In his keynote address at CBIA’s annual Connecticut Tax Conference, Department of Revenue Services Commissioner Kevin Sullivan addressed recent legislative developments and their impact on business taxation and the state’s economy.

“We had quite thoughtfully predicted we would collect $35 million in state tax amnesty money and—surprise—in October we had reached $193 million,” Sullivan [pictured above] said.

That surplus, however, was tempered by another surprise, in April—overoptimistic estimates of Connecticut’s gift and estate tax revenue which, in fact, saw a shortfall of $262 million from 2013.

Other sources of volatility, said Sullivan, included lower-than-expected income tax revenues; a federal fiscal cliff “echo”—much longer than economists had predicted; and a trend toward stock market “banking,” whereby wary traders simply park their money.

“But there are signs of life,” he said—a rise in base tax collections that point to a rebounding “Main Street economy.” These signs, he said, include increases over 2013 in:

  • Withholding taxes
  • Sales and use taxes
  • Real estate conveyance taxes
  • Petroleum gross receipts tax
  • Admissions and dues taxes

Hot Topics

A number of positive developments for businesses, said Sullivan, include:

  • Aerospace R&D credit reinvestment—“This has a huge multiplier effect because of the long supply chain in aerospace manufacturing.”
  • Uniform apportionment of business income—Alan Lieberman, partner at Shipman and Goodwin, called this “one of the most important and positive developments from this legislative session,” noting that pass-through entities were often seeing double taxation on their income.
  • Manufacturing apprenticeship tax credit for pass-through entities
  • Gift tax credit on estate taxes
  • Elimination of a “going out of business” fee—Sullivan said many defunct businesses were still on the state’s business registry because their owners, understandably, did not want to pay a dissolution fee, which he called “salt in the wound.”

Another hot topic, he said, is the proposed Tax Review Commission that will be appointed in August with the task of “unpacking the legacy tax structure in Connecticut.”

While the goal is laudable, he said, the timeline is “unrealistic.”

The problem, he says, is that the newly formed commission will have “only five months to take a long, deep dive into all the taxes and do a comprehensive review of the current tax structure.”

Sullivan recommends that the 15-person commission be allowed to “focus on what is doable, what is achievable—a short list that includes business-to-business service taxes, nuisance items, and an examination of how the estate tax is a disincentive for high-end taxpayer retention.

“We have to ask ourselves," he said. "‘Are we driving folks away?’”

Note: Not all appointments have been made to the tax study panel yet, but that process is expected to be completed by Aug. 1. CBIA will provide periodic updates on the panel and its work as developments occur.