‘Transparency’ Bill Gives Competitors Clear Look at Company Data

03.14.2013
Issues & Policies

Connecticut keeps a close watch over how companies are using state tax credits for research and development, business expansion, and job creation. Now a bill in the Finance Committee will allow businesses’ competitors to keep an eye on it, too.

HB 6566 requires the Department of Revenue Services (DRS) to publish a company-specific, searchable database of businesses accessing state-provided tax deductions, credits or exemptions, along with the actual amount of tax savings and advantages realized by each company.

No Added Value

Proponents of the measure say that the goal is to ensure that economic development dollars are being well spent. Everyone can agree with that goal; the bill in its current form, however, is anti-competitive.

The state currently provides the publication of combined industry data by the Department of Economic and Community Development, and a DRS report on the aggregate data to the Office of Fiscal Analysis (OFA), which also includes the information in its biennial reports to the legislature.

Revealing company-specific tax credit information will add nothing to the state’s analysis of the effectiveness of the credits but will be damaging to Connecticut companies: No other state requires or allows the same disclosure.

Careful Process Urged

State Tax Commissioner Kevin Sullivan urged the committee not to go forward with the legislation at this time because the Governor’s Business Tax Task Force is reviewing what information is needed and how to go about providing it. “Since that work is just beginning but will be done within the year,” said Commissioner Sullivan, “why not see what reporting improvements are made … .”    

And DECD Commissioner Catherine Smith said that the proposal calls for duplicating what the agency includes in its annual report–but then goes too far.

“DECD believes that the requirement to disclose the economic benefits derived from each [economic development] project would create a competitive disadvantage for the state in its negotiations with existing companies within Connecticut and with any new companies that may consider relocating to the state,” she said.

In Competitors’ Hands

HB 6566 will impact Connecticut businesses in major ways. First, publicly disclosing sensitive tax information will put that valuable information where it shouldn’t be–in the hands of companies’ competitors.

“It would be remarkably easy,” said Peter Holland, vice president, State Government Affairs, United Technologies Corp., “to use the disclosed data to learn issues critical to Connecticut employers’ ability to compete in the global marketplace.”

It also will also immediately make Connecticut companies’ operations and decisions open to the eyes and second-guessing of a wide range of interests.   Parties in negotiations might be able to review pertinent tax data from the opposing side. Special interest advocacy groups would be able to use the information for political purposes.

Only If Earned

Lawmakers should remember that companies qualify for tax credits only after making certain investments or taking specific actions that the General Assembly allows and encourages. Often those businesses don’t reap the benefits until years after those investments or hiring actions. 

What’s more, the DRS is fully empowered to audit the credits and does so, to ensure that the state receives the bargained investment required to claim the tax credit.

Willing to Help

The business community is willing to work with policymakers to help identify what information they need to determine the value of the tax credits. CBIA and others are ready to participate in efforts to fulfill what Commissioner Sullivan advised, which is a careful analysis and collaborative effort to develop proposals.

HB 6566 takes away the incentive for taxpayers to conduct some of the most valuable and desired business activities in Connecticut– which is the primary purpose of most state tax credits.

Instead, the bill will probably encourage multistate and multinational companies to consider performing these activities somewhere else.

Connecticut has been working hard to improve its business-friendly reputation. Requiring disclosure of individual tax information will only result in us losing what little ground we’ve made over the past two years.  

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

 

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