It’s still too early to tell for certain because the proposal’s text hasn’t come out, but a measure in the Finance, Revenue, and Bondng Committee appears to be another attempt to impose mandatory unitary combined reporting in Connecticut.

Mandatory combined reporting would hurt the very businesses the state needs to lead job growth in Connecticut. That’s because it directly impacts companies that have operations in many locations—which just happens to be economic-base industries, such as manufacturing, R&D, and headquarters companies that employ tens of thousands of state residents.

Unitary combined reporting requires companies with multiple business units (for example, branches or subsidiaries) would have to include all income earned in other states in their Connecticut tax calculation. Under a separate reporting system, which Connecticut currently employs, different business units that are part of a larger group file their own state tax returns in the states where they operate.

The combined reporting proposal comes at the same time lawmakers are reviewing another tax proposal affecting in-state manufacturers. Under the throwback rule proposed by the governor in his spending and tax plan, sales by Connecticut manufacturers into states that do not have a corporate income tax would be added back into the company’s Connecticut tax calculations. 

Each measure could hamper Connecticut employers’ ability to create jobs and drive the state’s economic recovery. Both together would be very harmful. CBIA continues to urge lawmakers to avoid any tax increases that would further weaken the state’s economic recovery.

Proprietary information

The Finance Committee also could be reviving an effort to publicly disclose highly sensitive information on Connecticut businesses and their use of tax credits. One concept title says it is “concerning public access to tax incentives received by businesses.”

Generally, it is a good idea to periodically review data and information to see how Connecticut’s tax structure is working and whether or not changes are necessary. But any review must protect the confidentiality of tax and related information—it should not allow competitors, opposing parties in negotiations and advocacy groups with conflicting positions to gain access to it.

Again, lawmakers should be careful not to do anything that would risk jobs in Connecticut—such as public disclosure of confidential tax information.

Standard of proof

It’s important for the state to clarify tax policy and eliminate uncertainty over employers’ rights and obligations. A concept raised in the Finance Committee apparently would correct one situation to help businesses.

Currently, if a business has a good-faith disagreement with the state tax department, it still must prove its case in court by “clear and convincing evidence” — a much higher standard than the “preponderance of the evidence” standard used in most civil cases.

The Finance Committee could correct the situation by clarifying that in tax cases where there is no allegation of fraud, the standard of proof on a taxpayer should be a preponderance of the evidence.

When the clarification is made, it should be adopted with an effective date applicable to all pending tax appeals.

For more information about tax proposals, contact CBIA’s Bonnie Stewart at 860.244.1925 or bonnie.stewart@cbia.com.