Governor Lamont Signs Connecticut Biennial Budget: New Deal or Déjà Vu?
Labor &
Employment
Law Department
ANDREANA BELLACH
GARY BROCHU
BRIAN CLEMOW*
LEANDER DOLPHIN
BRENDA ECKERT
JULIE FAY
VAUGHAN FINN
ROBIN FREDERICK
SUSAN FREEDMAN
SHARI GOODSTEIN
GABE JIRAN
ANNE LITTLEFIELD**
ERIC LUBOCHINSKI
LISA MEHTA
RICH MILLS
TOM MOONEY***
PETER MURPHY
SARANNE MURRAY
KEVIN ROY
LESLEY SALAFIA
REBECCA SANTIAGO
ROBERT SIMPSON
GARY STARR
CHRIS TRACEY
MATT VENHORST
LINDA YODER
HENRY ZACCARDI
GWEN ZITTOUN
*
Practice Group Leader
and Editor of this newsletter
** Deparment Chair
*** School Law Practice Group Leader
www.shipmangoodwin.com
State and Local
Tax Practice Group
Alan E. Lieberman
alieberman@goodwin.com
(860) 251-5801
Louis B. Schatz
lschatz@goodwin.com
(860) 251-5838
Raymond J. Casella
rcasella@goodwin.com
(860) 251-5808
David O. Bigger
dbigger@goodwin.com
(860) 251-5203
Robert L. Day III
rday@goodwin.com
(860) 251-5602
Elva M. Perales*
eperales@goodwin.com
(860) 251-5525
*Admitted only in NY
www.shipmangoodwin.com
On June 26, 2019, Governor Ned Lamont signed a $43.4 billion budget for the 2020 and 2021 scal years. The
biennial budget addresses the projected $3.7 billion budget decit for the period, but still increases spending
by 1.7% in the 2020 scal year, and by 3.4% in the 2021 scal year. Although a letter dated June 25, 2019
published by the Ofce of Fiscal Analysis projects a roughly $700 million surplus for the current scal year,
and an increase to $2.28 billion in the Budget Reserve Fund (i.e., “rainy day fund”), the new budget contains
hundreds of millions of dollars in tax and revenue increases and, in the words of the Connecticut Business and
Industry Association, “shifts billions of dollars in teacher pension debt and interest onto future taxpayers after
2032.” Critics of the budget assert that the budget is not balanced because it assumes several hundreds of
millions of dollars in savings through the yet-to-be-negotiated renancing of state employee pensions.
For Connecticut taxpayers, and particularly business taxpayers, it was a troublesome regular legislative
session, but not as bad as it could have been. Governor Lamont was instrumental in preventing an increase in
the marginal income tax rates and the adoption of a capital gains tax on high income taxpayers, but businesses
will need to contend with a hike in the minimum wage, new paid family and medical leave legislation, an
extension of the purported “temporary” 10% corporation business tax surcharge, a reduction in the cap on
the use of corporation business tax credits and a reduction in the credit arising from the payment of the new
Connecticut pass-through entity tax, resulting in a tax increase for many owners of limited liability companies,
S corporations and partnerships. On a positive note, the Legislature agreed to phase out the corporation
business capital base tax, extended for ve years the angel investor tax program and repealed the biannual
business entity tax (but simultaneously increased the fees payable to the Ofce of the Secretary of the State
by the pass-through entities that were subject to that tax). Businesses should be aware, however, that the
General Assembly also commissioned a study to evaluate the possible implementation of a payroll tax on
employers in Connecticut commencing on January 1, 2021, and charged the Department of Revenue Services
(the “Department” or “DRS”) to take those actions intended to facilitate the possible electronic deposit of sales
tax receipts on a daily basis.
Individual taxpayers also will experience an increase in their Connecticut tax liability. The General Assembly
extended the current limitations on the availability of the property tax credit, delayed the increase in the
state teachers’ retirement system payment deduction and repealed the STEM graduate tax credit. More
signicantly, although the Legislature thwarted the Governor ’s attempt to extend the sales and use tax to
an even longer list of services, it did extend the tax to digital goods and downloads, motor vehicle parking,
dry cleaning and laundry services and interior design services, and increased the tax rate on meals and
beverages. There also is a new ten-cent tax on single use plastic check-out bags, and a higher conveyance
tax rate on sales of real property of more than $2.5 million (subject to a possible increase of the property tax
credit that may be taken by the seller of the residence if the seller remains in Connecticut). In addition, an
attempt to repeal the gift tax was removed from the nal budget legislation. The regular session also resulted
in a myriad of other excise and other tax law changes with which businesses and individuals will need to cope.
We are anticipating the call this year of one or more special sessions of the General Assembly to address a
variety of topics and unnished business. The Governor has signaled his intention to focus one session on the
proposal to add tolls, in return for which he has suggested the possible adoption of modest income tax relief.
We, of course, will update this alert as those developments occur.
This newsletter summarizes Connecticut tax legislation enacted, court decisions rendered and administrative
guidance published by the Connecticut Department of Revenue Services during the rst six months of 2019.
