2000 Connecticut Tax Law Developments
| Publication year | 2021 |
| Pages | 1 |
75 CBJ 1. 2000 CONNECTICUT TAX LAW DEVELOPMENTS
In the interest of providing the bar with a timelier synopsis of tax developments, consistent with the Journal's publishing schedule, the authors have decided to include developments into the fall of each year rather than the calendar year as covered in the past. Therefore this survey covers the eights months ending August 31, 2000. This period will, with the exception of those rare instances in which the General Assembly meets in a late special session, permit us to present our synopsis of an entire legislative year and a full term of the Connecticut Supreme Court with an earlier publication date.
I. LEGISLATIVE DEVELOPMENTS
The 2000 legislative session was marked once again by "taxpayer friendly" enactments. These included enactments aimed at attracting and retaining specific business activities, and maintaining or accelerating the phase out of taxes begun in prior years. A. Corporation Business Tax
The most important corporate tax development was the adoption of single factor gross receipts apportionment for manufacturers and broadcasters.(fn1) Eligible manufacturers are those described in NAICS categories 31, 32, or 33(fn2) and their receipts from sales are sourced to their destination. However, government contractors whose gross receipts from government contracts exceed 75% of their total gross receipts may elect out of this new apportionment regime for a period of
five years. Eligible broadcasters are those described in NAICS categories 5131 and 5132 and their affiliated video or audio production entities. Broadcasters' receipts from sales are sourced to the location of their audiences, with those of affiliated production entities sourced to the locations where production events occur. Broadcasters are not permitted to elect out of this new apportionment regime. The provisions affecting manufacturers are effective for income years commencing on or after January 1, 2001, and those affecting broadcasters for years commencing on or after October 1, 2001.
The General Assembly also enacted several amendments to the corporate tax credit provisions, generally favoring taxpayers. One amendment permits subchapter S corporations to utilize corporate tax credits during years commencing in 1999 and 2000, the last two years prior to the time that the entity level tax on S corporations is fully phased out.(fn3) A new tax credit is provided for investments in brownfield sites.(fn4) Amendments to General Statutes section 8-395 remove the per-company ceiling from the low and moderate income housing tax credit and amend the existing tax credit for traffic reduction expenditures to programs conducted within Connecticut.(fn5) New provisions grant a credit of 50% of the value of computers contributed to public schools if the computers are not more than two years old,(fn6) and a ten-year carryover for the tax credit granted for the contribution of open space land.(fn7)
Also, practitioners will wish to note that Public Act 00- 174 changed General Statutes section 12-226 to require a taxpayer to file a return rather than an affidavit following the making of federal adjustments.(fn8)
B. Sales and Use Tax
Perhaps the most unnerving development to emerge from the 2000 legislative session was the Commissioner's efforts
to reverse the result in Andersen Consulting, LLP v. Gavin,(fn9) which is discussed in more detail infra. With no warning or opportunity for public comment, significant additions were inserted in the primary tax bill that was then adopted by both houses in the press of the final hours of the session.(fn10) Whether this legislation will have the effect intended by the Commissioner will be resolved by the Connecticut Supreme Court during its current term.
Legislation paralleling that adopted recently in several other states provides that nexus will not be attributed to an out-of-state retailer by reason of its purchases of fulfillment services from an unaffiliated fulfillment company located in Connecticut.(fn11) Excepted from nexus creation are the ownership of tangible personal property located on the premises of the fulfillment house and the purchase of fulfillment services. Affiliation includes a direct or indirect ownership interest of more than five percent. This Act amends General Statutes section 12-407(15), a sales tax statute and does not affect nexus for purposes of the corporation business tax.
