In this past spring”™s legislative session, Connecticut cut its $250 “business entity” tax in half by converting it to a biennial fee.
As it turns out, the market had already acted on a de facto basis to halve the tax ”“ at least on the collection front.
A task force plans to recommend that Connecticut do away with the tax, primarily to send a message to small businesses that it wants to lessen their tax burden; but also to do away with the headache of actually collecting the tax from thousands of small businesses that simply are not bothering to pay up.
“The ”¦ (minimum tax) really, I think, comes as a huge annoyance to us frankly as a department,” said Kevin Sullivan, commissioner of the Connecticut Department of Revenue Services, at an August meeting of Gov. Dannel P. Malloy”™s Business Tax Policy Task Force.
“They”™re extremely expensive for us to collect ”¦ We probably are getting taxes from about half the entities that should be paying us a business entity tax. Part of that is just the annoyance of thinking, ”˜Hey, for $250 ”“ come get me.”™ And the chances are we”™re not going to spend too much time or too much energy for $250.”
The task force is slated to issue formal recommendations to the governor by October, but Sullivan suggested the group will adhere to panelist Chris Bruhl”™s suggestion that changes be rolled out over a period of as long as six years. Bruhl is CEO of the Business Council of Fairfield County, which has its office in Stamford.
Under a preliminary set of recommendations reviewed in August, the state would now charge a $120 fee under a requirement that all businesses file electronically with the state before doing business here.
Other recommendations are: surcharges on corporate income taxes the state has repeatedly used to help make up budget deficits; and to allow an “EZ filing” option for lower-income entities if they file taxes electronically.
More broadly, the task force says Connecticut needs to define “doing business” more broadly in order to avoid “exportation” of tax benefits to companies based elsewhere but that sell products or services here.
Sullivan said that Connecticut”™s tax structure is out of sync with the emerging economy in which companies are equally likely to operate with a mobile, virtual mindset with workforce levels contingent on revenue and often selling intangible services.
“Local, fixed, hard, traditional employment, tangible goods and services ”“ our tax system reflects that world,” Sullivan said.
Save for property taxes and taxes on new investments, Connecticut”™s tax climate is moderate, Sullivan maintained, and he said taxes seldom are a starting point for corporate decisions on whether to operate a location in Connecticut ”“ while acknowledging it can swing the vote on two jurisdictions thought roughly equal on their other merits. Connecticut kicked off fiscal 2013 with corporate income tax collections up by half in July to nearly $600 million.
“You think of business decisions as kind of a triage ”“ a reverse triage maybe,” Sullivan said. “What are the things that I”™m going to look most importantly for in terms of where I”™m going to be or where I”™m going to stay?”™ They usually aren”™t tax issues ”¦ The tax issue is usually a tiebreaker.
“There”™s no neutral tax in the world ”“ somebody gains and somebody loses,” Sullivan said. “Our state business taxes tend to pick a few winners, but relatively more losers, which is to say that if you look at the history of almost every tax code, whether it”™s on the credit side or the tax side, it is often a collection of incremental and anecdotal decisions that have been made with a certain sector in mind.”
