Finance Committee Considers Small Business Tax Relief, Tax Hikes
With bill deadlines fast approaching, the General Assembly’s Finance, Revenue, and Bonding Committee voted to draft or reserve for public hearing a number of proposals supported by the state’s business community.
The many items the committee voted to draft included An Act Concerning Research And Development Tax Credits and An Act Extending the Business Operating Loss Carry-Over Period.
Both of these items were part of CBIA’s 2022 policy agenda and among the legislative requests made to committee leadership.
While discussing potential legislation with CBIA members this past summer and fall, many Connecticut small businesses spoke about the potential benefits of using the same tax credit program as large businesses to defray research and development costs.
Tax Credit Programs
Current law prohibits pass-through entities from using any tax credits—addressing this has been the focus of legislation the past few sessions related to the manufacturing apprenticeship tax credit.
Allowing pass-through access to tax credit programs promotes job and economic growth levels the playing field for small businesses.
In fact, it could result in significant new investment in the state as one tax expert recently called Connecticut’s R&D tax credit program the best in the U.S.
The committee also reserved HB 5010, a one-line concept bill for public hearing aimed at restoring the pass-through entity tax credit to its original 93% level, a move that would save small businesses $53 million annually.
NOL Carry Forwards
Addressing the state’s net operating loss carry forwards also helps emerging businesses in the state.
NOL carry forwards allow businesses suffering a loss in a certain year to deduct those losses on future tax returns.
This is particularly useful for start-ups and businesses with long product development cycles.
Of the states with a corporate tax, Connecticut’s NOL carry forward policy is among the least competitive in the nation.
Most states allow businesses to offset losses by up to 80% of tax liability up to 20 years.
Connecticut allows annual offsets of just 50%, with Pennsylvania’s 40% the only other state offering that is less competitive.
While draft language of the bill has not been released, CBIA suggested the best course of action given the state’s fiscal condition is extending carry forwards beyond 20 years rather than changing the percentage offset.
Proposed Tax Hikes
It should be noted, however, all was not completely rosy for businesses, as the committee wilalso cnsider a bill implementing a capital gains surcharge.
Such a tax hike will impact many Connecticut job creators, as would a Senate Democrat proposal creating a statewide property tax on homes with an assessed value greater than $1.2 million.
The latter measure was among a number of bills looking to alter the state’s property tax or provide property tax relief.
Connecticut employers, particularly small businesses, continue to face a multitude of pandemic-related challenges.
Most saw operating costs increase due to supply chain issues and inflation, and an astounding 80% continue to face workforce issues.
Our state’s unemployment rate remains higher than the national average, and employers face looming tax increases in the coming months related to federal unemployment loans.
On the bright side, smart, bipartisan fiscal policies put in place in 2017 and the influx of federal relief funds reduced some of the state’s fiscal challenges.
This created a unique, once in a generation opportunity for pro-business legislators on the Finance Committee to support tax relief measures that will cut the cost of living and the cost of doing business, make Connecticut more competitive, and boost our economy in ways that benefit everyone.
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