CT business tax changes...

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 based 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 outof-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 rates 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 the 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 (IRC 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 changes 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 to 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;
• moving up the phase-out date after which no out-of-state expenses count
towards the film production credit from January 1, 2012, to January 1, 2010;
• limiting credit-eligible compensation for all "star talent" featured in a film or
digital media production to $20 million in the aggregate and requiring that
the compensation be subject to Connecticut personal income tax;
• 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;
• eliminating a company's ability to obtain an interim film production tax
credit;
• 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 the 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.