Panel readies report on business tax
As a task force on business taxes readies for a Sept. 27 meeting to publish its final report and recommendations to Gov. Dannel P. Malloy, panelists continue to wrestle with how to make Connecticut”™s tax credits available to a wider pool of businesses and how to eliminate some that are little used but have helped certain companies expand.
“We started very much with tax benefits and tax credits,” said Catherine Smith, a task force member who is commissioner of the Connecticut Department of Economic and Community Development. “That led us into places that you might not normally think of as being a part of a task force looking at business taxes.”
The governor had input during the final weeks of the process, according to Kevin Sullivan, commissioner of the Connecticut Department of Revenue Services. He said the final document is intended as a general roadmap of ideals to assist lawmakers over the next six years, rather than an exhaustive accounting of immediate and specific changes to the tax code.
One specific recommendation is being made with an eye on potentially capturing revenue from entities outside Connecticut that sell here, whether online or through other channels: the panel is recommending that the state require all companies to pay a $120 fee to transact business here. The $120 surcharge will also replace a $250 “business entity” tax for which Sullivan estimated half the small businesses in the state have been delinquent in paying.
The panel has not revealed any revenue projections such a rule would raise for the state.
While some have called for a cap on tax credits awarded by the state, Sullivan said that would be difficult because many credits are available to all businesses that qualify, and are taken at the time those companies pay their taxes. Any cap would open the possibility of the state having to inform businesses after filing that the credit they had claimed was no longer available due to other companies beating it under the wire.
Multiple task force members said any restriction of existing tax credits could hit the confidence of companies that have expanded on the expectation of collecting ”“ and those watching.
In 2009, nearly 3,750 companies claimed credits off their corporate taxes valued at $129 million, down from about 4,100 credits for $137 million in 2008. The average tax credit award has doubled from 2002 to nearly $35,000 today.
“When the larger employers put a tax benefit on the books, if a change in law retroactively changes that, then they have to book an expense,” said Julie McNeal, director of finance and operations for the Connecticut Society of Certified Public Accountants. “If the credits are cut, there is an effect that hits the books, hits the costs, the value of the company.”
Others argued, however, that businesses should expect the state to reform the tax code on an ongoing basis ”“ not to make their lives harder, but to streamline where possible and adjust revenue where necessary, whether up or down.
“You do want to be clear and consistent and yet, the world changes and taxes need to change,” said Steve Lanza, a University of Connecticut economist. “All change is not bad ”¦ The way to resettle business expectations is to adopt a process that is acceptable to all stakeholders.”
But there are limits, Sullivan said.
“If every year is open season on everything, it is hard to get a sense of clarity, consistency and stability,” Sullivan said. “While the legislature has every right to exercise its authority ”¦ there is an unsettling nature to the way that is ”˜shotgun”™ rather than focused.
“Good times, cut taxes ”“ bad times, raise taxes,” Sullivan added. “What you get is this great rollercoaster that doesn”™t match particularly with the realities of the economy that it”™s responding to.”