Tax Proposals in Senate Will Chill Economy

Just when we need to do everything we can to promote economic growth and jobs, some legislators continue to head off in the wrong direction and look for ways to make our tax climate, which is already not very good, even worse.
Two proposals now in the state Senate would do nothing to help our economy grow but would actually eliminate some important taxpayer privacy protections and create more confusion and complexity.
Unitary confusion
SB-485 will discard the current corporate income tax structure and replace it with a “mandatory unitary combined reporting” system—a bad idea for many reasons.
Mandatory unitary combined reporting will hurt the very businesses we need for job growth in Connecticut. That’s because it directly impacts companies that have multiple locations in the U.S.—which just happens to be our economic-base industries, such as manufacturing, R&D, and headquarters companies that employ tens of thousands of our residents.
Some say that mandatory unitary combined reporting will be easy for the companies to administer, but that’s not true. Companies can’t simply take their California tax return, cross out California, and write in Connecticut. Each state that has adopted the system is interpreting the law differently, which has only led to confusion and caused lengthy and costly litigation to straighten things out.
Furthermore, the 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. With this confusion, states that have adopted combined reporting have found that the system is not is not a cure-all—they’ve had to keep making adjustments to their tax policy.
States with the system also have found that its impact on state revenues has been volatile—and often disappointing. New York, for example, lost $680 million in tax revenue the year after combined reporting started; Vermont lost $2.7 million.
Political tax commission
HB-5534 should chill taxpayers of all kinds in Connecticut because it creates a 17-member, politically appointed “Revenue Accountability Commission” with the authority to access and review confidential tax returns.
Of small comfort to residents and businesses, members of this group will be from “a wide variety of backgrounds”—but not necessarily in taxes or the economy. Representing certain businesses, nonprofits, and organized labor, each will bring their own agendas on taxation into the commission where they will be able to “Gather all state and local revenue data and analyze and evaluate [it] …”
CBIA supports periodically reviewing our revenue system, but believes a serious review of state taxes should be done by people who have expertise in taxes, a keen knowledge of how Connecticut’s economy works, and who won’t arrive with a particular agenda.
Getting input from all segments of our economy will be important in any review, but the commission itself should be impartial. CBIA has recommended substitute language that calls for review and analysis of all certain revenues.
The review and analysis would be done by the Department of Economic and Community Development and include: (1) the creation of a competitive matrix comparing Connecticut’s financial assistance and tax credit programs to those of all other states, and (2) an assessment of the impact of Connecticut’s financial assistance and tax credit programs on Connecticut’s residents and prominent industries.
We also have called for the impact assessment to include input from an advisory commission (something New York state has done) made up of Connecticut’s industry sectors. The substitute language also requires that the review and analysis of tax credits be based upon the following considerations:

1. The increased relative competitiveness of Connecticut compared to other states
2. The relative job retention, job growth, and overall resident employability in Connecticut
3. The overall impact of capital investment in Connecticut
4. The overall multiplier effect in Connecticut

Unfortunately, the commission called for in HB-5534 does not address any of these key economic issues and could likely veer off course. For example, Connecticut businesses could find that the commission could include members who are competitors and others with conflicting business interests.
We are supposed to be helping save and create jobs this year. Neither mandatory unitary combined reporting nor a significantly flawed tax commission, such as the one contained in HB-5534, will help us achieve those goals.
For more information, contact CBIA’s Bonnie Stewart at 860.244.1925 or bonnie.stewart@cbia.com