Connecticut’s Business and Tax Environment – Challenges and Opportunities

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Year in and year out, we hear very similar reasons as to why Connecticut is considered a traditionally attractive place to live—excellent schools and communities, an educated workforce and an overall quality of life that is competitive with anywhere in the entire nation.

These are the very real and very measurable characteristics which make Connecticut one of the more livable states with each passing year, a state where people want to reside, lay down roots, raise a family and establish a career.

Complementing these high quality of life issues are some impressive numbers in terms of business growth, reported late last year in the annual 2016 BlumShapiro/CBIA Survey of Connecticut Businesses. Business profitability in Connecticut is at a 10-year high, three times as many companies are expanding as opposed to contracting, more than half of the companies surveyed introduced a new product or service in the past year, and 87% of the companies say they are either growing or holding steady.

This is all good news and shows genuine promise for Connecticut in terms of being a competitive and attractive state for businesses to locate and be retained. As always, the good news is matched with some challenges presented by the state’s tax and business climate. These challenges need to be addressed—and by all indications now are being addressed by government and business leaders—if Connecticut is going to continue to truly thrive.

Connecticut Business Tax

A report issued in early March by the Connecticut Department of Labor showed that Connecticut began 2017 with some positive news in terms of job growth, with 5,700 new jobs created in January. This is a change for the better compared with all of 2016, where according to that same report, growth for 2016 was essentially flat.

The reason for this challenge may lie in the details of the state’s tax code.  According to the Tax Foundation, Connecticut has the 2nd highest state and local tax burden in the nation at a combined 12.6%—only New York ranks higher at 12.7%. The Tax Foundation also found this year that Connecticut has one of the 10 worst business tax climates in the country, and while that is hardly unique to the Northeast—Rhode Island, Vermont, New York and New Jersey all rank towards the bottom with us—it could take its toll on the state in terms of overall competitiveness.

But much like in the business world in general, challenges can lead to opportunities. All of these numbers present a chance for Connecticut’s government leaders to engage in more serious discussions with business leaders on how to become more competitive and sustainable for businesses. There are numerous reports that these discussions have already begun to happen, which is indeed good news. But the key is to accept these business and tax numbers as a realistic snapshot and begin to make adjustments. Connecticut has responded and adapted to challenging times before, and there is no reason the state can’t do it again.

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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