July 17, 2014
Connecticut Legislates Tax Changes for 2014
A special thanks to article contributor Frank Puglisi, Manager, Tax & Business Services.
The State of Connecticut is facing some difficult economic times in the near future. The state maintains its budgets on a biennial basis and the 2013-2014 and 2014-2015 were approved during 2013. Due to a reduction in the projected budgeted surplus, together with a projected deficit of approximately $2.8 billion for the 2016 and 2017 fiscal years, the Income Tax Rebate program proposed by the Governor was withdrawn from consideration.
In an attempt to remedy the situation, the Connecticut Legislation enacted numerous tax collection and enforcement measures and delayed the effective dates of selected tax benefits. The following changes in Connecticut tax law have been signed into law by Governor Dannell Malloy on June 25th, 2014:
- Apportionment of Business Income: Currently, Connecticut is the only state to have different apportionment rules for C-Corporations and Pass-Through Entities. In an attempt to make the rules similar, effective for tax years beginning on or after January 1, 2014, the calculation of the apportionment factor has changed for Nonresident partners of pass-through entities having receipts both inside and outside of Connecticut. More specifically, legislation has changed the apportionment rules for sales of tangible personal property by sourcing to Connecticut, sales of property that are delivered or shipped to a purchaser (destination sales) in Connecticut regardless of the F.O.B. point for nonresident partners. The old rule for calculating apportionment for nonresident partners omits the "destination" sales component and "origin" sales were required to be included in the sales factor calculation.
- Gross receipts from services are still considered to be earned within the state when the services are performed by an employee, agent, agency, or independent contractor connected with a business situated within Connecticut (origin sales).
- Nonresident Income from Connecticut Property: Effective January 1, 2014, a nonresident must now include in his/her Connecticut taxable income calculation the gain or loss from the disposition of an interest in a pass-through entity that owns real property in the State of Connecticut. This inclusion occurs if the real property has a fair market value that equals or exceeds 50% of all the assets of the entity on the date of disposition of such interest by the nonresident.
SALES AND USE TAX:
One of the most drastic changes to combat the potential deficit relates to tax the decreased time periods in which retailers have to report and pay sales and use tax liabilities. Effective for all sales and use tax returns filed after October 1, 2014, for the reporting period ended September 30, 2014, retailers now must file sales and use tax returns by the 20th day of the month, following the monthly or quarterly reporting period. Further, the Commissioner of Revenue Services now has the authority to require delinquent taxpayers to remit sales and use tax returns and payments on a WEEKLY basis to avoid a taxpayer from relapsing into non-payment/delinquency.
In addition to the significant change to the filing and payment requirement noted above, there are two other noteworthy changes.
- Nonprescription Drugs and Medicines: Effective for sales occurring on or after April 1, 2015, legislation reinstates a sales and use tax exemption for sales of certain nonprescription drugs and medicines for use in or on the body, including: vitamins or mineral concentrates; dietary supplements; natural or herbal drugs or medicines; products intended to be taken for coughs, cold, asthma or allergies, or antihistamines; and laxatives among other items. The exemption expressly does not include cosmetics, dentifrices, mouthwash, shaving and hair care products, soaps and deodorants.
- Clothing and Footwear Exemption: The exemption for the sale of any article of clothing or footwear intended to be worn about the human body and costing less than $50, originally passed during the 2013 legislative session but delayed, was reinstated during the 2014 session. The effective date for this exemption is now July 1, 2015.
There was only one item passed in the area of estate taxation.
- Double Taxation Relief: Effective for estates of decedents after January 1, 2015, the definition of "Connecticut taxable estate" is modified to exclude property that is also included in the Connecticut taxable estate as a lifetime gift. Further, legislation now provides a credit for any Connecticut gift taxes that have already been paid with respect to such gifts.
The Governor also agreed to other minor changes to Nonresident Nonqualified Deferred Compensation, the Connecticut Fiduciary Adjustment, Teacher Retirement System Income and Refund CHET Contributions (taxpayer can now contribute all or part of their state income tax refund into an individual savings plan under the CHET program.)
Please contact your Marcum State and Local tax professional with any questions or further explanation related to the changes to legislation.