Connecticut Governor’s Budget Proposes Expanding Sales Tax and Eliminating Business Entity and Gift Taxes
By Paul Graney, State & Local Tax Leader
Connecticut Governor Ned Lamont has proposed a new budget for the 2020 fiscal year, beginning July 1, 2019 and ending June 30, 2020, that includes a number of tax changes impacting both businesses and individual taxpayers. The Governor’s proposal includes an expansion of the sales tax base to include more services; the elimination of business entity and gift taxes; the addition of new taxes on plastic bags, sugar-sweetened beverages, and vaping products; and the restoration of the property tax credit for all eligible filers.
Sales Tax
The budget proposal dramatically increases the number of services that will become subject to sales tax, including legal, accounting, interior design, and real estate services; dry cleaning, barber and beauty shops, veterinary services, parking, and sports and recreation instruction and industries. According to budget documents, exemptions for renovation and repair services for residential property, non-prescription drugs, winter boat storage, vehicle trade-ins, and newspapers and magazines would be repealed. However, groceries, prescription drugs, and health and education services would retain their exemption.
Business Entity Tax
The $250 biennial business entity tax would be repealed, but the annual filing fee for businesses would be increased from $20 to $100.
New Taxes
Electronic cigarette nicotine liquids would be taxed at 75% of the wholesale price to bring vaping products to the same tax rate as cigarettes. The Governor is also proposing a 10¢ tax on plastic bags and a 1.5¢ per ounce tax on sugar-sweetened beverages.
Estate and Gift Taxes
The only state-level gift tax in the nation would be repealed under the Governor’s proposal. The filing deadline for the estate tax would be extended from six to nine months, and the phase-in towards the federal exemption level for estate taxes would continue.
Property Tax Credit
Governor Lamont also proposes extending the $200 property tax exemption to all eligible filers. Currently, the exemption is available only to the elderly and taxpayers with dependents.
Marcum Observation
The above changes would dramatically affect the services subject to sales tax and require many more businesses to be required to register and collect CT tax. This will apply to businesses located inside and those outside CT that have revenue from CT customers in excess of $250,000.
Contact your Marcum State and Local Tax specialist if you have questions on this new budget and how it may affect you or your business.
