2013 Connecticut Tax Law Developments
| Citation | Vol. 88 Pg. 111 |
| Pages | 111 |
| Publication year | 2021 |
Felicia S. Hoeniger [*]
The General Assembly concluded 2012 at a December special session to close a projected $365 million budget deficit for fiscal year 2013. It reconvened only a few weeks later to enact a biennial budget for the state’s fiscal years 2014 and 2015. Despite the state’s economic challenges, the General Assembly did not resort to any radical measures to raise revenue, rather, it extended several temporary provisions, such as the corporation business tax surcharge, scaled back, temporarily, several credits, such as the earned income tax credit and changed the procedure for collecting and remitting sales tax on cigarettes. Other measures were largely administrative and procedural.
There was also cause for celebration in some corners. At the close of the 2013 legislative session, Connecticut resident vessel owners could celebrate legislation easing their sales and use tax burden. In December, 2013, legislators learned that the 2013 tax amnesty far surpassed predictions and expectations, generating more than $175 million in revenue, against a projected $35 million.
Judicial decisions in property tax cases were plentiful, with decisions being rendered at all judicial levels, the Connecticut Supreme Court, Appellate Court and the Superior Court, Tax Session. The courts were far less busy with tax cases of any other type, as the Superior Court, Tax Session decided only two tax cases unrelated to property taxes. On the administrative front, all remained extremely quiet, with the Department of Revenue Services (“Department” or “DRS”) issuing just one ruling holding that admissions tax did not apply to the sale of tickets to a sporting event put on by a federally exempt university at a private venue.
I. LEGISLATIVE DEVELOPMENTS
As noted above, the 2013 tax amnesty was the significant measure of the legislative session. Originally projected to raise $35 million in fiscal year 2014,[1] by year’s end projections had increased that revenue five-fold to $175 million.[2]No significant revenue raising legislation was enacted, apart from the extension of the corporation business tax surcharge and temporary reductions in the earned income tax credit. However, the Legislature did make major changes to the collection and remittance of sales tax on cigarettes, made extensive changes to the property tax laws, and made substantive changes to the applicability of tax credits to the insurance premium tax, including enacting a tax credit ordering provision.
A. Income Taxes
1. Corporation Business Tax
In 2013, the General Assembly extended the 20% surcharge on the corporation business tax for two additional years, through income years commencing prior to January 1, 2016. The surcharge remains unchanged in that it does not apply if (i) the corporation’s tax liability is equal to the minimum tax, $250; or (ii) the annual gross income of the corporation is less than $100 million, however, this latter exclusion does not apply to taxpayers that file a combined or unitary return.[3]
The Legislature also modified several corporation business tax credits in 2013, expanding some, limiting others, and repealing still others.
Under current law, the job expansion tax (“JET”) credit provides a tax credit, that may be taken over a period of three years, of $500 per month for a newly hired employee who lives in Connecticut, or $900 per month if the employee meets certain criteria. The Legislature amended the JET credit, effective July 1, 2013, to permit the Commissioner of the Department of Economic and Community Development (“DECD”) to limit the credit in the second and third year. The new legislation requires the DECD Commissioner to render a decision whether to grant second and third year credits for an employee based on whether doing so is consistent with the state’s economic development priorities, however she must continue to make her decision on whether to approve second or third year credits for qualifying and veteran employees on current eligibility criteria. The new legislation also caps the JET credit and the three other job creation tax credit programs at $40 million over the term of the JET credit program, including the two immediately succeeding income years after such credits are granted (2014 and 2015).[4]
Effective July 1, 2015, the Legislature amended the manufacturer’s apprenticeship credit for hiring apprentices under a qualified apprenticeship training program in the manufacturing trade to (1) increase the credit from $4 per hour to $6 per hour; and (2) raise the annual cap on the total amount of the credit a business can claim from $4,800, or 50% of the actual apprentice wages, to $7,500 or 50% of the actual apprenticeship wages.[5]
The Legislature replaced the two existing credits for fifty percent of any donation of open space land and land for educational use into a single tax credit, and modified the credit for donations of land for educational use to (1) expressly provide for donations to a school district or regional school district; and (2) extend the maximum carry forward period from 15 to 25 years.[6]
The Legislature addressed a limitation in the tax credit for infrastructure projects in the entertainment industry, by amending the credit to eliminate the requirement that any taxpayer holding the credit must claim such credit in the income year in which the expenditures for the infrastructure project were made.[7] under the new legislation, taxpayers or assignees claiming the credit may take the credit in the year in which the expenditures were made or in the three immediately succeeding income years.
