1999 Connecticut Tax Law Developments
| Publication year | 2021 |
| Pages | 96 |
74 CBJ 96. 1999 Connecticut Tax Law Developments
The General Assembly marked the year with numerous changes in the tax law, almost all aimed at either a reduction in the tax base or an easing of the administrative burdens of tax compliance. Most striking in the latter category was the enactment of legislation sought by the Department of Revenue Services (the "DRS") enabling the implementation of its Managed Audit-Managed Compliance Program for the sales and use taxes. (fn1) A managed audit is essentially a self-audit performed under the guidance of a DRS agent. Managed compliance uses the past history of a taxpayer's liability for tax on recurring purchases to determine an effective rate of tax for all future purchases, ordinarily in conjunction with the issuance to the taxpayer of a direct pay permit. Assuming that a triennial review of the amount paid against the amount due as determined by a new analysis, falls within established parameters, no additional tax is assessed. The program is voluntary, with the DRS planning to undertake it as a pilot project in early 2000. (fn2)
The Tax Court's workload continued to be very manageable, permitting the docketing of numerous property tax cases in addition to state-level tax matters. The Supreme Court issued several tax decisions, most notably one allowing the taxpayer to offset against a deficiency assessment overpayments for which a refund had not been sought and, further, interpreting de novo review to provide the judge with broad discretion to allow taxpayers to assert changed theories while a matter is before the Superior Court. (fn3)
A. Corporation Business Tax
With regard to deductions to arrive at net income, the corporation business tax was amended to extend from five years to twenty the period to which a net operating loss may be carried forward, applicable to losses incurred on or after January 1, 2000. (fn4) In addition, a new deduction was enacted for gains on the sale of open space land. (fn5)
The General Assembly also enacted several provisions that expand the availability or amount of corporate tax credits. The credit for motor vehicles using alternative fuel was extended to include years beginning in 2001. (fn6) New credits were provided for a donation of open space land to the extent of 50% of its value, (fn7) for guarantee fees paid for small business administration financing (fn8) and for expenses related to the rehabilitation of historic homes. (fn9)
The legislature increased the research and development credit of section 12-217n of the statutes for larger taxpayers headquartered in an enterprise zone. (fn10) Of wider application is a new provision permitting companies with less than $70 million in gross sales to sell unused research and development credits to the state at the rate of $0.65 per dollar. (fn11) Additionally, the General Assembly provided that a subchapter S corporation is entitled to 100% of the neighborhood assistance program credit, commencing with 1999 years and without regard to the phaseout of corporate tax on subchapter S corporations. (fn12) Finally, new legislation provides for a credit of 60% of cash donations used to purchase open space land (fn13) and increases the overall credit cap for the Neighborhood Assis
tance Act credit and the low income housing credit to $5 million each. (fn14)
B. Sales and Use Taxes
With the exception of legislation authorizing the Department of Revenue Services to institute a program of managed compliance and managed audits, which is discussed in more detail in the introduction, the legislative sessions were marked by sales tax reductions effected through exceptions to enumerated services and by new and expanded exemptions from the tax. Exceptions include the exclusion of training services provided by an institution of higher learning from tax under section 12-407 (2) (i) (J) as business analysis and management services. (fn15) Labor services on vessels are excluded from tax, (fn16) and short-term acute care hospitals operated by the state are excluded from the tax on patient care services. (fn17) Finally, an amendment that affects the exclusions from real property services under section 12407(2)(i)(1) removes scrap tires and other materials from the Title 22a definition of hazardous waste. (fn18)
The General Assembly also enacted a phaseout of tax on the so-called "seven deadly sins" of renovation and repair services provided to noncommercial real property.(fn19) The rate of tax on these services is reduced to 4% on July 1, 1999, 2% in July 1, 2000 and eliminated as of July 1, 2001. Additionally, the rate of tax on hospital services was reduced from 6% to 5.75%, effective July 1, 1999. (fn20) Finally, legislation eliminated the 6% tax on sales of vessels to be used outside the state. (fn21)
The legislature acted to change the treatment of certain lease financing transactions. For several years the DRS position had been that purchases of property financed as a sale
leaseback through a third-party lessor were taxable both as a purchase from the original seller and as a lease from the third-party lessor. With DRS support, new legislation provides that only the lease transaction, not the original sale, is taxable if the purchaser and lessor enter into a binding commitment for a sale-leaseback within 120 days of the date the purchaser first takes tide to the property. (fn22) An additional item of taxpayer relief legislation permits building materials suppliers who sell to contractors to remit tax on the basis of payment rather than accrual, with certain limitations. (fn23)
Numerous amendments to the sales and use tax exemption provisions were adopted. Among these were the addition of repair and replacement parts to exemptions for certain medical-related equipment and vehicles equipped for the physically disabled, and the addition to these exemptions of inclined stairway lifts. (fn24) Likewise, the exemption for nonprescription medicines was expanded. (fn25) The section 12412(29) exemption for the construction of low and moderate-income housing was expanded to include such projects sponsored by housing authorities. (fn26)
The General Assembly also expanded, to include marketing activity, the section 12412(58) exemption for services provided to a joint venture by a corporate shareholder or partner. (fn27) The exemption for services provided to related corporations was expanded to include telecommunications and cable services in addition to the section 12407 (2) (i) services already encompassed by that exemption, and to include among eligible service providers and recipients noncorporate business entities. (fn28) The section 12412(60) exemption for motor vehicles sold to nonresidents was expanded to include vessels, effective July 1, 1999. (fn29) In addition, the section 12-
431 (a) (2) provision regarding casual sales of motor vehicles was expanded to include transfers of such property upon the formation or termination of a limited liability company. (fn30)
The General Assembly also extended the sunset on the section 12-458f exemption for purchases of natural gas and liquefied petroleum gas to July 1, 2002 (fn31) and extended to January 1, 2002 the sunset for the section 12-412 (67), (68), and (69) exemptions for clean fuel motor vehicles. (fn32) Finally, new exemptions enacted in 1999 include shoe repair, services for the calibration of manufacturing machinery, firearm safety devices, bicycle helmets, certain machinery, equipment and supplies of freight railroads, and diesel fuel used in portable generators with a capacity of greater than 150 kilowatts. (fn33)
C. Property Tax
An area of frequent contention has been the valuation of rapidly depreciating business machinery and equipment, particularly with respect to swiftly obsolescing computer and computer-related equipment. In 1999, the General Assembly took a step toward alleviating this problem by adding to section 12-63 depreciation tables that provide speedier depreciation for computer equipment and peripherals. (fn34) However, these depreciation tables are subject to adoption by each municipal legislative body.
The Assembly also redefined omitted property to clarify that it includes only property whose total number, type, original cost or year of acquisition is omitted or misstated in the declaration. (fn35) Related to this amendment is one permitting municipalities to adopt a 10% penalty in lieu of the 25% penalty where a declaration was filed that was accurate as to the number and type of property declared. (fn36) Finally, added to the section 12-81(74) exemption for commercial vehicles used exclusively in interstate commerce is a provision exempting trucks and trailers with a gross vehicle weight rating of more
than 55,000 pounds, first registered in Connecticut after August 1, 1999 and not previously registered elsewhere. (fn37)
D. Income Tax
The General Assembly adopted several provisions affecting the individual income tax, all of which reduced the tax burden, particularly as it affects lower income persons. Exempted from tax was all social security income for joint filers and heads of household with adjusted gross incomes of less...
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