The 2018 legislative session was an anomaly in terms of state tax and spending policy.
Much of the early session work by the Finance, Revenue, and Bonding Committee focused on the Commission on Fiscal Stability and Economic Growth's recommendations for tax and spending policy changes to promote economic growth in the state.
While the more significant aspects of these proposals did not garner the support needed to become law, the bipartisan revised budget calls for further study of some of the commission's recommendations.
Further adding to the unusual aspect of the session was the unexpected surge in income tax revenues as residents took advantage of expiring federal tax provisions and the stock market correction sparked an increase in capital gains.
While most of this influx of new dollars could not be immediately used by lawmakers, it did allow them to place the financial Band-Aids necessary to close out the current fiscal year deficit and return to their districts to run for reelection.
The state's long term budget deficits—projected at $2.2 billion in 2020 and $2.9 billion in 2021—await those lawmakers who return for the 2019 and 2020 legislative sessions.
The Finance Committee did, however, work to help address the current year deficits and responded to changes in federal tax policy.
Tax Policy Legislation
Here are the tax-related bills that passed during this legislative session:
SB 543: While the FY2018-FY2019 state budget revisions do increase spending by about 2.1%, they do not contain any tax hikes and allowed for the deposit of approximately $1.1 billion into the rainy day fund.
SB 11: To minimize the impact of federal tax reform, this measure imposes a new income tax on most pass-through businesses, levied at the top 6.99% personal income tax rate and offset by a credit at the personal or corporate income tax level.
It also allows municipalities to provide a property tax credit to eligible taxpayers who make voluntary payments to municipally-approved "community supporting organizations."
It also requires individuals, for personal income tax purposes, to apportion the federal deduction for bonus depreciation over four tax years.
Further, the bill decouples from IRC 163(j) expense limitations and adopts a 5% of deductible dividends safe harbor for the add-back of expenses associated with deductible dividends.
The original bill called for a 10% safe harbor.
HB 5574: Allows certain persons to file for a property tax exemption, notwithstanding certain statutory deadlines.
HB 5590: Delays the inclusion of certain bond covenants for bonds issued during certain time periods and exclude refunding bonds and temporary borrowings from the calculation of the bond issuance cap.
SB 528: Requires the Commissioner of Revenue Services to study state tax policies.
Learn more about these changes and their implications at CBIA's 2018 Connecticut Tax Conference, June 7 in Farmington. State Department of Revenue Services acting commissioner Joe Mooney is the keynote speaker.