The carve out from gross receipts for payroll reimbursements in the case of leased employees was modified to include among eligible employee leasing companies certain professional employer organizations.(fn12) Legislation also modified the treatment of the sale of prepaid telephone calling cards by the Department of Revenue Services ("DRS") to require that the sale of prepaid telephone calling services be treated as taxable at the time the sale of the card or right to services is made, rather than at the time when the services are used.(fn13)
With regard to exemptions, the General Assembly accelerated to July 1, 2000, the phase-out of the computer services tax on Internet access.(fn14) The legislature also adopted a permanent one-week sales tax holiday for the sale of footwear
and clothing for less than $300.00.(fn15) Other new exemptions include one for sales of equipment to a telecommunications or CATV company to be used for high-speed data or broadbased Internet transmission,(fn16) and one for the purchase of goods or services to be used in the preparation of the Adrien's Landing Riverfront Development site in Hartford and the University of Connecticut Football Stadium in East Hartford.(fn17) Also new is an exemption from the use tax for the withdrawal of items from inventory for the purpose of donation to an exempt government or charity.(fn18) Legislation also amended the exemption for certain sales of food products and meals to include those sold at school dining facilities, assisted living facilities, and senior and day-care centers.(fn19) In addition the clothing exemption ceiling was raised to include items costing less than $75.00(fn20) and that for vending machine sales was increased to include sales of fifty cents or less.(fn21)
C. Income Tax
One potential problem with a tax based on federal adjusted gross income is that a deduction in one year for payment of an amount included in income in a prior year under a claim of right does not enter into federal adjusted gross income and so reduces the Connecticut tax base. This imbalance was corrected by enactment of a subtraction from Connecticut adjusted gross income for certain amounts deductible under section 1341 of the Internal Revenue Code.(fn22) Also adopted was a provision which excludes from the definition of "resident" a domiciliary who in a 548 day period, spends 450 or more days in a foreign country, is not in Connecticut for more than 90 days during the 548-day period, and does not maintain a permanent place of abode in Connecticut.(fn23) Two provi
sions affecting earnings from Canadian sources were adopted during this session. One eliminates the subtraction of Canadian income from Connecticut adjusted gross income(fn24) and the other amends General Statutes section 12-700(a) to delete income that is sourced and taxed in a province of Canada from the credit for residents against the alternative minimum tax. Also enacted was an additional subtraction from federal adjusted gross income for interest earned on an "individual development account," which is a fund held in a financial institution for the benefit of a disadvantaged person for certain limited purposes related to education, training, or maintenance of a job or of a residence.(fn25) Finally, exempted from gross income are payments made to Holocaust victims and their survivors.(fn26)
New provisions affecting the income tax include a Special Act, which cuts off 1999 rebate filings effective on its date of passage.(fn27) Another provision eliminates penalty and interest on amounts of credit disallowed as a result of the invalidation of the New York commuter tax.(fn28) Finally, a welcome technical amendment states that, in the case of a return filed under extension, the statute of limitations for refunds begins to run on the extended due date.(fn29)
D. Miscellaneous State Taxes
The hospital gross receipts tax was repealed in its entirety, effective April 1, 2000.(fn30) Attorneys employed full-time by a municipality or the probate court were exempted from the occupation tax on attorneys.(fn31) Also, the gift tax was phased out for gifts totaling more than $1 million in any calendar year. The phase out on the amount in excess of $1 million is phased in over a five-year period beginning January 1, 2001.
The petroleum products gross receipts tax was amended to prohibit transmitters of natural gas to transmit gas for a person selling to Connecticut end users when the seller is not registered with the DRS.(fn32) Conveyance tax exemptions were provided for the Adrien's Landing project.(fn33) Finally, the controlling interest transfer tax was amended to except the sale or transfer of an interest in an entity to effectuate a mere change of identity or form of ownership or organization, where there is no change in beneficial ownership.(fn34)
E. Tax Administration
Sections 53 through 67 of Public Act 00-174 modernize the procedures involved in a number of tax statutes. The requirement for sworn statements and affidavits is in many cases eliminated with the substitution of signed returns and other forms in place thereof. The requirement for notarization is also eliminated in many instances. In addition, section 52 of the Act provides for the service of tax warrants by...
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