Connecticut was the last state in the country to adopt a budget, more than 120 days after the commencement of the current fiscal year.  The biennial budget for the period from July 1, 2017 through June 30, 2019 was the result of bipartisan negotiations between Democrat and Republican legislators, which largely excluded the participation of Governor Malloy.  The Governor signed the bill on October 31, 2017, but simultaneously published a letter that both praised and excoriated the legislation, and which provided for a line item veto of certain of its provisions.  Halloween was a fitting date for the signing, as the budget contains its fair share of tricks and treats for taxpayers.

From a broader structural perspective, the budget purports to put into effect new spending cap restrictions and limitations on the issuance of general obligation bonds.  The legislation fortunately does not provide for an increase in the Connecticut personal income tax marginal rates or the sales and use tax rate, and does not authorize municipalities to collect an additional sales and use tax.  The budget does, however, call for the transfer of funds and funding from a number of other sources within the state government that presage the need for additional structural changes to better assure the state’s future financial stability.  In that regard, the General Assembly leadership recently indicated that it would convene a special session to restore a $54 million cut in Medicare assistance program, but did not indicate how the Legislature would attemt to close a projected deficit for the current fiscal year of $222.5 million.

Both the regular and extended special legislative sessions witnessed the enactment of significant tax-related legislation.  In the case of the Connecticut personal income tax, the angel investor tax credit is made available for investments in companies in all industries, the exemption for Social Security benefits is expanded, the property tax credit is further limited, and pension and annuity payments are the subject of both a new limited exemption and a tax withholding requirement.  The due date for the corporation business tax return is pushed back, the scheduled FAS 109 deduction arising out of the implementation of combined unitary reporting is both delayed until 2021 and extended from seven to 30 years, and two new programs for the use of stranded state research and development tax credits are created.  The effective period of sales tax permits is reduced from five to two years, and new enforcement mechanisms are developed for delinquent taxpayers.  The budget legislation increases fees and miscellaneous taxes, such as the cigarette and tobacco products taxes, lowers the insurance premium tax and creates a new brownfields revitalization tax benefit program.  Finally, the DRS is authorized to create a Fresh Start Program whereby certain delinquent taxpayers can apply for relief from penalties and one-half of the interest that otherwise would be due on state taxes that have not been reported or were underreported.

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This Alert summarizes Connecticut tax legislation enacted, court decisions rendered and administrative guidance published by the DRS during 2017.  Please contact a member of our State and Local Tax Practice Group if you have questions regarding the new tax law changes or how they may affect you and your business.

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Photo of David O. Bigger David O. Bigger

David Bigger practices primarily in the areas of international, federal, state and local taxation, with particular emphasis on personal income tax, mergers and acquisitions, and matters involving the taxation of partnerships.  David has represented individuals and companies with regard to multi-state taxation issues…

David Bigger practices primarily in the areas of international, federal, state and local taxation, with particular emphasis on personal income tax, mergers and acquisitions, and matters involving the taxation of partnerships.  David has represented individuals and companies with regard to multi-state taxation issues, tax planning, reorganizations, enforcement and collection defense, and other federal and state tax controversies.

Photo of Ray Casella Ray Casella

Ray practices in all areas of federal, state and local tax law. He has extensive experience representing tax-exempt organizations including schools, private foundations and public charities. Ray regularly deals with federal and state income tax issues, Connecticut sales and use tax issues, federal…

Ray practices in all areas of federal, state and local tax law. He has extensive experience representing tax-exempt organizations including schools, private foundations and public charities. Ray regularly deals with federal and state income tax issues, Connecticut sales and use tax issues, federal and state payroll tax issues, and private foundation excise taxes.

Photo of Robert L. Day, III Robert L. Day, III

Robert is a member of the Tax and Employee Benefits Practice Group and practices primarily in the areas of federal, state and local taxation.  Robert regularly counsels a wide variety of taxpayers including individuals, manufacturers, insurers, media companies, financial institutions, hedge funds, and…

Robert is a member of the Tax and Employee Benefits Practice Group and practices primarily in the areas of federal, state and local taxation.  Robert regularly counsels a wide variety of taxpayers including individuals, manufacturers, insurers, media companies, financial institutions, hedge funds, and asset management funds.  He also has experience representing these clients in tax controversies before the Connecticut Department of Revenue Services and other taxing authorities.

Photo of Alan E. Lieberman Alan E. Lieberman

Alan Lieberman is Chair of the firm’s seven-person Management Committee and acts as the firm’s Managing Partner.

Alan’s practice involves counseling clients on matters involving international, federal, state and local taxation, and representing them in tax-related disputes in administrative and court proceedings. In…

Alan Lieberman is Chair of the firm’s seven-person Management Committee and acts as the firm’s Managing Partner.

Alan’s practice involves counseling clients on matters involving international, federal, state and local taxation, and representing them in tax-related disputes in administrative and court proceedings. In addition, Alan represents clients in the formation, reorganization, and liquidation of business entities and tax-exempt organizations.

Photo of Louis B. Schatz Louis B. Schatz

Louis Schatz serves as Chair of Shipman & Goodwin’s Tax and Employee Benefits Practice Group. From 2007 to 2017, Lou served on the firm’s seven-person Management Committee. He is the past Chair of the Tax Section of the Connecticut Bar Association.

Lou practices…

Louis Schatz serves as Chair of Shipman & Goodwin’s Tax and Employee Benefits Practice Group. From 2007 to 2017, Lou served on the firm’s seven-person Management Committee. He is the past Chair of the Tax Section of the Connecticut Bar Association.

Lou practices in the areas of federal and State of Connecticut tax with attention to the representation of closely held businesses organized as limited liability companies, partnerships and S corporations; real estate joint ventures; and the representation of taxpayers involved in federal and Connecticut tax controversies (at the audit, appellate and court levels). He is a frequent lecturer on federal and State of Connecticut tax, partnership and limited liability company issues.