Tax proposals could help (or hurt) state’s businesses, economy

(March 14, 2008) State tax policy has an impact on the decisions employers make every day about creating more jobs or whether to invest more in expanding their business. And with Connecticut facing an economic downturn, adopting tax policies that will encourage businesses to create jobs and expand here makes good sense.

Some proposals in the legislature this year could do just that — and in the process lift Connecticut from its current business tax climate ranking of 38th in the U.S.

Help business growth
Connecticut simply needs to become a more attractive place for business investment. That’s why CBIA testified this week in favor of several Finance Committee proposals that could improve Connecticut’s position in the tax climate rankings.

The committee approved SB-592, which would stimulate the kind of growth the state is looking for by creating a tax credit for “angel investors.” Angel investors provide seed capital to startup companies, providing a much-needed boost in the riskier, early stage of a business’s development cycle. Unlike partners, angel investors are rarely involved in management, but usually add value to new companies through their contacts and expertise.

SB-656 eliminates the $250 business entity tax currently levied on limited liability companies, limited liability partnerships, limited partnerships and S- corporations. These Connecticut businesses already pay tax on their income through the state’s personal income tax, so the entity tax is a “second” tax that only weakens the state’s economy.

Wrong direction
On the other hand, a committee proposal would start Connecticut down the road to new and less favorable tax policy.

The committee approved SB-658, which calls for a study of changing a unitary reporting system for corporations. Unitary reporting discourages investment, has an uncertain impact on state revenues and employers’ taxes, and is complicated and costly to administer for both taxpayers and the state.

What’s more, merged into SB-658 was HB-5884, requiring the state to look at shifting to a gross receipts tax system. But this is widely acknowledged to violate principles of transparency, fairness, economic neutrality and competitiveness.

Instead of looking at these systems, Connecticut could be better served by a study closely examining how state tax policy affects economic development.

Help for municipalities
With property tax increases averaging nearly 7% a year for the last 10 years, something needs to be done to help cities and towns. Almost every other state has, or is considering, some kind of a cap on property taxes or municipal spending. HB-5028 addresses both the spending and the revenue issues facing many municipalities in Connecticut, and does so in a more flexible way than has been previously proposed.

For more information about these proposals, contact CBIA’s Bonnie Stewart at 960-244-1925 or bonnie.stewart@cbia.com.