Major tax issues
still to be resolved

(April 21, 2006) It’s not hard to imagine what business-tax actions legislators could take this year to improve the state’s economy and provide a major boost to Connecticut’s business climate.

Since the start of the 2006 session, legislative leaders have wanted to eliminate the property tax on manufacturing machinery and equipment (MME). Gov. Rell has advocated repealing the corporate tax surcharge.

And the business community has agreed with both the governor and legislative leaders.

At stake is not only real tax relief for Connecticut companies that are struggling to compete and add jobs — but also a much-needed, positive message that the state wants businesses to grow and create jobs here.

Help for manufacturers
Taking the property tax off manufacturing machinery and equipment will finally eliminate an anticompetitive tax. Connecticut is one of the few industrialized states that has this tax —– in fact, no other Northeastern state taxes production machinery at the local level.

Fortunately, SB-702 contains a provision to eliminate the property tax on manufacturing machinery and equipment that’s similar to the proposal made by the business community. (The provision was contained previously in SB-1.)

Under the measure, newly acquired machinery and equipment will continue to be exempt for the first five years. Machinery and equipment six years old or older will gradually be exempted, beginning with the Oct. 1, 2006, assessment year and ending with the Oct. 1, 2011, assessment year.

The depreciation schedule for valuing MME, now optional, will be mandatory for towns. The state will make payment in lieu of taxes to towns. Once the exemption is fully implemented, the state will freeze payments to towns for the exempt property at the level towns will receive beginning Oct. 1, 2011.

The measure is expected to be approved by the state Senate on Friday, April 21.

Elimination of the surcharge
Another step lawmakers can take to improve Connecticut’s business climate and encourage more job creation is to eliminate both the 20% corporate tax surcharge for 2006 and the 15% surcharge for 2007.

According to the state comptroller’s office, the corporate tax will generate $105 million over budget this fiscal year — representing one of the biggest contributions to Connecticut’s expected $600 million surplus.

It makes little sense to increase corporate taxes by 20% this year given the substantial budget surplus and heightened statewide concern over job growth and economic vitality.

It’s time to finally bring about the kind of business tax reform — such as the property tax exemption for manufacturers and the elimination of the corporate tax surcharge — in order to remove two barriers to job growth.

Proposals to reject
On the other hand, a tax proposal still under legislative consideration could do major harm to the business community.

Many Connecticut companies, including manufacturers and those in the biotechnology and pharmaceutical sectors, would be hurt by SB-669, which weakens the advantage of conducting research and development in the state.

SB-669 narrows the definition of what constitutes research and development. While the bill also increases the amount of the state’s R&D tax credit in an attempt to keep the measure revenue-neutral, the narrowing of the definition is not overcome by the increase in the tax credit.

R&D is the state’s fastest-growing sector, and Connecticut is third in the U.S. in terms of R&D as a percentage of the state’s overall economy. One of Connecticut’s few true competitive advantages, the R&D tax credit should not be tampered with.

For more information about these issues, contact CBIA’s Bonnie Stewart at stewartb@cbia.com or 860-244-1900.