Connecticut tax levies seesaw
Connecticut business taxes increased 6 percent in the transition year between Gov. Dannel P. Malloy and former Gov. M. Jodi Rell, according to a new study ”“ highest in the Northeast amid tax increases and economic growth.
The study arrives even as a panel undertakes a comprehensive review of Connecticut business taxes, with a possible eye on simplifying the code, but with Department of Revenue Services (DRS) Commissioner Kevin Sullivan stressing businesses should not expect outright tax cuts as a result of the review.
An array of policymakers and commentators are keeping the spotlight on the coming “Taxmageddon” of federal tax increases scheduled to kick in beginning in January, on fears increases will send the fragile U.S. economy into a tailspin.
Preliminary DRS estimates put Connecticut”™s overall tax revenue at nearly $14.4 billion for the fiscal year ending in June, up 14 percent from fiscal 2011. Corporate income tax collections were down nearly 9 percent, however, to $701 million. Personal income tax was up 15 percent, however, including taxes generated by partnerships and limited liability companies that pass through profits directly to their proprietors who then pay taxes using personal income tax forms.
Ernst & Young published its study in July in conjunction with the Council on State Taxation (COST). The study includes the impacts of both increased tax rates as well as collections across a range of taxes, including the impact of unemployment taxes.
Connecticut businesses were taxed at amounts equal to 3.6 percent of Connecticut”™s gross state product, tied with Utah for the third lowest percentage in the nation after North Carolina and Oregon.
Property and sales taxes are the dominant revenue streams state and local governments collect from businesses, with corporate income taxes amounting to only a fraction of the other two categories. Ernst & Young and COST also tracked excise taxes on motor fuel and other items, license fees and individual income taxes paid by owners of “pass-through” entities like limited liability companies and partnerships. Connecticut”™s taxes on L.L.C.s, partnerships and other non corporate entities was 11.4 percent, the highest rate in the nation.
North Dakota, whose economy has been the hottest in the nation, saw by far the biggest spike in revenue at 39 percent. At 6 percent, New Hampshire was second in the Northeast after Connecticut, with no other state in the region topping the 4.5 percent average increase of states nationally. Business tax collections increased 4.1 percent in New Jersey, 3.9 percent in Massachusetts and 3.4 percent in New York.
The Ernst & Young/COST study arrived as Congress debated the proposed Marketplace Equity Act on the eve of the August recess, which would give states new powers to collect sales and use taxes from dotcoms that do not have a physical presence in a state. Connecticut passed its own such law last year, but has yet to enforce it.
“There are many components of state tax systems that, frankly, are none of Congress”™ business, even if they are good or bad public policy,” said Joe Henchman, vice president for the Washington, D.C.-based Tax Foundation, in testimony to a U.S. House of Representatives committee. “Those aspects of state tax systems that are neither motivated by protectionism nor have the effect of raiding revenue from ”˜out-of-staters”™ should be left alone as part of our commitment to fifty simultaneous laboratories for policy experiments, to paraphrase Justice Brandeis.”