As Connecticut businesses readied for a key tax reporting deadline Oct. 15, a new study shows they still carry a larger tax burden than companies in many other states ”“ and that burden is about to get worse.
Connecticut ranked 38th for its business-tax climate in the current fiscal year, as calculated by the Washington, D.C.-based Tax Foundation, down a rung from fiscal 2009.
Connecticut ranked in the bottom three for its property tax rate affecting corporations, and it fared best in its corporate tax rate at 18th nationally, though the study was computed before the Connecticut General Assembly passed a bill to impose a 10 percent surcharge on corporate income taxes in the current fiscal year and the two that follow.
As it recovers from the recession, Connecticut employment is down from its level on the eve of the state imposing an income tax in 1991. Connecticut imposed a 10 percent surcharge on corporate income taxes in a bid to close budget deficits over the next three fiscal years.
In its study, the Tax Foundation also included personal income taxes, sales tax and unemployment insurance taxes in its formula for ranking states, but not fees which business groups say amounts to a tax. Like many states, Connecticut dramatically raised fees on dozens of licenses and certifications with a significant impact on small businesses.
New York and New Jersey remain the two states with the most onerous tax code for businesses, according to the Tax Foundation; at the top end, South Dakota knocked Wyoming out of the top perch, while Kentucky climbed 14 slots to post the fastest gain of any state nationally.
The Tax Foundation attributed Kentucky”™s leap to imposing no major changes to its tax code as the recession hit.
New Hampshire led Northeast states for the 7th best business tax climate nationally.
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“When policymakers are considering tax changes in their states, they should remember two rules: taxes matter to business, and states do not enact tax changes ”“ increases or cuts ”“ in a vacuum,” said Kail Padgitt, a Tax Foundation researcher who authored the report.
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Several states lost ground on the survey this year after enacting so-called “millionaire”™s taxes” on those earning at least $1 million. For the next three fiscal years, Connecticut will extract higher taxes from couples earning that amount and individuals earning at least $500,000 ”“ a measure that business groups say will impact as well small-business owners who file their business income using individual forms.
Michael Niedermeier, a partner in the Shelton office of BlumShapiro, said there is no avoiding the new tax, but added he has yet to hear much carping about it beyond organized opposition by business trade groups. He said businesses may appear to be indifferent due their seeing a surcharge in a down economy as part of the accepted cost of doing business in Connecticut. Following the 2001 recession, the Connecticut General Assembly similarly enacted a surcharge that also included a three-year sunset provision.
Robin Selden, head chef for Stamford-based Marcia Selden Catering & Event Planning, said she is looking at food and energy prices a lot more closely these days than her coming state tax bill.
“We never had a $3,500 bill before,” Selden said. “I”™m astounded.”
Like many most small businesses, her company has no choice but to remain stationed in Connecticut where its clientele is, and is responding by attempting to increase revenue by adding a delivery service that caters to corporate luncheons.
Companies like Marcia Selden Catering may get relief on one front ”“ Connecticut”™s new budget contains a provision to cut sales tax by half a percentage point to 5.5 percent in January. The provision is dependent on Connecticut achieving revenue goals that the Connecticut Business and Industry Association said the state is unlikely to hit.
