)  Notwithstanding  anything in this section
to the contrary,  [(1)]  (A)  any  excess  of  the
deductions provided in this section for any income
year commencing on or after January 1, 1973,  over
the  gross  income  for such year or the amount of
such excess apportioned to this  state  under  the
provisions   of   section   12-218,  shall  be  an
operating loss of such income year  and  shall  be
deductible as an operating loss carry-over in each
of the five income years following such loss year,
provided  the portion of such operating loss which
may be deducted as an operating loss carry-over in
any  income year following such loss year shall be
limited to  the  lesser  of  (i)  any  net  income
greater  than  zero  of such income year following
such loss year,  or  in  the  case  of  a  company
entitled  to  apportion  its  net income under the
provisions of section 12-218, the amount  of  such
net  income  which  is  apportioned  to this state
pursuant thereto, or (ii) the excess, if  any,  of
such  operating  loss  over  the total of such net
income  for  each  of  any  prior   income   years
following  such loss year, such net income of each
of such prior income  years  following  such  loss
year  for  such  purposes  being  computed without
regard to any operating loss carry-over from  such
loss  year allowed by this [sentence] SUBPARAGRAPH
and being regarded as  not  less  than  zero,  and
provided,  further,  the  operating  loss  of  any
income year shall be deducted  in  any  subsequent
year, to the extent available therefor, before the
operating loss of any subsequent  income  year  is
deducted,  and  [(2)] (B) any net capital loss, as
defined in the [federal corporation net income tax
law]  INTERNAL REVENUE CODE effective and in force
on the last day of the income year, for any income
year commencing on or after January 1, 1973, shall
be allowed as a capital loss carry-over to reduce,
but  not  below  zero, any net capital gain, as so
defined, in each  of  the  five  following  income
years,  in  order  of  sequence, to the extent not
exhausted by the net capital gain of  any  of  the
preceding of such five following income years, and
[(3)] (C)  any  net  capital  losses  allowed  and
carried  forward  from prior years to income years
beginning on or after January 1, 1973, for federal
income  tax  purposes  by  companies entitled to a
deduction for dividends paid  under  the  [federal
corporation  net  income tax law] INTERNAL REVENUE
CODE other than companies  subject  to  the  gross
earnings taxes imposed under chapters 211 and 212,
shall be allowed as a capital loss carry-over.
    (5)  This  section  shall  not apply to a life
insurance  company  as  defined  in  the  [federal
income  tax  law]  INTERNAL REVENUE CODE effective
and in force on the last day of the  income  year.
For  purposes  of  this  section,  the unpaid loss
reserve adjustment required for nonlife  insurance
companies   under   the   provisions   of  Section
832(b)(5) of the Internal Revenue Code of 1986, or
any subsequent corresponding internal revenue code
of  the  United  States,  as  from  time  to  time
amended,  shall  be  applied  without  making  the
adjustment in Subparagraph  (B)  of  said  Section
832(b)(5).
    Sec.  2.  This  act shall take effect from its
passage and shall be applicable  to  income  years
commencing on or after January 1, 1997.

Approved June 6, 1997