Survey of 1994 Connecticut Tax Developments
| Pages | 85 |
| Publication year | 2021 |
69 CBJ 85. Survey of 1994 Connecticut Tax Developments
The year 1994 was marked by a decidedly pro-business attitude on the part of both the Connecticut State administration and the General Assembly. The legislature enacted several new corporate tax credits and expanded others, and amendments were added to the sales tax which gave the business community its long-sought repeal of the sales tax on computer and data processing services, although the repeal was staged over several years. However, from the tax practitioner's point of view the most Significant development has been the rush of new decisions from the Tax Session of the Superior Court since its inception in late 1993. With this development, the practice of tax law in Connecticut has taken on a more lively air and Connecticut taxpayers are benefiting greatly both from the explication of the law by the Court and the promise of a court hearing within a reasonable time of filing an appeal.
The Corporation Business Tax is affected by three new credits and amendments to existing credits. One new credit is for 100% of the property tax paid on electronic data processing equipment. (fn1) Qualifying electronic data processing equipment includes computers, printers, peripheral computer equipment and bundled software. Any amount of this credit not used to offset corporation business tax liability may be applied against a company s liability under the taxes on insurance premiums, unrelated business income, air carriers, or public services corporations.
Telecommunications companies which pay tax of 47 mills in lieu of the property tax are also eligible for this credit. The credit is first available for taxes paid on the October 1, 1994 grand list, but may be included only on a final return and not in the calculation of estimated tax. (fn2)
Another new credit available for the 1995 income year is for fifty percent of a company's traffic management program expenses related to attainment of Clean Air Act standards.
This credit is limited to $250 for each employee participating in an alternative means of commuting and the total amount of credit allowable for all companies combined is $1.5 million per year. The Department of Transportation is required to adopt regulations which establish procedures for corporations to obtain and qualify for the credit. (fn3)
Finally, a new credit was enacted, targeted specifically at Swiss Bank's location of its new United States headquarters in Stamford. (fn4) Under this legislation, a qualifying financial institution may take a credit of 50% of its corporate tax liability for ten years, capped at $120 million for the ten-year period, and 25% of such liability for five additional years, capped at $145 million for that period. To qualify, a financial institution must, in the initial year of the ten-year period, construct a 900,000 square foot facility in Connecticut to house its operation and employ an average of at least 2,000 qualified employees. In the second through the tenth years the required employment level remains the same, but rises to 3,000 employees for years eleven through fifteen.
The most important amended credit provision for 1995 is the new requirement that, for 1995 and later years, the incremental credit for manufacturing machinery and equipment is available only for machinery and equipment that is located in a Connecticut facility. (fn5) Under existing law there is no requirement that the facility be located in Connecticut. This credit was further amended to apply the 5% increment to businesses with up to 800 employees. (fn6) Under current law, the credit is not available to companies with more than 500 employees.
An additional amendment is that the wage rate for the apprenticeship credit is increased from $2.50 per hour to $4.00 per hour, effective for 1994 income years and the maximum allowable credit allowed is increased from the lesser of $3,000 or 50% of wages paid to the lesser of $4,800 or 50% of the wages paid. (fn7)
This credit is limited to the first half of a two-year apprenticeship and the first three-quarters of a four-year apprenticeship. A fourth amendment, effective for 1990 and later years, deletes the requirement that to qualify as an exempt cooperative housing corporation a company have no federal taxable income. (fn8)
Other amendments are as follows:
The General Assembly reduced the interest rate on underpayments of corporate tax from 15% to 12% and on refunds from 9% to 8%. These changes apply to taxes due on or after July 1, 1995. (fn9)
A procedural amendment to Chapter 208 adds a provision prohibiting the Department of Revenue Services ("DRS") from making more than one deficiency assessment with respect to a taxable period. Exceptions are provided for situations involving fraud or intent to evade tax, supplemental returns, federal changes or a written finding by DRS that an earlier assessment is materially imperfect or incomplete. (fn10)
B. Sales & Use Taxes
In 1993 the General Assembly resolved the question of taxability of business management services provided by a general partner to a limited partnership by providing that these are taxable if the compensation of the general partner is other than through a distributive share of partnership profits and the general partner offers management services to others, including any other partnership. (fn11) In 1994 the legislature added to this enumerated service category services performed by an affiliate owned fifty percent or more in common with the general partner. (fn12) Further it excluded from the tax base any payment of an annual percentage of partnership's capital or assets established in a limited partnership's offering statement.
A second reduction in the tax base effective as of July 1, 1996, permits the deduction from the sales price of aircraft of the value of a trade-in. (fn16) A third change is that the last vestiges of tax preparation services will be removed from the tax base effective July 1, 1996, along with auctioneer services. (fn17)
Finally, clarifying legislation, effective July 1, 1989, makes plain that the exclusion from taxable real property services for hazardous waste removal and containment includes evaluation, prevention and treatment of hazardous waste and other contaminants of air, water and soil and that taxable business analysis and management consulting services do not include environmental consulting. (fn18)
Among the new exemptions enacted in 1994 is one for sales made to a water company of goods or services for use in maintaining, managing or controlling a water source or operating a water supply system supplying water to 50 or more consumers, effective July 1, 1996. (fn19) Also added is an exemption for safety apparel, which includes both clothing and protective equipment ,2" and the law now specifically includes worn by an employee puzzle magazines as exempt from tax (fn20), both effective July 1, 1995.
Finally, the manufacturing machinery exemption was clarified to include specifically machinery used exclusively to monitor or control an activity occurring during the manufacturing production process and machinery used exclusively during the process to test or measure the materials being manufactured. (fn22)
As in the case of the corporate tax, the interest rate on deficiencies of sales and use tax is reduced to 12 percent, effective July 1, 1995. (fn23) The current rate of 20 percent remains in effect until then. No statute provides specifically for interest on refunds of overpayments of sales tax and thus there is no change in the sales tax statutes to parallel the amendment to the corporate tax in that regard. The General Assembly also eliminated the requirement that resellers of services separately state on the invoice the service being resold and its cost to the reseller. Substituted is a requirement that the reseller maintain adequate records to show from whom the service was purchased, its price and the nature of the service so that it can be determined whether it was an integral, inseparable part of a 12-407(2)(i) service. (fn24)
Under provisions of the 1994 Acts, the DRS is now prohibited, absent fraud or intent to evade, from making more than one deficiency assessment for a tax period, though it may make one supplemental assessment upon a written finding that the earlier assessment is materially imperfect or incomplete. (fn25)
The criminal penalty for providing false or fraudulent information in connection with the sales tax is increased from one year to not more than five nor less than one year. (fn26)
C. Property Tax
The General Assembly extended through the year 2006 the exemptions for new construction which...
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