BlumShapiro Outlines Tax Changes Approved by Connecticut Legislature in 2014 That Will Have an Impact on Businesses

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The recently concluded 2014 legislation session of the Connecticut General Assembly saw important broad-based tax measures approved by lawmakers and signed into law by Governor Malloy, measures which will impact businesses and owners.

State and Local Tax

Tony Switajewski, CPA, BlumShapiro State and Local Tax Partner

The recently concluded 2014 legislation session of the Connecticut General Assembly saw important broad-based tax measures approved by lawmakers and signed into law by Governor Malloy, measures which will impact businesses and owners.

Manufacturing Reinvestment Account (“MRA”)
Under the MRA program, administered by the State Department of Economic and Community Development (DECD), a manufacturer may make annual cash contributions to a designated savings account, not to exceed the lesser of $100,000 or the manufacturer’s domestic gross receipts. This comes with a state income tax deduction for the amount contributed to the account as long as the monies are utilized for qualified purchases.

Under recently enacted tax legislation and beginning January 1, 2014, contributions to the MRA continue to be 100% deductible for Connecticut income tax purposes (for both C corporations and pass-through entities) in the year in which the contribution is made, but “qualified distributions” from the account are no longer considered taxable income. Qualified distributions include the purchase of machinery or equipment for use in Connecticut; purchase (construction and expansion) of manufacturing facilities; or utilization of the funds for workforce training, development or expansion in Connecticut. The legislation also reduces the number of manufacturers that can participate in the MRA program from 100 to 50, but increases the maximum number of employees a manufacturer may have to be eligible as a small manufacturer, from 50 to 150.

Apprenticeship Tax Credit
Effective July 1, 2015 and applicable to tax years commencing on or after January 1, 2015, pass-through entities (such as S corporations, limited liability companies and partnerships) are now allowed to earn the apprenticeship training credit and may sell, assign or otherwise transfer the credit, in whole or in part, to other taxpayers (i.e. generally, to C corporations). As of the date of this article, although the credit may be earned by a pass-through entity, it may not be passed through to the owners of the pass-through entity to reduce their tax liabilities.

Historic Structures and Homes Credits
Applicable to tax years beginning on or after January 1, 2014, legislation consolidates the historic structures rehabilitation credit and the historic preservation credit into a new historic rehabilitation tax credit that expands the types of property that may be eligible for a credit. With respect to the historic homes rehabilitation credit, 70% of the annual $3 million credit cap must be reserved for historic homes located in “regional centers” (in 24 municipalities), as designated in the state plan of conservation and development (effective July 1, 2015).

Neighborhood Assistance Act (“NAA”) Tax Credit
Effective July 1, 2014, the NAA tax credit is available against the Connecticut corporation business tax for 100% of the cash amount invested in a “comprehensive college access loan forgiveness program” located in an “educational reform district” that has established certain minimum eligibility criteria. Pass-through entities are not eligible for the NAA tax credit.

Sales and Use Tax Exemptions Added
Effective July 1, 2016, sales of goods and service to Connecticut credit unions are exempt from sales and use taxes (federal credit unions are currently exempt from sales and use taxation). However, a clothing and footwear sales and use tax holiday will be held Sunday, August 17, 2014, through Saturday, August 23, 2014. During that time, sales and use tax is inapplicable to purchases of clothing and footwear that cost less than $300 per item.

Sales and Use Tax Return Due Date Accelerated
Effective October 1, 2014, the due date for remitting monthly sales and use tax returns and payments is moved to the 20th day of each month, rather than the last day of each month. In addition, the Commissioner of Revenue Services is authorized to require delinquent taxpayers to remit sales and use taxes collected on a weekly basis.
Property Taxes – Lastly, there are several significant changes regarding property taxation that could impact businesses as well. They include:

  • The establishment of a property tax pilot program to allow for the assessment of commercial property based on the net profits of a business rather than the fair market value of the property
  • Changes to the property tax exemption for machinery and equipment, including machinery and equipment used in biotechnology
  • Allowing certain municipalities to delay the implementation, or the phase-in, of a real estate revaluation that is required every five years
  • Authorizing municipalities to enter into an agreement to fix the assessment period, for a period of years, for improvements on land used for any retail business in a designated area

These are all significant changes that were approved this year and are either now state law or will soon become state law. Awareness of and adaptation to these changes can now help businesses to ensure a brighter future.

Tony Switajewski, CPA, is a state and local tax partner with BlumShapiro, the largest regional accounting, tax and business consulting firm based in New England, with offices in Connecticut, Massachusetts and Rhode Island. BlumShapiro’s State and Local Tax Group includes nine tax professionals. The firm, with nearly 400 professionals and staff, offers a diversity of services which includes auditing, accounting, tax and business advisory services. In addition, BlumShapiro provides a variety of specialized consulting services such as succession and estate planning, business technology services, employee benefit plan audits, litigation support and valuation, and financial staffing. The firm serves a wide range of privately held companies, government and non-profit organizations and provides non-audit services for publicly traded companies.

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