Except where noted, the Public Acts referenced in this alert have been signed by Governor Lamont. Please
contact a member of our State and Local Tax Practice Group if you have questions regarding the new tax
law changes or how they may affect you and your business. On July 11, our tax attorneys will host
a CLE Webinar entitled “Annual Connecticut Tax Update 2019” Visit our CLE Knowledge Center
(www.shipmangoodwin.com/cle-events) or register at https://bit.ly/2ITY48M.
July 11, 2019
Updates to June 26 Publication
in this issue
Personal Income Tax P. 2
Corporation Business Tax P. 5
Sales and Use Tax P. 5
Estate and Gift Tax P. 9
Property Tax P. 9
Miscellaneous Taxes P. 13
Tax Procedure P. 18
Administrative Pronouncements P. 19
CONNECTICUT TAX DEVELOPMENTS
PERSONAL INCOME TAX
I. Legislation
Pass-Through Entity Tax. In 2018, the Connecticut General Assembly enacted a new entity-level income tax at
the at rate of 6.99% on most pass-through businesses, including partnerships, S corporations and limited liability
companies that are treated as partnerships or S corporations for federal income tax purposes. The new tax was
intended generally not to adversely impact the state personal income tax liability of most taxpayers because each
individual owner of the pass-through entity is entitled to a refundable credit against the personal income tax equal to
93.01% of the owner’s pro rata share of the tax liability of the pass-through entity. During the 2019 legislative session,
the General Assembly amended the statutes governing the pass-through entity tax in two separate public acts. First,
the legislature reduced the credit to 87.5% of the owner’s pro rata share of the tax paid by the pass-through entity,
effective for taxable years commencing on or after January 1, 2019. Conn. Gen. Stat. § 12-699(g), as amended by
Conn. Pub. Act No. 19-117, § 333 (effective June 26, 2019, and applicable to taxable and income years commencing
on or after January 1, 2019). The same public act provides further that the statutory requirements governing the
making of estimated tax payments are not to apply to the additional tax due as a result of the decrease in the credit
for the taxable or income year commencing on or after January 1, 2019, but prior to the effective date of the legislative
change. Conn. Pub. Act No. 19-117, § 334 (effective June 26, 2019).
In a second public act, the General Assembly amended the pass-through entity tax provisions to (i) provide that the
tax base is to include the separately and non-separately computed items as described in I.R.C. § 702(a) (in the case
of a partnership) and I.R.C. § 1366 (in the case of a S corporation) of the entity (A) excluding any item treated as an
itemized deduction for federal income tax purposes, and (B) including guaranteed payments as described in I.R.C.
§ 707(c); (ii) clarify that a taxpayer-owner of a pass-through entity is entitled to a credit equal to such person’s direct
and indirect share (not “pro rata” share) of the tax due and paid by the pass-through entity multiplied by 93.01%;
(iii) exempt from the obligation to make quarterly estimated tax payments those pass-through entities with less than
$1,000 in annual estimated tax obligations; and (iv) clarify that a nonresident individual owner of a pass-through entity
is not required to le a Connecticut income tax return for any taxable year if the only source of Connecticut income
of the individual (or the individual and his/her spouse if ling a joint return) is from one or more pass-through entities
and the aggregate pass-through entity tax credit allowed to the individual for that taxable year would fully satisfy the
Connecticut tax due for that year. Conn. Gen. Stat. §§ 12-699 and 12-699a, as amended by Conn. Pub. Act No. 19-
186, §§ 1-2 (effective July 1, 2019, and applicable to taxable years commencing on or after January 1, 2019). Finally,
in response to the fact that the pass-through entity tax was enacted in May 2018, but made retroactive to January
1, 2018, the second public act directs the Commissioner of Revenue Services to waive any penalty, interest and
addition to tax caused by the late payment of any pass-through entity tax or personal income tax for the 2018 taxable
year that was increased or created as a result of the enactment of the pass-through entity tax, provided that the tax
payment is made within one year of its due date. Conn. Pub. Act No. 19-186, § 32 (effective July 8, 2019). [Ed. note.
Please note that further clarication is needed as to how: (i) the credit provisions of the two public acts are to be
reconciled; and (ii) whether a pass-through entity will be able to le a return and pay taxes on behalf of nonresident
partners notwithstanding the reduction of the credit percentage. Taxpayers also are reminded that the United States
Treasury has yet to publish guidance as to whether it will honor the deduction by a pass-through entity of its liability
for the Connecticut pass-through entity tax when calculating its net income for federal tax reporting purposes. Recent
Treasury Decision 9864 (June 13, 2019) limited the availability of charitable contribution deductions under Internal
Revenue Code Section 170 when a taxpayer receives or expects to receive a corresponding state or local tax credit
in return for a “donation” to a public government or instrumentality, but the guidance did not address entity-level taxes
such as the Connecticut pass-through entity tax.]
Shipman & Goodwin LLP June 2019
P.2
