The recently concluded 2014 legislative session of the Connecticut General Assembly finished with the enactment of a flurry of budget and tax legislation that was significantly influenced by eroding state budget projections and the impending state elections.
In the face of a dramatic reduction in the projected budget surplus for the current fiscal year, from in excess of $500 million to less than $50 million, and a projected aggregate deficit of $2.8 billion for the 2016 and 2017 fiscal years, the Governor’s proposed income tax rebate program of $155 million was withdrawn. Enacted in its stead were tax collection measures, and selected tax benefits with 2015 or 2016 effective dates. Among the tax collection measures are provisions that accelerate to the 20th day of the month the reporting and payment of sales and use tax by retailers, authorize the Commissioner of Revenue Services to require delinquent taxpayers to remit sales tax on a weekly basis, and expedite the process by which the Commissioner can obtain the bank deposit information of delinquent taxpayers. In addition, the Connecticut Department of Revenue Services is conducting a Connecticut Corporation Business Tax Resolution Initiative for taxpayers looking to resolve corporation business tax issues for open years and/or to establish a basis upon which future corporation business tax returns will be filed, but such taxpayers must file a Participation Form with the Department by July 15, 2014.
With regard to the Connecticut personal income tax, new rules were adopted regarding the sourcing to Connecticut of income earned by nonresidents, particularly as it relates to income related to Connecticut property, business income and nonqualified deferred compensation. The exemption from the sales and use tax for nonprescription drugs and medicines was revived, but not until April 1, 2015, and the effective date for the exemption for clothing and footwear, enacted last year, was delayed to July 1, 2015. The General Assembly also extended the angel investor tax credit, made the manufacturing apprenticeship training tax credit available to pass-through entities (but only for sale purposes), and both limited and improved the manufacturing reinvestment account program for small manufacturers.
Despite repeated calls for stability in the state’s tax policy, the Connecticut General Assembly enacted legislation calling for a study of the overall state and local tax structure, this time by a panel of experts in tax law, tax accounting, tax policy, economics and state, local and business finance. The panel is to develop recommendations regarding the modernization of state and local tax policy, structure and administration and, as part of the process, evaluate the impact and extent of tax policy upon “business and consumer decision-making.”
Click here to download this alert, which summarizes Connecticut tax legislation enacted, court decisions rendered and administrative guidance published during the first months of 2014. Please contact any member of our State and Local Tax Practice Group if you have any questions regarding the new tax law changes or how they affect you and your business.