Taxes: Market-Based Sourcing, Abatements, Commercial Property

The Connecticut state legislature debated numerous tax proposals during the 2016 session, significantly narrowing its final fiscal measures.
There was a strong desire by many to modify some laws to make Connecticut’s tax policies more inviting from the private investment front, but the state’s fiscal situation prevented that from happening.
In the end, the measures listed below were passed and state spending was cut in an attempt to reduce deficits for the foreseeable future.

Business Income Taxes

Move to Market-Based Sourcing. Initially contained in SB 448 and SB 502 (Sections 199-201), this proposal creates market-based sourcing rules under corporate and personal income taxes.
It also spreads single-sales factor apportionment to the personal income tax.
This will help make Connecticut more attractive to service companies.

Property Taxes

Abatements. SB 397 permits municipalities to provide tax abatements to encourage development of arts and culture properties.
Failure to File For Manufacturing Machinery and Equipment Property Tax Documents. Two measures intended to assist manufacturers that missed filing deadlines were passed.
The first was HB 5636,which allows certain manufacturers that missed filing deadlines for MME exemptions to file after deadlines have passed.
The second measure is SB 502 (Section 36), allowing taxpayers in Milford to claim this exemption for machinery and equipment on the 2015 grand list if they missed the November 1 mandatory filing deadline.
It waives the deadline if taxpayers file for the exemption by July 31, 2016.
Assessing Commercial Property Based On Net Profits. SB 502 (Section 31) extends a municipal property tax pilot program.
The program would permit certain municipalities to assess property for property taxes purposes not on a property’s fair market value, but on net profits of their business occupants.
This pilot would only apply to properties where the property’s owners and tenants agree.
Additionally, it would be limited to a maximum of five towns, and to no more than three commercial properties within that municipality.
Towns wishing to participate in this program are required to apply to the Office of Policy and Management.
If chosen, the town will have to adopt an ordinance spelling out the conditions and requirements for such assessments .
Local Economic Development Property Tax Incentive on New or Improved Property. SB 502, Section 32, provides municipalities more flexibility to set rules for modifying certain assessments on such new or improved properties by repealing the existing statutory criteria for such matters.
As adopted, the measure permits municipalities to grant this benefit for a maximum of 10 years and no longer requires the municipality to adopt an ordinance to fix such assessments.
Municipal Option Admissions Tax. SB 502, Section 185, permits municipalities to impose a tax on the admissions charge for most event held in their town.

Tax Credits

The Manufacturing Apprenticeship tax credit has been a tool that Connecticut’s small and midsized manufacturers have wanted to take advantage of for years.
HB 5636 modifies the existing credit to make it more workable by permitting pass-through entities to claim the apprenticeship tax credit against the personal income tax.

Tax Permits and Licenses

In an effort to collect delinquent taxes, SB 502, Section 198, prohibits the Department of Revenue Services from giving out certain permits or licenses to any taxpayers with an outstanding unfiled tax return.

For more information, contact CBIA’s Bonnie Stewart (860.944.8788) | @CBIAbonnie