2008 Connecticut Tax Law Developments
| Jurisdiction | Connecticut,United States |
| Publication year | 2021 |
| Citation | Vol. 83 Pg. 35 |
| Pages | 35 |
83 CBJ 35. 2008 CONNECTICUT TAX LAW DEVELOPMENTS
Volume 83, No. 1, Pg. 35
MARCH 2009
The Connecticut tax story for 2008 is largely a reflection of the worsening national economy and consequent reductions in the State's revenue projections. What had been a modest surplus projected for the fiscal year ending June 30, 2009 had by the end of 2008's Regular Session in May melted completely away and with it the prospects for passage of any significant tax legislation. As the year progressed, a deficit developed and has grown ever greater. At this writing the projections for the current shortfall is $922 million and for the biennium ending in 2011 an appalling $8 billion,(fn1) more than 20% of current spending. A Special Session which met in November to deal with the current budget deficit failed to enact any meaningful legislation other than an amnesty projected to bring in $40 million of revenue. The 2009 Regular Session thus must address the current deficit in addition to its regular work of fashioning a budget for 2010 and 2011.
Although the budget deficits and projections overshadow the tax landscape for 2008, there are positive developments. We welcome Judge Henry S. Cohn, who has joined Judges Levine and Aronson on the bench of the Administrative and Tax Appeals Session, taking on the trial of Scholastic Book Club v. Commissioner, a sales tax nexus case discussed in more detail later in this article. The Department of Revenue Services has been busy also, improving the utility of its website and announcing that it has at long last begun sending to taxpayer representatives listed on the power-of-attorney copies of billing notices sent to their clients.
As the financial situation deteriorated, the legislative leadership opted not to enact legislation carrying a positive fiscal note, a decision which doomed almost all tax legislation still pending at the close of the session. Nevertheless, some enactments were made by the Regular Session and the State's fourth amnesty program was enacted, scheduled to occur from May 1, 2009 through June 25, 2009.
A. Corporate and Income Taxes
1. Corporation Business Tax
The General Assembly narrowed the applicability of the insurance reinvestment tax credit of General Statutes Section 38a-88a by restricting the universe of eligible taxpayers to only those insurance businesses classified in NAIC categories 524113 through 524298, which encompass entities providing direct life, health and medical, property and casualty and title insurance, reinsurance providers, Canadian insurance agencies and brokerages, and third-party administrators of insurance and pension funds.(fn2) The General Assembly also clarified that the film production tax credit found in General Statutes Section 12-217jj applies to qualified production expenses or costs incurred on or after January 1, 2006, not January 1, 2007 as originally provided.(fn3) Legislation was also enacted requiring that captive insurance companies be taxed on a percentage of direct-written premiums.(fn4)
The General Assembly established a joint enforcement commission to address the issue of classification of employees in order to reduce or eliminate any adverse impact on the State's receipt of income from withholding, workers' compensation premiums, unemployment taxes, and other employer obligations.(fn5) The commission was tasked to submit a report to the Governor, coordinate civil prosecutions related to misclassification, and advise the Chief State's Attorney of any suspected criminal violations.
Governor Rell vetoed legislation that would have expanded the Section 12-217dd credit carryover period for donations of open space land or public water supply land.(fn6) The carry- over remains at 15 years, rather than the proposed 25 years. In addition, as the deteriorating fiscal situation became clearer near the end of the Regular Session, a number of corporate income tax bills expired without being brought to a vote. These included proposals to provide corporate tax credits for green buildings(fn7) and expand the annual limitation on the digital animation production tax credit from $15 million to $25 million.(fn8)
2. Personal Income Tax
The only enactment dealing with the individual income tax provides an exemption from a beneficiary's gross income for all dividends and capital gains earned on contributions to a Homecare Option Program for the Elderly (HOPE) account.(fn9) Interest accrued from HOPE contributions was already exempt. Bills related to the creation of a state Earned Income Tax Credit,(fn10) establishment of a conservation tax credit for individuals,(fn11) and the grant of a credit for angel investors were never brought to a vote.(fn12)
B. Sales and Use Tax
In January, the Streamlined Sales Tax Commission, created under Public Act 07-4 of the June Special Session, issued its report evaluating whether Connecticut should become a full member of the Streamlined Sales Tax Governing Board. In part because the existence of multiple tax rates and the $50 clothing exemption would violate the Streamlined Sales Tax Project agreement, the report concluded that the state should not take steps to join the Governing Board at this time and should defer any further decision on membership until Congress acts on pending legislation regarding taxing remote sellers.
There was no significant action undertaken by the General Assembly to enact sales or use tax legislation. Legislation exempting asphalt producers from the sales and use tax for sales to a purchaser who fulfills a paving contract was unanimously reported by the Committee on Finance, Revenue and Bonding, but was never brought to a vote.(fn13) Also failing passage was HB 5844, which proposed to allocate one-half of the hotel room occupancy tax to the municipalities where the hotels are located and impose a six percent sales tax on charges for delivery services provided by messenger, courier, and moving companies.(fn14)
C. Practice, Procedure and Tax Administration
A bill related to taxpayer privacy rights and rights with respect to the burden of proof in appeals of tax determinations to the Superior Court was not enacted. The legislation would have required the Commissioner to notify promptly any taxpayers whose return information might have been compromised or disclosed without authorization.(fn15) The bill would also have clarified that the burden of proof is the "preponderance of the evidence" standard rather than the "clear and convincing evidence" standard imposed by the Tax Session of the Superior Court and required the Commissioner to provide to a taxpayer's representative timely copies of any notice sent to the taxpayer.(fn16) Strongly supported by the Connecticut business community, the bill unanimously passed the Senate but failed to reach the House floor on the final day of the session.
When it convened in Special Session on November 24, the General...
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