As part of the state’s biennial budget, Connecticut Governor Dannel Malloy signed both H.B. 7061 and S.B. 1502, which contain various corporate income tax, personal income tax and sales and use tax changes. Some changes are effective immediately for tax years beginning on or after January 1, 2015, while others will be phased-in beginning January 1, 2016.
The main corporate income tax change is that for tax years beginning on or after January 1, 2016, Connecticut will require entities under common ownership, and operating a unitary business, to file a combined return. With the change, Connecticut becomes the last New England state to adopt mandatory combined reporting. The legislation addresses challenges taxpayers might encounter such as combined reporting and apportionment rules, pass-through entity treatment, calculating net income and net operating loss and tax credit utilization. In addition to requiring combined reporting, the legislation also extended the 20% corporate income tax surcharge for tax years beginning through December 31, 2017 and reduced the surcharge to 10% for income tax years commencing on or after January 1, 2018 and prior to January 1, 2019.
As for personal income tax changes, the legislation simultaneously delayed the previously scheduled personal income tax reductions for single filers and increased the rates for taxpayers in the highest tax brackets. The previous top marginal rate of 6.7% was increased to 6.9% and a new top-tier rate of 6.99% was added.
On the sales and use tax side, the scheduled rate increase (to 3%) for computer and data processing services was repealed, as was the exclusion for services rendered in connection with website creation, development and maintenance. There was also an increase in the tax rate on luxury goods (from 7.0% to 7.75%), and restrictions were placed on items subject to the annual sales tax holiday.