On May 1, 2019 the Connecticut General Assembly’s Joint Committee on Finance, Revenue and Bonding approved and sent to the Senate, Substitute Bill 877 (the “Bill”). Although the Bill will likely be amended prior to its adoption by the Senate and the House, the Bill represents the first significant piece of proposed tax legislation that has cleared the Finance, Revenue and Bonding Committee this legislative session. The Bill contains a number of changes to Connecticut’s tax laws, including the following:
Personal Income Tax
- Effective January 1, 2020, the Bill would impose a new capital gains tax surcharge on taxpayers in the highest marginal tax rate (adjusted gross income of one million or more for those whose filing status is married filing jointly, and $500,000 or more for single taxpayers). The tax surcharge would be 2% of the taxpayer’s net gains from the sale or exchange of capital assets. Governor Lamont has already indicated that he is not in favor of this new tax.
- There has been considerable discussion regarding the possible imposition of a new payroll tax, which would be coupled with a significant reduction in the personal income tax rate. Under the Bill, the Department of Revenue Services is required to undertake a study to consider the implementation of a payroll tax of 5% on wages with a corresponding reduction in the top personal income tax rate to 2.99%. The Department’s study must be completed by January 1, 2020.
- The Bill would extend the Angel Investor Tax Credit for five years, to July 1, 2024 and would also increase the total amount of credits allowed to a taxpayer from $250,000 to $500,000.
Sales and Use Tax
- The Bill would expand the application of the Sales and Use tax to the digital industry by revising the definition of tangible person property to include “digital goods, canned or prewritten software that is electronically accessed or transferred, other than when purchased by a business for use by such business, and any additional content related to such software”. Under the Bill, “digital goods” would be defined to mean audio works, visual works, audiovisual works, reading materials or ring tones that are electronically accessed or transferred. The Bill also provides new rules that would be applicable to the resale of canned or prewritten software and resale of digital goods.
- The Bill would impose the sales tax on prearranged rides that originate in Connecticut and which are provided by a transportation network company.
- The Bill would increase the sales tax from 6.35% to 7% on the sale of meals, caterer, grocery store, spirituous, malt or vinous liquors, soft drinks, soda, and beverages sold in connection with meals.
- The current sales tax exemption for motor vehicle parking would be narrowed such that parking in municipally owned lots and seasonal lots would be subject to tax.
- The Bill would impose the sales tax to dry cleaning series and laundry services, as well as interior design services (other than those interior design services purchased by a business for use by such business).
- The Bill would phase out the Capital Base tax such that it would be repealed in full by 2023.
- The 10% corporate tax surcharge would be extended through 2019 and 2020.
- Certain exceptions to the 50.01% limitation on the utilization of tax credits by corporations would be eliminated for quarterly periods commencing on or after July 1, 2019.
- The Bill would repeal the business entity tax.
- The Bill would repeal the gift tax, effective January 1, 2019.
- The Bill would adopt a new tax on sales of electronic cigarette products made by electronic cigarette wholesalers equal to 50% of the wholesale sales price of such product.
- The Bill would increase some of the rates provided by the Alcoholic Beverages Tax.
- The Bill would reduce the admissions tax from 10% to 7.5%, and then to 5% for events at the XL Center, Dunkin Donuts Park, Webster Bank Arena, new Britain Stadium (Atlantic League games), and Oakdale Theatre.
- The Bill would increase the admissions tax on movies from 6% to 6.35%.
- The Bill would establish a new 10 cent fee on single use plastic or paper checkout bags provided at the point of sale, with exclusions.
- The Bill would adopt substantial heath provider tax changes.
- The Bill would adopt a new exemption from conveyance tax for first time sales of principal residences that have a crumbling foundation.
Substitute Bill 877 will likely be amended prior to adoption by the Senate and the House, and once adopted there is no assurance that the Bill will be signed by the Governor.
We will keep you apprised as there are further developments with respect to the status of the Bill.