Business tax help pledged — and delivered

(May 16, 2006) Business tax reform was high on lawmakers’ priority lists from the beginning of the 2006 session as both sides of the political aisle pledged to reduce barriers to job growth in Connecticut.

Specifically targeted was the elimination of the property tax on manufacturing machinery and equipment — one of the biggest competitive disadvantages for Connecticut manufacturers.

Lawmakers hit the target, as Public Act 06-83 (SB-702) will phase out the tax over a five-year period and reimburse municipalities for lost revenue.

Also high on the list of priorities was the elimination of the 15% corporate tax surcharge for 2007. The governor included this measure in her tax package and the legislature agreed. As provided for in HB-5845, the action is expected to save Connecticut businesses $53.4 million. Left in place, however, was the 20% surcharge in 2006.

Other positive tax developments included:
• Tax credits for companies that create at least 50 jobs or that hire laid-off workers.
• Tax credits designed to encourage the growth of the film and television industry in the state.
• Exemption of sales and equipment used in aviation from the sales and use tax. (SB-520)

Lawmakers also approved bill allowing the city of Hartford to phase in the revaluation of residential property by capping the average annual tax increase linked to the revaluation to 3.5% percent over the next five years. In addition, the law phases out half of the 15% commercial surtax over the same period.

Another revaluation bill will reduce the cost-shifting that occurs when a town decides to phase in the revaluation results. This measure permits towns to conduct a limited phase-in of property revaluation.

This is accomplished by limiting phase-in to only those properties that increase in value by a specified percent as determined by the town. By statute the increase must be at least 25%. If a parcel’s value meets the threshold set by the town, then that parcel’s new valuation would be phased in regardless of the property type (residential, commercial or industrial).

Also significant this year was the defeat of a bill (SB-669) that would have weakened the desirability of conducting research and development in the state. Recognizing the danger to the state’s burgeoning R&D industry, the Finance Committee asked that the bill be recommitted to the committee at the end of the session, effectively stopping the proposal

Under SB-702, newly acquired machinery and equipment (MME) will continue to be tax-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.

Other tax bills approved included one that permits the Department of Revenue Services to disclose certain tax return information to the Office of Fiscal Analysis for purposes of promulgating a tax incidence report. The other attempts to streamline and simplify the tax process for pass-through entities. For example, estimated tax payments have been eliminated, yet further adminstratiive action by the DRS is required to understand the full impact of the measure.

For more detailed information and a CBIA review of tax legislation,, please contact CBIA’s Bonnie Stewart at 860-244-1900 or stewartb@cbia.,com

CBIA applauds legislative leaders and the administration for making tax policy a major priority for the 2006 General Assembly. n