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Lamont tweaks business taxes in Connecticut budget plan

Connecticut Post logo Connecticut Post 2/20/2019 By Alexander Soule
a group of people in a room: Members and guests of the Greater Norwalk Chamber of Commerce in January 2018 in Norwalk, Conn. On Feb. 20, 2019, new Connecticut Gov. Ned Lamont proposed few major new changes to the state’s schedule of business taxes. © Provided by Hearst Newspapers

Members and guests of the Greater Norwalk Chamber of Commerce in January 2018 in Norwalk, Conn. On Feb. 20, 2019, new Connecticut Gov. Ned Lamont proposed few major new changes to the state’s schedule of business taxes.

Gov. Ned Lamont would leave largely intact the tax schedules businesses pay in Connecticut, making no transformative proposals in his inaugural budget proposal on Wednesday in Hartford that he will work with lawmakers in the coming months to finalize for the coming two fiscal years.

The new governor’s most sweeping change was the elimination of sales tax shelters for some services and goods, which Lamont’s budget team projected will boost state revenue by $505 million in the 2022 fiscal year. Connecticut’s 6.35 percent sales tax would be extended to over-the-counter medications, dry cleaning and magazines, among other products. Professional services firms would also collect and remit sales taxes in industries like legal services, real estate and even accountants who prepare individual tax returns, while keeping exemptions in place on service contracts between businesses.

Connecticut ranks fourth from last on a state business tax index published annually by the nonprofit Tax Foundation — one rung ahead of New York — with the index assessing sales taxes as well as those for personal and corporate income and real estate.

Lamont had already proposed eliminating an across-the-board, $125-a-year tax on all business entities that was created under former Gov. John Rowland and halved under former Gov. Dannel P. Malloy. Officials with the Connecticut Department of Revenue Services had indicated waning compliance with the tax and enforcement efforts have not been worth the cost.

With Lamont choosing to leave in place a 10 percent surcharge on Connecticut’s existing corporate tax rate, the budgetary Office of Policy and Management is projecting an additional $83 million in revenue for the 2020 fiscal year over previous projections.

“I’m asking everyone to do a little bit more, and that includes business,” Lamont said in prepared remarks Wednesday to the Connecticut General Assembly. “It’s a budget that supports businesses and working families alike.”

In 2015 during Malloy’s administration, the Connecticut General Assembly adopted a provision that allows the state to levy taxes on portions of the income recorded in other tax jurisdictions by corporations based in Connecticut, prompting protests by multiple companies including General Electric and Aetna.

In a statement Wednesday, the National Federation of Independent Business expressed optimism and skepticism on elements of Lamont’s plan, on the latter front Lamont’s campaign pledge to raise Connecticut’s minimum wage incrementally over four years to $15 an hour.

“Our members appreciate that the governor is focused on economic growth and making it easier for employers to navigate state government, and they’re glad he’s against higher income and business taxes, but he’s sending mixed messages when it comes to small business,” said Andrew Markowski, state NFIB director, in a written reaction to Lamont’s budget proposal. “While we are still analyzing the details of the proposed changes to the sales tax, it’s worth remembering that small businesses often struggle with compliance issues, and any expansion of the sales tax to more services could make things even worse for them.”

The Connecticut Business & Industry Association criticized Lamont including a 0.5 percent tax on payrolls in his budget as proposed in legislation before the General Assembly, with the proceeds to fund a mandate on companies offering paid family and medical leave.

Lamont also would eliminate the 7/7 brownfield remediation tax credit enacted in 2017, under which property owners can cover the full gamut of business taxes over seven years after exhausting any other available tax incentives.

Lamont kicked in a small present for families — elimination of a Connecticut tax on gifts that was the only one of its kind in the nation, in addition to inheritance taxes Connecticut collects on larger estates. OPM estimates the elimination of the gift tax will cost Connecticut more than $42 million in revenue in fiscal 2020.

Alex.Soule@scni.com; 203-842-2545; @casoulman

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