Hartford Business Journal

16 Hartford Business Journal • February 23, 2015 www.HartfordBusiness.com from page 1 including a few that aim to provide relief to small businesses, but many others that will add to employer's costs. His plan includes extending indefinitely the surcharge on the corporation tax that was sup- posed to sunset in July; limiting employer's use of credits and previous years' operating losses to offset future tax obligations; and increasing business registration and trash disposal fees. Even with Malloy's proposal to eliminate the business entity tax, a $250 fee compa- nies pay every other year, businesses will pay $459 million more in taxes and fees in each of the next two fiscal years under the governor's budget. No stability Businesses often decry the lack of con- sistency in state policy, Brennan said, so the continuation of a tax surcharge, which was supposed to sunset, and the rewriting of tax credit rules will only add to their frustration. Connecticut imposed a 20 percent sur- charge on the 7.5 percent corporate tax rate four years ago, with Malloy originally prom- ising to eliminate it in 2013. The surcharge ended up being extended and was again sup- posed to sunset this coming July. Under Malloy's budget, the surcharge will continue indefinitely, effectively raising Con- necticut's corporation tax from 7.5 percent to 9 percent, Brennan said. "That would put us in the upper end of cor- porate tax rates in the nation," Brennan said. Malloy's budget also reduces the amount of tax credits businesses can claim against their state tax liability from 70 percent to 35 percent. This reduction also applies to healthcare providers that pay the hospital tax. Businesses earn these credits for various activities including research & development and buying equipment. "The credits aren't going away," Malloy said. "We are eliminating how much you can knock off your tax bill in a given year." The proposed budget does increase the amount of tax credits businesses can claim against their tax liability to 45 percent in fis- cal 2017 and 60 percent thereafter, but given what has happened with the corporate tax surcharge, businesses aren't optimistic that will happen, Brennan said. Another tax liability change in Malloy's budget is the previous years' loss offset. Right now, businesses can use losses incurred any year in the previous 20 years to offset profits in the current year, in order to reduce their tax liability. Malloy proposes limiting the amount any business can claim to 50 percent of previ- ous years' losses. "One of the biggest problems with this budget is the tax credit and net operating loss issue," said State Senate Minority Leader Len Fasano (R-North Haven). "This is changing the rules in the mid- dle of the game for companies that have already invested here and have planned out their taxes." tough choices While Malloy's budget focuses on closing an estimated two-year, $2.7 bil- lion deficit by cutting social services and raising the tax bur- den on businesses, he chose not to cut aid to municipal gov- ernments, keeping contributions flat at $4.9 billion for each of the next two fiscal years. Cutting that aid would force many cities and towns to raise property taxes to offset the losses, at a time when the prop- erty tax already is the largest tax burden in the state, Malloy said. "Those increases would have occurred in communities that already have high tax rates," Malloy said. By not cutting local aid, Malloy also sets the stage for possible property tax reform, as Democratic leadership in the House and Senate have launched several initiatives aimed at region- alizing services and cutting local expenses. Malloy's budget does contain a $20 million cut in local aid based off of regionalization efficien- cies proposed by House Speaker Brendan Shar- key (D-Hamden), which is a concern to local gov- ernments, said Kevin Maloney, spokesman for the Connecticut Conference of Municipalities. In his budget, Malloy also proposed raising the fees for solid waste disposal from $1.50 to $2.50 per ton, which would have an impact on both municipalities and businesses. "Although we do have some concerns, we are very appreciative of the fact that the gover- nor did not cut state aid in the major categories," Maloney said. The solid waste disposal fee also would be expanded to include trash that is landfilled and shipped out of state. Currently, it is only collected against trash disposed at trash-to- energy facilities. The increase and expansion is expected to raise annual collections of the fee from $3.3 million to $8.6 million. "It is important to level the playing field to make sure all the waste is treated the same," said Dennis Schain, spokesman for the state Depart- ment of Energy & Environmental Protection. "It also would encourage recycling because no fee would be collected against recycled waste." Limited liability companies, limited liability partnerships, and limited partner- ships will also pay $80 more each year to file their annual report with the Secretary of the State's