|
|
|
| |
| |
|
New Tax Changes in Connecticut
Personal Income Tax (Individuals)
The new law increases the marginal personal income tax rate from 5% to 6.5% for:
-- joint filers with taxable incomes over $1 million;
-- heads of households with taxable incomes over $800,000; and
-- single filer and married individuals filing separately with taxable incomes over $500,000.
The legislation also increases the flat income tax rate for trusts and estates from 5.0% to 6.5%.
These changes would apply to taxable years beginning on or after January 1, 2009.
Corporate Business Tax ("C" Corporations)
The legislation imposes a 10% corporate tax surcharge for income years beginning in 2009, 2010, and 2011 for companies that have more than $100 million in annual gross revenues for all of these years.
A company must calculate its 10% surcharge baed on its tax liability excluding any tax credits. This applies to companies that pay the tax on their net income and those that pay on their capital base (but not for the minimum $250 tax).
The law also increases the maximum "preference tax" for groups of companies filing combined corporation business tax returns from $250,000 to $500,000. This preference tax reduces the ability for loss companies to offset income from related companies that file combined tax returns.
Sales Taxes
Starting January 1, 2010, the law may reduce the sales and use tax rates applicable to most taxable items and services from 6% to 5.5%. The reduction does not take effect if, before January 1, 2010, the state comptroller determines that certain projected state revenue targets are not met.
The law does not reduce rates for items and services that are currently taxable at rates other than 6%, such as hotel room rentals (12%), motor vehicle sales to out-of-state residents on full-time active military duty in the state (4.5%), and computer and data processing services (1%).
Also, the law does not make changes to the goods and services that are currently subject to sales tax.
All Business Taxpayers
The law establishes an "economic nexus standard" as the basis for determining whether an out-of-state business would be subject to the corporation business tax, or whether nonresident partners or members of a partnership or S corporation would be subject to the personal income tax on income from their business. The change would be effective for taxable years beginning on or after January 1, 2010.
The old law required a "physical presence" standard in Connecticut for businesses to pay tax here. This new change will subject a business (and/or its owners) to Connecticut taxation if it had a "substantial economic presence" in Connecticut or if it derived income from sources in the state.
A company would now have substantial economic presence in Connecticut if it purposefully directed business towards Connecticut. A company's purpose would be determined by such measures as the frequency, quantity, and systematic nature of its economic contact with the state. This new law may extend Connecticut tax liability to out-of-state financial services companies, credit card companies, mortgage lenders, online finance companies, and many other out-of-state businesses.
Estate / Gift Taxes
Starting with deaths occurring and gifts made on or after January 1, 2010, the law (1) increases, from $2 million to $3.5 million, the threshold for the value of an estate or gift subject to the estate and gift tax; (2) reduces marginal tax rate on estates and gifts by 25%; and (3) eliminates the tax "cliff."
The bill also reduces the time an executor has to file an estate tax return by making the filing deadline six (rather than nine) months after that date of death, starting with deaths on or after July 1, 2009.
Other Tax Items
Connecticut law will now decouple from the federal domestic production activities deduction (IRS Sec. 199) for taxable years beginning on or after January 1, 2009. Previously, businesses and their owners were able to claim this federal tax deduction for Connecticut tax purposes.
The new law also requires the Department of Revenue Services Commissioner to establish a tax settlement initiative program for anyone who owes Connecticut state taxes.
Cigarette Taxes
The law will increase the cigarette tax from $2 to $3 per pack of 20 (from 10 cents to 15 cents per cigarette), starting October 1, 2009.
It also imposes a $1 "floor tax" on each pack of cigarettes that dealers and distributors have in their inventories at the close of business on September 30, 2009.
Donation of Open Space Tax Credit (C Corporations only
This legislation will increase the period for which a company can carry forward unused credits for the donation of open space land from 15 to 25 years on or after January 1, 2009.
Film Tax Credits (C Corporations only)
After January 1, 2010, the legislation would make numerous change to the film production, film production infrastructure, and digital animation production credits. The changes include, among other things:
-- increasing the minimum expenditure for the film and animation production credits from $50,000 to $100,000, production companies incurring production expenses or costs (1) between $100,000 and $500,000 would be eligible for a 10% credit, (2) between $500,000 and $1 million would be eligible for a 15% credit, and (3) over $1 million continue to be eligible for a 30% credit;
-- making the infrastructure credit a flat 20% and increasing the minimum qualifying expenditure from $15,000 to $3 million, and requiring that a project be 100% complete (rather than at least 60%) before it can receive a tax credit voucher;
-- requiring a production company to conduct at least 50% of its principal photography days in Connecticut to be eligible for the film production credit;
-- making infomercials ineligible for the film production credit;
-- transferring the administration of the credits from the Commission on Culture and Tourism to the Department of Economic and Community Development (DECD);
-- excluding any costs related to an independent audit of film or digital animation production project costs and expenses that the DECD requires before certification;
-- requiring a production company to use an audit professional, chosen from a list the DECD compiles;
-- allowing the recovery of credit amounts from any entity that committed fraud or misrepresentation in claiming a credit.
Other Items
The law requires that state treasurer and the OPM secretary to establish a plan to sell state assets to raise up to $15 million of net general revenue for fiscal year 2010 and up to $45 million for fiscal year 2011.
The new law will increase most of the fees paid to Connecticut including professional licenses, permits, and business registration fees.
* Information provided by the CSCPA State Taxation Committee, based on information released by CCH.
|
|
| |
| |
|
