Connecticut Tax Panel Issues Final Report

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The Connecticut Tax Panel (Tax Panel) recently issued its final report of state and local tax recommendations. The Tax Panel was established pursuant to 2014 legislation to evaluate and make recommendations to modernize state and local tax policy, structure and administration. With the help of an outside consultant, it was composed of 15 members with varying expertise in state and local tax matters. The Tax Panel’s recommendations resulted from numerous meetings held throughout 2015 as well as hearing testimony and presentations from interested parties.

Tax Panel’s Recommendations

The Tax Panel provided recommendations in the following tax areas: personal income taxation; general business taxation; sales and use taxation; estate and gift taxation and property taxation.

Personal Income Taxation: The Tax Panel recommends that Connecticut should retain federal adjusted gross income as the starting point for calculating the personal income tax, thus continuing to not allow federal itemized deductions. In addition, other than federally excluded income, the Tax Panel recommends that all retirement income including military and teacher retirement income should be taxed similar to the state’s treatment of social security income. The Tax Panel also recommends continuing to not provide a favorable capital gains tax rate.

General Business Taxation: The Tax Panel recommends a “study” to replace the current corporate income tax with a broad-based/low tax rate general business tax that would be imposed uniformly on all businesses regardless of legal type; for example, the Tax Panel recommends that the state consider a gross receipts tax to be imposed on all businesses. With respect to the current corporation business tax the Tax Panel recommends the following changes:

  • eliminate the capital base tax;
  • phase out certain tax credits (and carryforwards) in conjunction with an evaluation of existing credits and the issuance of any new credits;
  • maintain unitary combined reporting;
  • adopt sales apportionment factor market sourcing (for services); and
  • reinstate the full use of net operating losses.

Missing are any recommendations with respect to the taxation of pass-through entities such as partnerships, limited liability companies, and S corporations and their owners, such as aligning apportionment methodologies with regular corporations or allowing passthrough entities the ability to earn tax credits that their owners could utilize. Also, no recommendation was made to eliminate the $250 business enterprise tax.

Sales and Use Taxation: In order to generate revenue for the state, the Tax Panel makes a number of recommendations including aggressively asserting that remote retailers have nexus within the state and are thus obligated to collect use tax on sales to Connecticut residents; subjecting all sales of goods and services to sales and use taxes (with limited exemptions allowed); eliminating sales tax holidays (e.g. with respect to clothing sales); and taxing digitized goods at the full sales tax rate (rather than at a reduced rate). The Tax Panel believes that by broadening the taxable base, pressure would be exerted to reduce the current sales and use tax rate from 6.35% to a lower broad-based tax rate. In addition, to reduce property tax burdens, the Tax Panel has recommended a local sales tax rate of 1% be implemented on a state-wide basis with revenue deposited into a Municipal Revenue Sharing Account that would be distributed to municipalities in a manner that is fiscally equalizing.

Estate and Gift Taxation: The Tax Panel recommends that the state repeal the gift tax; retain the current state tax exemption level of $2 million and not raise it to the federal exemption level; provide “portability” of the Connecticut exemption between spouses as permitted for federal estate tax purposes; and review Connecticut’s QTIP election. In addition, the Tax Panel recommends that the current formula to determine the probate fee for a decedent’s estate be revised to reflect a reasonable fee for estate settlement.

Property Taxation: The following are some of the numerous recommendations that address local property tax imposition:

  • eliminate the 70% fractional assessment and define assessed value as 100% of the market value;
  • eliminate the 5-year reassessment cycle and institute an annual reassessment with a 10-year physical inspection requirement;
  • provide a de miminis business personal property exemption of $10,000;
  • examine the personal property depreciation schedules utilized by municipalities;
  • re-examine the state’s grant policies to local governments to relieve pressure on the property tax and to equalize fiscal disparities;
  • eliminate the more than 100 state and local option partial property tax exemptions and replace them with a single unified state circuit breaker mechanism; and
  • improve property tax audit procedures and practices.

The final report has been submitted to Governor Dannel P. Malloy and to the leaders of the House and Senate for their consideration during this and future legislative sessions. Considering the significant and controversial tax changes that were enacted during the 2015 regular and special sessions, there is speculation as to whether the General Assembly and the Governor will have the appetite to digest and implement any of these recommendations during this legislative session. Time will tell whether any of these changes will gain traction or will be shelved and forgotten.

We will continue to keep you updated on any changes that occur and how they may affect your business or individual tax situation.

If you would like to discuss or have any questions about any of these recommendations, please contact Tony Switajewski at (860) 561-6810 or

The Tax Panel’s condensed report may be accessed here >>

Disclaimer: Any written tax content, comments, or advice contained in this article is limited to the matters specifically set forth herein. Such content, comments, or advice may be based on tax statutes, regulations, and administrative and judicial interpretations thereof and we have no obligation to update any content, comments or advice for retroactive or prospective changes to such authorities. This communication is not intended to address the potential application of penalties and interest, for which the taxpayer is responsible, that may be imposed for non-compliance with tax law.

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