Tax relief was the focus of the final week of the Finance, Revenue, and Bonding Committee’s work before its reporting deadline.
While lawmakers discussed early in the session using the state’s short-term surpluses to provide comprehensive tax relief for both residents and businesses, support for businesses largely fell by the wayside.
The committee retained the majority of Gov. Ned Lamont’s tax relief proposals, which included increasing the property tax credit from $200 to $300, expanding eligibility, and accelerating the phase-in of the pension and annuity income tax exemption.
The governor’s proposal allowing small businesses to deduct a portion of contributions to employee Connecticut Higher Education Supplemental Loan Authority student loan debt was expanded to any loan issued by the authority.
The committee also modified Lamont’s call to cap mill rates related to commercial and non-commercial vehicles to 29 mills statewide, while providing funds to reimburse municipalities for the lost revenue.
Instead, the committee’s proposal requires municipalities with a mill rate above 29 to reduce the assessed value on non-commercial vehicles by $5,000—and then be reimbursed by the state for the difference. Commercial vehicles would not receive this favorable tax treatment.
Circumvents Fiscal Caps
The proposal passed on a narrow 28-23 vote, with Democratic representatives Jill Barry (D-Glastonbury), John Hampton (D-Simsbury), Stephen Meskers (D-Greenwich), Kerry Wood (D-Rocky Hill), and Chris Ziogas (D-Bristol) joining all committee Republicans in opposition.
The tax package was sharply criticized by Republican members, not for the relief it sought to provide, but for circumventing both the statutory spending and revenue caps.
For example, the committee sought to use some federal ARPA dollars to fund a new child tax credit. However, in order to avoid fiscal caps, this money must be deposited in an off-budget account.
In essence, the committee wants to use a one-time revenue source to fund a permanent tax credit—a move that contributed to Republicans and some moderate Democrats opposing the bill.
Beyond the revenue package, the committee also approved the following legislation:
- SB 385: Increases the amount of the digital media tax credit to be claimed against the sales tax under certain circumstances.
- SB 443: Requires additional data in the tax incidence analysis, but also attempted to set dangerous policy precedent by allowing certain lawmakers to request individual tax returns. Language allowing legislators to access individual tax returns was removed after CBIA raised concerns.
- HB 5503: Allows business operating losses incurred in income years commencing on or after Jan. 1, 2023, to be deductible over forty income years.
- SB 379: Implements the State Treasurer's recommendations concerning the unclaimed property program.
- HB 5401: Exempts COVID-19 at-home test kits from the sales and use taxes.
- HB 5404: Exempts certain personal property and services sold to or used by a water company from the sales and use taxes.
- HB 5487: Increases the amount of the property tax credit and eliminates eligibility restrictions, increases the phase-out threshold for married individuals filing jointly, indexes certain amounts and income thresholds, and allows such credit to be refundable.
- SB 98: Allows pass-through entities to claim the manufacturing apprenticeship tax credit against the personal income tax or the affected business entity tax.
Unfortunately, a few key CBIA policy priorities items did not make it out of the committee as a result of the cost and heavy competition for dollars. These include:
- HB 5488: Establishes a tax credit for research and development expenses of pass-through entities.
- HB 5010: Restores the rate of the credit against the affected business entity tax to 93.1%.
In the end, the committee worked hard to provide individual tax relief, but failed to provide the broad support that employers, particularly small businesses, need to address a series of post-pandemic challenges.
CBIA president and CEO Chris DiPentima welcomed the committee's unanimous support for expanding the manufacturing apprenticeship tax credit to small businesses, while calling for additional relief.
"The lack of legislation to encourage business investments and address the challenges facing small businesses—the backbone of our economy—ignores Connecticut’s once-in-a-generation opportunity to rebuild our state stronger and better than before the pandemic,” he said.
“Not advancing solutions to nurture small businesses, such as expanding the R&D tax credit to pass-through entities, restoring the pass-through entity tax credit, and others outlined in CBIA’s priorities, is a return to practices of ignoring investments that resulted in Connecticut being near the bottom of the country in population, GDP, personal income, and job growth for the past decade.
"There is still time and opportunity for state lawmakers to do the right thing and help small businesses navigate an overwhelming number of obstacles, from the labor shortage to supply chain bottlenecks and inflation.”