The Capitol Beat: January 26-30, 2015

I shall never use profanity except in discussing taxes. –Mark Twain


As part of an ongoing information-gathering process, the State Tax Panel charged with reviewing Connecticut’s myriad taxes and policies this week received primers on the state’s property tax system as well as its personal income, sales and use, business and various miscellaneous taxes. The Office of Policy and Management presented the property tax overview, while the Department of Revenue Services (DRS) presented a summary of the other tax programs.

DRS Commissioner Kevin Sullivan showed a slide to illustrate how, over the past 10 years, Connecticut’s reliance on the personal income tax has grown from 48-percent of total revenues to 53-percent, while sales and use taxes (the second largest category) have dropped from 30-percent to 25-percent. Meanwhile, corporate tax revenues have remained at 5- percent since 2004.

Commissioner Sullivan discussed the evolution of the economy and the state’s “tax legacy.” He noted that in the “old world” tax policy was based on a production economy, wage earners, geographic boundaries, physical presence, tangible property, cost of performance and C corps. Whereas, in the “new world,” tax policy has had to adapt to a service economy, a mobile and contingent workforce, cyberspace, economic presence, intangible property, combined reporting, market-based sourcing, partnerships, S corps, and LLCs.

In regards to corporate taxes, Commissioner Sullivan briefly discussed the corporate surcharge; the pros and cons and complexities of separate versus combined corporate income tax reporting and apportionment; net operating loss; transfer payments; and offshoring. He noted that 25 states now require some form of combined or unitary taxation.

In recent years, states across the country have debated the merits of separate versus combined reporting for the corporate income tax. Advocates of combined reporting assert that its adoption will close loopholes and prevent other inappropriate tax planning options and significantly increase tax revenues by eliminating or neutralizing the effects of transactions between related parties. Advocates of separate reporting contest these revenue estimates, and also argue that combined reporting unfairly distorts the amount of income or loss earned in a state and could result in taxation of income from affiliates’ activity that is more accurately attributed outside the state.

While any major changes to state taxes administered by DRS are not anticipated until after the Tax Panel completes its report next year, given the state’s structural deficits that is always subject to change. There is a considerable push this session, initiated by some Democrats, to reform the regressive local property tax system, specifically by legislators in cash-strapped municipalities for whom this is a sole revenue stream. Some of the proposals would:

  • Implement a regional property tax system to enable municipalities to share certain revenues.
  • Modify the state’s PILOT program to account for each municipality’s nonprofit properties.
  • Create a statewide mill rate for motor vehicles.
  • Allow municipalities to levy sales/consumption taxes.

The Tax Panel is charged with evaluating the fairness, volatility, competitiveness, affordability and sufficiency of the state’s tax system and policies and making recommendations by January, 2016.

Meanwhile, the Finance Committee has not yet raised any tax bills for a public hearing.


The panel exploring the feasibility of developing a state-run retirement savings plan for private sector workers has issued an RFP from vendors to conduct a market analysis and financial feasibility study of the proposal.

“The goal of this analysis is to explore a public retirement solution for private sector employees and to fully consider the impact of each possible solution on retirement insecurity in Connecticut,” said state Comptroller Kevin Lembo, co-chair of the Connecticut Retirement Security Board.

The Board has said the plan “cannot have a fiscal impact on the state and would not require any businesses to contribute to such a plan,” Businesses remain vigilant.


Just as Connecticut led the way in responding to President Obama’s call to raise the minimum wage to $10.10 per hour last year, it appears support is growing among some Democratic Senators for creation of a paid family and medical leave system for certain employees. There is also some discussion about expanding Connecticut’s paid sick leave policy adopted in 2011 and having it apply it to small employers (those with fewer than 50 employees). It is not clear yet whether these will be one or two separate proposals.

In his State of the Union address, President Obama championed a federal paid sick leave bill that would allow employees to earn up to seven sick days per year and urged states to do the same. Governor Malloy and House Speaker Brendan Sharkey said they are taking a wait-and- see approach to the concept at this juncture.


The Malloy administration Friday named Lisa Grasso Egan, former director of labor relations for the City of New Haven, to succeed Linda Yelmini as undersecretary of labor relations. Yelmini resigned under the direction of Ben Barnes, the governor’s budget secretary.

Egan, currently a labor lawyer with Berchem, Moses & Devlin of Milford, has a history of representing municipalities and government agencies.

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