Connecticut Governor Malloy Signs Bipartisan Tax Budget Bill

On October 31, 2017, Governor Malloy signed a bipartisan budget agreement highlighting important reforms and other key initiatives. Prior to this agreement, the state was operating 123 days without a budget. The governor signed the bill, but used his limited line-item veto power to remove portions of legislation related to tax on Connecticut hospitals.

The bill will provide a number of sweeping tax changes that will effect Connecticut taxpayers.

Highlights of the changes are as follows:

• Phase out, from 2019 to 2025, the income tax on pension and annuity income for taxpayers with income below $75,000 for single filers and head of household filers, or $100,000 for joint filers.
• Increase the income threshold for the 100% exemption of social security benefits to $75,000 for single filers and $100,000 for joint and head of household filers.
• Provide a personal income tax deduction for organ donation expenses related to lost wages and medical, travel, and housing expenses, not to exceed $10,000.
• Reduce the earned income tax credit from 30% to 23%.
• Establish a refundable personal income tax credit for college graduates employed in the state.
• Increase the estate and gift tax threshold over three years.
• Increase in the cigarette tax by 45 cents per pack.
• Impose a 10.5% gross receipts tax on fantasy sports contests.
• Impose a 25 cent per ride fee applied to Uber and Lyft rides that originate in Connecticut.
• Eliminate the admissions tax exemption at the XL Center, Webster Bank Arena in Bridgeport, Dunkin Donuts Park in Hartford, and New Britain Stadium.
• Extend from seven to 30 years the period over which publicly traded companies can claim the net deferred asset deduction.

One of the more significant sections of the newly signed legislation includes the authorization of the Department of Revenue Services commissioner to establish a “Fresh Start” program to waive all penalties and half of the interest on delinquent state taxes.

The Fresh Start program (if issued by the commissioner) would run from October 31, 2017, to November 30, 2018, and applies to any tax returns due on or before December 31, 2016. The program would provide for a waiver of all penalties and 50% of the interest related to failure to pay the tax due by a qualified taxpayer.

A “qualified taxpayer” is a taxpayer that:

• Failed to file a return or didn’t report the full tax due on a prior return.
• Voluntarily comes forward prior to contact by the state.
• Is not a party of a closing agreement with Connecticut for the tax type and period for which it is seeking a Fresh Start agreement.
• Has not made an offer in compromise that has been accepted by the state for the tax type and period for which it is seeking a Fresh Start agreement.
• Has not protested the determination of an audit for the tax type and period for which it is seeking a Fresh Start agreement.
• Is not party to litigation against the state for the tax type and period for which it is seeking a Fresh Start agreement.
• Makes an application in the form and manner as prescribed by the commissioner.

Please contact your Marcum State and Local Tax advisor should you have any questions related to this new legislation.