office, offsetting some of the benefits from repealing the business entity tax. A few carrots Malloy's budget did contain some positives for businesses, specifically the continuation of economic development programs: $100 mil- lion over the next two years for Small Business Express; $50 million for the Manufacturing Innovation Fund; $20 million for brownfield revitalization; $200 million for the Manufac- turing Assistance Act and general economic development; and $5 million for nonprofit and cultural economic development. "I want Connecticut to have a first-class education system, a first-class transporta- tion system, and a first-class toolbox to help businesses and the economy grow," Malloy said. "The name of the game is jobs, and these programs help create jobs." The big ticket item in Malloy's budget is a proposed 30-year, $110 billion transpor- tation initiative called Let's Go CT! that is designed to create a comprehensive inter- modal system with highways, bridges, rail, buses, airports, and seaports. The initiative is kicked off by a five-year, $10 billion plan to finish the New Haven-Hartford-Springfield rail line and study projects like the I-84 via- duct in Hartford. Malloy's transportation proposal did not include a way to fund these projects, but he said he will discuss revenue possibilities with the legislature. Adding tolls is a possibility. Despite the lack of an exact funding pro- posal, Brennan said CBIA viewed Let's Go CT! as a positive for the state's business com- munity, as the transportation infrastructure is badly in need of an overhaul. "That initiative is driven — no pun intended — over the concerns about the economy," Bren- nan said. n Businesses face credit cuts, fee hikes A Breakdown of Malloy's Proposed Business Tax & Fee Changes Gov. Dannel P. Malloy is proposing a host of changes to various fees, taxes, and tax credit programs that will impact businesses. Some changes will help companies save money; many others will force businesses to pay more in taxes over the next two fiscal years. Here is a breakdown of the various changes and the revenue impact they will have on the state budget. Sales Tax FY 2016 FY 2017 FY 2018 Overall rate will drop to 6.2% from 6.35% on 11/1/15 (70.1M) - - Overall rate will drop to 5.95% from 6.2% on 4/1/17 (154.9M) ($299.5M) Eliminate $50 or under clothing exemption $138M $142.1M $146.4M Corporate Taxes FY 2016 FY 2017 FY 2018 Elimination of the $250 business entity tax ($40M) Maintaining current 20% corporation tax surcharge $44M $75M $75M Limiting use of tax credits to offset corporate taxes at 35% (FY16), 45% (FY17), and 60% (FY18) $72.5M $29.3M $26.2M Limit companies' ability to use previous year's net operating losses to offset their corporate tax liability $156.3M $90.1M $90.1M Insurance/Film Tax Credit FY 2016 FY 2017 FY 2018 Maintain cap on film, digital production, reinvestment credits $18.7M $18.7M - Continue feature film tax credit moratorium $4M $4M - Malloy's budget also proposes two business fee increases, one assessed by the Department of Energy & Environmental Protection (DEEP) and the other by the Secretary of the State (SOS). The changes include increasing from $20 to $100 fees paid by limited liability companies, limited liability partnerships, and limited partnerships when they file their annual reports with the SOS's office. That levy is known as the pass-through entity fee. Malloy also proposed raising the fees for solid waste disposal from $1.50 to $2.50 per ton, which would have an impact on both municipalities and businesses. Fee Increases FY 2016 FY 2017 FY 2018 DEEP's solid waste disposal fee will increase by $1 to $$2.50 per ton $5.3M $5.3M $5.3M SOS's pass-through entity fee will increase to $100 $10M $12.8M $12.8M Malloy is also looking to change some of Connecticut's liquor laws to raise additional state revenue. Changes include expanding liquor store hours to 10 p.m. from 9 p.m. Mon.-Sat., and to 8 p.m. from 5 p.m. on Sundays. Malloy also wants to ease Connecticut's restrictive minimum pricing rules, which require liquor stores to sell their products above what they paid their supplier. The law has been in effect since 1933 to protect smaller merchants from larger competitors that have the ability to buy beer or wine in larger bulks and potentially sell alcohol below cost. Liquor law changes FY 2016 FY 2017 FY 2018 Extended sales hours $500,000 $500,000 $500,000 Revising minimum pricing rules $2.8M $2.8M $2.8M s O u R C e : O f f i C e O f P O l i C y & M a n a g e M e n T Municipal Aid Funding Gov. Malloy has largely spared cities and towns from major funding cuts, which should alleviate municipalities' needs to boost property taxes. Here is a breakdown (in millions) of how much money Malloy wants give local governments over the next two fiscal years. FY2015 FY2016 FY2017 General gov't $500 $502 $482 Education $3,302 $3,340 $3,342 Teachers' retirement contributions $1,138 $1,129 $1,152 s O u R C e : O f f i C e O f P O l i C y & M a n a g e M e n T

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