The Finance Committee today approved a tax package to support the $42 billion General Fund budget passed yesterday, making liberal use of an anticipated windfall from the federal government, and providing some tax breaks for the poor and middle class with new taxes on the wealthy and a new levy on digital media ads. The Democrat-controlled revenue package also endorsed a new highway use tax on large, commercial trucks and new state and municipal sales taxes on recreational marijuana. Following are some of the highlights of the Finance Committee tax package, which will serve as the basis of budget negotiations going forward:
- Makes permanent the 10% corporation business tax surcharge, which under current law expires after the 2020 income year. ($130 million total increase) ·
- Increases, from 50.01% to 70%, the amount by which a company may reduce its corporation business tax liability using R&D credits. ($53 million total decrease) ·
- Increases the aggregate cap on Invest CT tax credits by $200 million, from $350 million to $550 million. ·
- Allows film and digital media production tax credits to be claimed against the sales and use tax (1) if there is common ownership of at least 50% between the transferor and transferee and (2) at 92% of face value. ($2.4 million total increase) ·
- Imposes a 2% surcharge on net gain from the sale or exchange of capital assets (i.e., capital gains) for taxpayers with incomes above specified thresholds; applies to taxpayers with Connecticut taxable income over (1) $500,000 for single filers and married individuals filing separately, (2) $800,000 for heads of households, and (3) $1,000,000 for married joint filers and surviving spouses. ($262 million increase for FY23) · Beginning January 1, 2023, imposes a highway use tax (HUT) on carriers operating certain motor vehicles (generally, vehicles with trailers and a gross weight over 26,000 pounds) on roads in Connecticut. The tax is imposed as a per-mile rate that ranges from $0.025 to $0.175, depending on gross weight, and tax revenue is deposited into the STF. ($45 million increase for FY23) ·
- Terminates the 6% ambulatory surgical centers (ASC) gross receipts tax and instead subjects ASC services to 6.35% sales tax, subject to certain exclusions; authorizes a refundable state tax credit against the sales and use tax for ASCs; From July 1, 2020, to July 1, 2021, allows ASCs to deduct certain COVID-19 expenses from their gross receipts for purposes of the ASC gross receipts tax. ·
- Allows certain businesses (e.g., hotels, restaurants, and bars) to keep 13.6% of the 7.35% sales tax they collect on sales of meals and beverages for FY 22.
- Eliminates the admissions tax as of July 1, 2021, limiting the tax to dues only.
- Exempts breastfeeding supplies from sales and use tax. ·
- Increases the state earned income tax credit (EITC) from 23% to 40% of the federal credit and requires it to be funded through the Connecticut Equitable Investment Fund. ·
- Establishes a child tax credit against the personal income tax for resident taxpayers with qualifying incomes. ·
- Extends the existing pension and annuity income tax exemption to include income from individual retirement accounts. ·
- Generally requires state agencies accepting credit, debit, or charge card payments to (1) charge payors a service fee for doing so and (2) disclose the fee to payors before imposing it, in accordance with any disclosure requirements set by the card issuer or processor. ·
- Extends the limited eligibility for the property tax credit against the personal income tax to the 2021 and 2022 tax years. ·
- Requires the comptroller to transfer, from the General Fund to the Tourism Fund, $9.8 million for FY 21 and $3.1 million for FY 22. ·
- Deems that $1 is appropriated in FYs 22 and 23 to pay off the General Fund’s unassigned negative balances (i.e., Generally Accepted Accounting Principles (GAAP) deficits). ·
- Transfers FY 21 General Fund surplus to FYs 22 and 23 ($117.5 million in each FY). ·
- Requires the comptroller to transfer, from the BRF to the General Fund, (1) $890 million to be used as FY 22 revenue and (2) $995 million to be used as FY 23 revenue; he must reduce these transfers by the amount of any federal aid the state receives that is used to reduce state budgetary requirements for the fiscal year ·
- Requires the DRS commissioner to establish a tax amnesty program for individuals, businesses, or other taxpayers that owe Connecticut state taxes (other than motor carrier road taxes) to DRS; eligible taxpayers may receive a 75% reduction in the interest that would otherwise be due. ·
- Imposes a new tax on the gross revenue companies derive from digital advertising services in the state; tax rate is graduated and ranges from 2.5% for companies with global annual gross revenues of $100 million to $1 billion to 10% for companies with annual gross revenues greater than $15 billion. ($312 million total increase) ·
- Establishes a voluntary wage compensation tax program under which eligible employees and vendors may elect to have their employers pay a 5% tax on their wages or compensation; electing employees and vendors are allowed a refundable credit against their personal income tax equal to 95% of the taxes paid by the employer; also allows electing employees to deduct, for personal income tax purposes, the amount of contributions they made during the tax year to a Roth IRA. ·
- Imposes a new consumption tax on state residents with federal adjusted gross incomes (AGI) of at least $500,000; the tax rate ranges from 0.7% for taxpayers with federal AGIs between $500,000 and $2 million to 1.5% for taxpayers with federal AGIs of $13 million or more. ($1 billion increase total)
- Requires the Connecticut Lottery Corporation (CLC) to establish a program to sell lottery tickets for lottery draw games through its website, an online service, or mobile application (i.e., online lottery). ·
- Establishes a new fund, the Connecticut Equitable Investment Fund, to receive, invest, and distribute specified revenue and private investments and creates a nine-member council to manage and oversee the fund for specified purposes; directs to the fund revenue from (1) the wage compensation, consumption, and digital advertising taxes established under the bill; (2) any private investments made by state residents to be invested in venture capital firms in the state; and (3) any taxes collected and retained by the state on or after July 1, 2021, on recreational cannabis and cannabis products and online wagering. ·
- Expands the existing estate tax reduction for decedents that made qualifying investments; allows the deduction for investments made in the Connecticut Equitable Fund and eliminates the $30 million cap on the total amount of reductions allowed under this program.
