Connecticut governor outlines plan to close budget deficit
TAX ALERT |
Connecticut Gov. Malloy recently issued his biennial budget address. In his address, Governor Malloy outlined a plan to close a $2.5 million budget deficit by cutting spending and increasing revenue through tax reform.
The major tax reform aspects of Gov. Malloy’s proposed plan include:
- Permanently extending the state’s 20 percent corporate surcharge. The surcharge was set to expire for taxable periods starting on or after Jan. 1, 2016.
- Limiting utilization of net operating loss carryforwards to 50 percent, effective for periods starting on or after Jan. 1, 2015.
- Reducing the business tax credit ceiling from 70 percent to 35 percent for taxable period 2015, and lifting the cap to 60 percent for taxable periods after 2016. This utilization ceiling impacts many credits, including the research and development credit and the machinery and equipment expenditure credit.
- Eliminating the current biennial business entity tax, a $250 fee levied on certain pass-through entities required to remit the tax.
- Reducing the state sales tax rate from 6.35 percent to 5.95 percent by 2017. The governor has also proposed expanding the state’s already wide base of taxable services but did not enumerate what services would have their characterizations changed from nontaxable to taxable.
Gov. Malloy has characterized his plan as tax relief though, as demonstrated in recent press coverage, some in the business community disagree. The Connecticut State Tax Panel–a group charged with drafting recommendations to address the state’s current tax model, including providing comments on all measures of tax that the state imposes–is also likely to weigh in. The panel has met three times since late September 2014 and recently met with Commissioner Kevin Sullivan. As a result of the panel’s responsibilities and the state’s unique biennial budget cycle, we anticipate discord throughout the budgeting process. The panel is not expected to issue its findings until 2016.
Gov. Malloy’s budget is controversial in many respects, and it remains to be seen as the budget process unfolds whether the core elements of his proposal will make it through the Connecticut General Assembly as currently envisioned. We are monitoring this situation closely and will keep you apprised of any important developments. As of today, Gov. Malloy’s plan is merely a platform to start a discussion around avenues to close the state’s significant budget deficit.