In the first fiscal quarter ending Sept. 30, Connecticut corporation business tax collections surged 19 percent ”“ perhaps making an additional surcharge a tempting option as legislators prepare to convene in January.
Corporation business taxes were one of just three categories of taxes to see large increases this past summer, along with sales taxes and estate taxes, more than offsetting a 6 percent decline in individual income-tax collections that signals the increasing pressure facing wage earners.
This month, Connecticut Comptroller Nancy Wyman indicated the state”™s budget deficit could hit $800 million by the end of the 2009 fiscal year.
Gov. M. Jodi Rell was expected to send budget revisions to the Connecticut General Assembly this month, and the legislature”™s finance, revenue and bonding committee is expected to have hearings next month on the topic. The big question is whether Rell and the assembly will tap the state”™s $1.4 billion “rainy day” fund, accumulated from years of revenue excesses, before instituting any new taxes.
Connecticut has a history of hitting up its corporate sector to cover budget shortfalls. Between 1993 and 1998, the state cut its corporation business income taxes from 11.5 percent to 7.5 percent. After corporate business tax collections dropped by nearly one third to $371 million in fiscal 2002, however, the state slapped on a 20 percent “surcharge” in the 2003 fiscal year to cover a budget shortfall.
With the new corporation surcharge in place as the local economy sputtered back into gear, the state recovered two-thirds of the drop in the surcharge”™s first full year, and wiped out any deficit attributable to the corporation business tax by the end of the fiscal 2004 year.
By the time Connecticut repealed the corporation business tax surcharge in 2006, corporation business taxes were double their levels of 2002.
In the past few years, however, the state has attempted to improve its economic competitiveness by creating tax credits linked to job creation amid a slowing economy. Perhaps as a result, between the 2007 and 2008 fiscal years ending in June, corporation business taxes dwindled 19 percent to $693 million, perhaps making a surcharge a tempting option once more.
Connecticut currently ranks 37th nationally for its business tax climate, according to a study last month by the Washington, D.C.-based Tax Foundation, down a rung from last year.
The study mainly assesses individual and corporate income taxes, property tax, sales tax and unemployment insurance tax. Connecticut fared best on its corporate business income tax, ranking 18th nationally and best in the Northeast. When it comes to property taxes, however, New Jersey was the only state in the nation to fare worse.
New Jersey and New York have the worst tax codes in the nation when it comes to business “friendliness,” the Tax Foundation determined. Wyoming has the best; in the Northeast, New Hampshire was tops, and eighth overall nationally.
The only state to move significantly was Maryland, which dropped 21 spots to the 45th rank, thanks to the state hiking taxes on individual and corporate income, sales and cigarettes last year.
