Governor Proposes Pass-Through Entity Tax Credit Restoration
Gov. Ned Lamont’s first legislative proposal for 2023 puts millions of dollars back in the hands of Connecticut’s small businesses.
The proposal fully restores the pass-through entity tax credit to its original 93.01%, saving 123,000 small businesses an estimated $60 million a year.
“These changes we are proposing will help small businesses in Connecticut save money, which they can use to reinvest back into their establishments to support their continued growth and the development of new jobs,” Lamont said at a Jan. 18 press conference.
“By making this change, we can provide confidence to businesses that they can receive the full benefit of this tax credit.”
The proposal will be included in Lamont’s two-year budget proposal, which will be presented to the General Assembly Feb. 8.
Lamont’s budget proposal will also let small businesses elect whether to pay the pass-through entity tax at the business or personal level.
CBIA president and CEO Chris DiPentima applauded the proposal, which is a key component of the organization’s 2023 Transform Connecticut policy solutions.
“Restoring the pass-through entity tax credit will have an immediate and positive impact, allowing small businesses to invest tens of millions of dollars in jobs,” he said.
“It’s one of the critical steps needed to help Connecticut’s smaller employers compete and grow their workforce.”
Speaking at the press conference, DiPentima noted that 93% of CBIA’s members have 100 employees or less, with most organized as pass-through entities.
“This is really important not only for our membership, but really for the business community and the economy in Connecticut,” he said.
CBIA’s policy solutions include expanding the R&D tax credit to small business, repealing the sales tax on workforce programs, making healthcare plans more affordable and accessible, and reforming occupational licensing regulations.
“Every little small business in this state that uses an LLC will be thrilled,” said Department of Revenue Services commissioner Mark Boughton.
Department of Economic and Community Development commissioner-designate Alexandra Daum said the proposal was “another example of how the administration and DECD is really prioritizing making it easier to do business in the state.”
The federal Tax Cuts and Jobs Act of 2017 imposed a $10,000 cap on deductions for state and local taxes, a major hit for small businesses organized as partnerships, S corporations, and LLCs.
The following year, Connecticut was the first state in the country to implement a pass-through entity tax and corresponding tax credit to offset the impact of those federal changes.
However, state lawmakers reduced the credit from 93.01% to 87.5% in the 2019 state budget.
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