Opportunity Lost?  The New State Biennial Budget

Connecticut adopted a $46.4 billion budget for the two-year period that commenced July 1, 2021, reflecting a 2.6% spending increase for the first year and a 3.9% spending increase for the second year.  There is much to love and hate about the budget regardless of your political persuasion, leaving many to wonder whether the state missed the opportunity to make more significant structural changes at a time when its economy is rebounding and its rainy day fund is at capacity.

On the positive side, the latest projections from the Office of Policy and Management indicate that the state finished the 2021 fiscal year with a projected surplus in excess of $271 million, and the balance in the state’s budget reserve fund (the “rainy day fund”) has grown to its statutory cap of 15% of General Fund expenditures or just over $3 billion.  This freed up over $1 billion to be applied to Connecticut’s massive long-term pension debt.  The new biennial budget fortunately does not touch the rainy day fund, projects a $2.3 billion surplus and should allow for additional, future payments to be made to the two state pension plans.  Money was deposited into Connecticut’s unemployment trust, but not in an amount that would fully address the significant state borrowing that has occurred since the start of the coronavirus pandemic.

Although progressives in the General Assembly worked hard to increase taxes on businesses and higher-income individuals, Governor Lamont held the line on most tax increases.  While the opportunity to make more meaningful tax law changes to boost the economy was missed, the General Assembly did enact tax legislation for the benefit of individuals, such as remote worker relief for 2020 and the future exclusion for many retirees of income from individual retirement accounts, and for the benefit of businesses, including the expanded use of the research and development tax credits, the film production tax credit and the angel investor tax credit, and the adoption of tax incentives for the development of data centers. Unfortunately, on the negative side, Connecticut yet again extended the 10% surcharge on the corporation business tax, and delayed and extended the phase-out of the capital base tax on corporations.  

Despite suggestions made in the press that it enacted no new taxes, the General Assembly adopted a new state cannabis tax and a municipal sales tax on cannabis, a new highway use tax and new taxes on online casino gaming, sports wagering and fantasy contests.  The admissions tax was largely repealed with the exception of certain movie tickets, but the dues tax remains in place. The laws governing the state unemployment compensation system were significantly changed, particularly as they relate to the setting of an employer’s unemployment insurance tax experience rate.  

Please note that Connecticut will be running another tax amnesty program during the period from November 1, 2021 to January 31, 2022.  The program will apply to all Connecticut state taxes (other than motor carrier road taxes) for all tax periods ending on or before December 30, 2020.  If accepted into the program, a taxpayer can qualify for a 75% reduction in interest, as well as relief from civil penalties and criminal prosecution.  

This newsletter summarizes Connecticut tax legislation enacted, court decisions rendered, and administrative guidance published by the Connecticut Department of Revenue Services (DRS) during the first six months of 2021.  Please contact a member of our State and Local Tax Practice Group if you have any questions regarding the new tax law changes and how they may affect you and your business.

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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.

Photo of Alan E. Lieberman Alan E. Lieberman

Alan Lieberman’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 David O. Bigger David O. Bigger

David Bigger is a partner in the firm’s Tax and Employee Benefits Practice Group, and he has a comprehensive tax practice covering a wide range of areas of international, federal, state and local taxation, with particular emphasis on personal income tax, mergers and…

David Bigger is a partner in the firm’s Tax and Employee Benefits Practice Group, and he has a comprehensive tax practice covering a wide range of 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 and investment strategies, 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.