The Finance Committee is holding a public hearing on Monday, March 28, on a number of proposals including yet another measure that would send a message that Connecticut is “closed for business.” HB 6628 imposes mandatory unitary combined reporting of corporate taxes.

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

Mandatory unitary reporting directly targets the very businesses Connecticut is counting on to grow jobs--companies with multiple locations, such as manufacturing, R&D, and headquarters companies that employ tens of thousands of our residents. Hitting our economic-base industries with this tax reporting system will do nothing to help them create and keep good jobs here.</p>

What’s more, mandatory unitary combined reporting will create confusion for companies trying to administer it. Each state that has adopted the system interprets the law differently, which has led to confusion and caused lengthy and costly litigation to straighten things out.

Adoption of mandatory unitary combined reporting in Connecticut will require more company personnel to prepare returns and more state personnel to interpret and audit them. At a recent meeting with legislators, an accountant explained that because unitary returns are so complex and time-consuming, professionals generally charges four to five times more to prepare a unitary rerun than the return currently required in Connecticut.

CT's changes

Understanding that combined reporting would not be the panacea that some consider it, Connecticut rejected the reporting system nearly a decade ago. Instead, lawmakers adopted add-back provisions to address perceived abuses and generate additional revenues. 

It was obvious then that making those changes would achieve results similar to what the advocates of unitary hoped to achieve--but at far less of an administrative burden on taxpayers and the Department of Revenue Services. What Connecticut did also produced far more certainty and predictability than could ever be achieved with a mandatory unitary system. And those factors are key to renewed business investment and effective state revenue planning in Connecticut.  

The National Conference of State Legislatures (NCSL) is now encouraging other states to look at what Connecticut has already done. In its report Combined Reporting with the Corporate Income Tax (Nov. 2010), the NCSL says, “The tax planning opportunities that remain with combined reporting, together with the difficulty of determining the unitary group, may make combined reporting a less effective means of generating revenue than the adoption of an addback statute.”

Connecticut has been there, done that. It’s time to move forward and work together to create a climate that encourages private sector investment, which will increase  opportunities for the people of Connecticut. CBIA urges the Finance Committee to reject HB 6628 as another bill that Connecticut cannot afford.

Positive change

One of the best ways to improve our economy is to promote fair tax policy. CBIA supports SB 1213, also part of the Finance Committee’s hearingthat clarifies that the standard of proof in tax cases where there is no allegation of fraud is a “preponderance of the evidence.”

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 clear and convincing evidence standard usually only applies in cases involving civil fraud or other serious instances in which a very high degree of certainty is required. 

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