State still trails in tax environment

Connecticut ranks 42nd nationally as the worst state tax system confronting entrepreneurs and small business owners, according to a new study, with no new major levies in store as this year”™s legislative session came to its scheduled closing date.
The Small Business & Entrepreneurship Council released the study just as Connecticut small business owners completed a daunting tax season, absorbing accelerated tax increases in the second half of last year as Gov. Dannel P. Malloy worked to close Connecticut”™s budget gap, with major snafus experienced in the amount of withholding taxes paid to the state.
South Dakota led the nation in the Small Business and Entrepreneurship Council (SBEC) study followed by Texas, with New Hampshire leading Northeast states, though just 25th nationally.
New York, New Jersey and Minnesota had the worst scores on the study, which factored in myriad taxes on income, property, sales and other areas. SBEC lumps Connecticut in with New York, Illinois and Oregon as states that made their tax structure worse for small businesses last year.
“(Taxes) matter to consumers, entrepreneurs, investors and businesses,” SBEC researchers stated in the report. “They matter in terms of a state”™s competitiveness. And they matter when it comes to economic growth and job creation.”
Malloy has answered critics that the increases were necessary given Connecticut”™s budget crisis and has said that he would avoid additional increases. A panel he convened has been meeting to address the potential simplification of Connecticut”™s tax laws, possibly to include eliminating some tax credits that are little used. Kevin Sullivan, commissioner of the Connecticut Department of Revenue Services, cautioned businesses should not expect any cut in taxes as a result of the group”™s work.
As of April for the fiscal year ending this June ”“ a closely watched month given the tax filing deadline ”“ Connecticut income tax collections were up 15 percent from the first nine months of the 2011 fiscal year, while sales and use tax collections were up more than 21 percent. Corporation taxes, however, were off by 11 percent, and estate tax collections were running nearly a third below their level a year earlier.
Still, it added up to a 17 percent increase in tax revenue for Connecticut from a year ago.
As the case with other groups, SBEC warns that businesses face the threat of new tax increases after the federal elections, including for capital gains that entrepreneurs and their investors have long fought to ward off hikes.
Most notably, the Affordable Care Act”™s taxation schedule kicks in next year and in 2014. And separately, the Heritage Foundation noted the U.S. Senate is considering legislation that would seek to ward off higher student loan rates looming with new revenue raised by applying the 15.3 percent payroll tax business income distributed to shareholders who also work for small businesses organized as S-corporations.
“Most S-corps that would fall under the new double tax would change their form of business to one of the other pass-through options that are not yet subject to double taxation, such as sole proprietorships, L.L.C.s or partnerships,” predicted Heritage Foundation researcher Curtis Dubay.