Effective July 1, 2015, the Legislature also expanded the tax credit for the rehabilitation of historic homes by (1) extending the credit from homes in statutorily designated areas, to historic homes throughout the state; (2) reducing the minimum rehabilitation expenditure from $25,000 to $15,000; and (3) increasing the maximum credit allowed if the owner is a nonprofit corporation from $30,000 to $50,000 per dwelling unit.[8] The credit continues to be available to be used against the insurance premium, corporation business, air carrier, railroad company, cable and satellite television and hospital taxes.[9]
The General Assembly extended Governor malloy’s “First Five” program, which provides financial assistance and incentives to up to fifteen eligible business development projects, for two years beyond its original sunset date of June 30, 2013, to June 30, 2015.[10]
These expansions and modifications of tax credits were balanced by restrictions on some credits and the repeal of others. Effective July 1, 2013, the Legislature imposed a moratorium on the film production tax credit, so long as the motion picture was not designated as a state-certified production prior to July 1, 2013, for state fiscal years ending June 30, 2014 and June 30, 2015.[11] In subsequent legislation the General Assembly provided a possible exception to the moratorium for the fiscal year ending June 30, 2015, for a motion picture for which 25% or more of the principal photography shooting days are in Connecticut at a facility that receives not less than $25 million in private investment and opens for business on or after July 1, 2013.[12]
The Legislature repealed the following four tax credits:
(1) the credit for expenditures for grants to institutions of higher education for research and development related to technological advancements; (2) the credit for employing persons who are receiving benefits from the temporary family assistance program; (3) the credit for electric suppliers hiring displaced workers; and (4) the tax credit for hiring displaced workers.[13] The Legislature also made technical corrections to reflect the repeal of these credits.[14]
Finally, the General Assembly enacted legislation authorizing DECD to establish a program to offer payments to holders of certificates of eligibility for the urban and industrial sites reinvestment tax credit to replace the credits allowed to be claimed under those certificates, and authorized the issuance of bonds, not to exceed an aggregate of $40 million, with the authorization of $20 million of that aggregate maximum effective July 1, 2014.[15]
2. Individual Income Tax
The General Assembly enacted three provisions relating to the Connecticut personal income tax. First, the Legislature reduced the earned income tax credit from 30% to 25% of the federal earned income tax credit for the 2013 tax year, and from 30% to 27.5% of the federal credit for the 2014 tax year.[16] These reductions sunset after the 2014 tax year, and the credit returns to 30% of the federal credit.
The Legislature amended the income tax withholding statutes to authorize an employer to withhold the income tax of another state, when required to do so under the law of another state with respect to employees performing services for the employer in such other state, or for an employee residing in such other state.[17]
Finally, the General Assembly enacted legislation directing the Commissioner of Revenue Services (“Commissioner”) to conduct a study of the Connecticut personal income tax provisions and submit a report to the Finance, Revenue and Bonding Committee on or before January 15, 2014.[18] The report is to include: (1) an analysis of the taxes and credits based on adjusted gross income imposed on each group of taxpayers at the same or equivalent income levels, and whether such taxes and credits are the same or equivalent; (2) a comparison of the effect of basing the state personal income tax on federal adjusted gross income rather than on federal taxable income; and (3) consideration of how the tax rates and credits might be restructured so that tax liability is equitably shared among all taxpayers, while maintaining current state revenue levels.
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