Sometimes it’s easy to forget that Connecticut businesses are consumers themselves. The truth is, businesses account for nearly half of all the state’s sales tax receipts. So, an across-the-board sales tax increase would have the same impact on businesses as it would to individuals.
Even more troubling to Connecticut employers and damaging to the state’s economy, however, are proposed structural changes to our tax system that would discourage capital investment, business expansion, and job creation.
For example, one change that’s been proposed (HB-6349) would extend the state sales tax to all professional and business services, including legal, advertising, accounting, and investment advisory services.
Another change would eliminate exemptions to the state’s sales tax (HB-6350), including exemptions for business inputs, which would result in employers being taxed multiple times for single processes. (Business inputs are items that a company purchases for its own use in producing a final product or operating its business. These include manufacturing machinery, equipment, raw materials, tools, and fuel.)
Both of those changes would seriously hinder Connecticut’s ability to compete with other states for business and investment.
Extending the sales tax to all professional and business services
Connecticut already taxes business and professional services more broadly than almost any other state in the country. Expanding this tax (HB-6349) will immediately harm companies here—costing many of them millions of dollars a year—and will instantly make Connecticut an undesirable business location compared with most other states.
Extending the sales tax to professional and business services especially penalizes headquarters companies in Connecticut by taxing services entirely in Connecticut that may benefit multiple locations.
Eliminating sales tax exemptions
Virtually every state that wants to hold on to manufacturing jobs has exempted machinery, equipment, and other business inputs from sales tax. These exemptions are policy-driven tools that are put in place along industry clusters to spur growth in certain industries such as aerospace and biopharmaceuticals.
Eliminating exemptions (HB-6350) will affect not just one or two Connecticut companies but entire industries, causing monumental tax increases, more business shutdowns, and more job losses.
In addition to these proposals, the Finance Committee has formed 12 “working groups." One of these groups is reviewing extending the sales tax on services to increase revenues. Another group is looking at all of the business and agriculture sales tax exemptions to increase revenues in those areas by 20%. Both ideas would do much to drive businesses and the jobs they provide out of the state.