Over the last two weeks, the Connecticut Finance, Revenue and Bonding Committee of the General Assembly favorably reported out several tax bills, including four bills proposed by the Connecticut Department of Revenue Services. The last day for action by the committee was April 27.
Substitute SB1 would provide for several reductions to existing taxes. The personal income tax credit for property tax paid on a personal residence or motor vehicle would be increased by $25 per year over the next several years from a maximum of $375 in 1999 to a maximum of $500 in 2004. The credit still would be subject to reductions, to a minimum of $100, based on the Connecticut adjusted gross income level of the taxpayer. The sales and use tax on paving, painting, staining, wallpapering, roofing, siding and exterior sheet metal work on residential properties would be reduced to 3 percent effective July 1, and completely repealed effective July 1, 2000. The current exclusion under the personal income tax for a portion of the social security benefits includable in federal taxable income would be made a complete exemption effective January 1, 1999, for joint filers with adjusted gross income under $60,000 and single filers and heads of household with adjusted gross income under $50,000. The gift tax would be phased out over two years by reducing the rates 50 percent effective on January 1, 2000, and eliminating the tax effective January 1, 2001.
Raised SB1187 would establish income thresholds for the imposition of the Connecticut alternative minimum tax. Under current law, the only threshold is that the Connecticut taxpayer be subject to and required to pay the federal alternative minimum tax. Under the bill, the threshold would be $200,000 in Connecticut alternative minimum taxable income for joint filers, $150,000 in Connecticut alternative minimum taxable income for head of household filers, and $100,000 in Connecticut alternative minimum taxable income for single filers. The bill would be effective for income years commencing on or after January 1, 1999.
RB1205 would extend the net operating loss carry forward provisions under the Connecticut corporation business tax from five years to 20 years. The extended period would be effective for operating losses incurred in income years commencing on or after January 1, 2000.
Substitute SB1210 would exempt from the real estate conveyance tax transfers or conveyances "to effectuate a mere change of identity or form of ownership or organization, where there is no change in beneficial ownership." This bill would be effective with respect to transfers made on or after October 1, 1999.
Raised Bill 6732 would eliminate the requirement that a "passive investment company" under Section 12-213(27) of the corporation business tax have five or more full-time employees. RB7027 would expand the sales and use tax exemption for electricity used in agricultural production, fabrication of a finished product to be sold, or an industrial manufacturing plant by eliminating the requirement that not less than 75 percent of such electricity be used for such purpose. These two acts would take effect on October 1.
Substitute Raised SB1171, which originated with Department of Revenue Services, provides several technical and administrative changes that include allowing the department to share return information with a person that may have successor liability for another's tax, and procedures for the making and appealing of jeopardy assessments of sales and use tax. Section 26 of the bill provides that notices of assessment for any tax may be sent by regular mail and that registered or certified mail is not required. Most of the changes will take effect upon passage of the bill.
Substitute SB1172 would implement the Department of Revenue Services' proposals to change and clarify certain sales and use tax exemptions, effective for sales occurring on or after October 1, 1999. Section 1 of the bill would provide a safe harbor for sale-leaseback transactions, where the lessee purchased the equipment before the lessor is identified. In such a case, no sales and use tax would be due on the original purchase of the equipment by the lessee so long as the lessee became contractually obligated to sell the property to a lessor within 120 days after the original sale. Section 5 of the bill would extend the current exemption of C.G.S. Section 12-412(62) for intercompany services between wholly owned corporate subsidiaries and affiliates to noncorporate entities such as partnerships, limited partnerships, limited liability partnerships, limited liability companies, sole proprietorships, single-member limited liability companies, and nonstock corporations. The requirement that each such business entity be 100 percent directly or indirectly owned would be continued.
The bill expands the exemptions for various medical devices to include repair and replacement parts for such devices. The proposal to authorize the commissioner of revenue services to use statistical or other sampling techniques for sales and use tax audits has been withdrawn.
Substitute SB1186 would extend certain provisions of the Internal Revenue Service Restructuring and Reform Act of 1998 to various Connecticut taxes. Such provisions would include the recognition of postmarks from private delivery services designated by the secretary of the treasurer pursuant to Internal Revenue Code Section 7502, "innocent spouse" relief, and the netting of certain underpayments and overpayments to eliminate interest rate differentials. Most provisions of this bill will be effective upon passage.
Substitute HB6819 would implement the Department of Revenue Services' proposals dealing with "managed audit agreements" and "managed compliance agreements" for sales and use tax audits. Managed compliance agreements would be agreements between the department and a taxpayer under which a taxpayer would perform a self-audit in accordance with a mutually agreed on audit plan. The Department of Revenue Services would then review the taxpayer's work and agree on a final audit liability. The commissioner would be authorized to waive the first $10,000 of interest and 10 percent of any additional interest otherwise due on any audit assessment made under a managed audit agreement. The waiver of interest would apply up to the date of service of notice of the assessment. The commissioner also would have the authority to waive penalties.
Managed compliance agreements would be agreements between the Department of Revenue Services and the taxpayer under which a taxpayer would pay a fixed percentage of its purchases as its sales and use tax liability. The provisions of such agreements could include a term of up to three years, one or more effective use tax rates for purchases, a method to reconcile the effective use tax rate with the taxpayer's actual liability, and a procedure to resolve disputes. The commissioner also would have the authority to agree with the taxpayer that amounts due to the commissioner or due to the taxpayer as a result of the reconciliation may be waived.
To facilitate managed compliance agreements, the bill would revise the existing direct -pay permit under C.G.S. section 12-409a to make it more useful. (It is understood that no taxpayer ever has been granted a direct-pay permit under the current statute.) Under the revised statute, the commissioner may issue a direct pay permit if it is found that: (1) the collection of the sales and use tax would not be jeopardized by the issuance of such a permit; (2) the permit would significantly reduce the work of administering the sales and use tax because of the nature of the applicant's business, (3) the applicant's accounting system would clearly indicate the amount of tax due; and (4) the applicant makes taxable purchases in sufficient volume to justify the expense of regular audits by the commissioner. These provisions would take effect on passage, except that the revised direct-pay permit statute would be effective on or after October 1, 1999.
These bills now await action by the House and the Senate. The 1999 legislative session ends on June 9.
- Full Text Citations
- The full texts of the following documents are available as indicated:
- Raised SB1187. Doc. 1999-15678 (3 original pages)
- RB1205. Doc. 1999-10372 (3 original pages)
- RB6732. Doc. 1999-15729 (1 original page)
- RB7027. Doc. 1999-15677 (1 original page)
- Substitute Raised SB1171. Doc. 1999-15732 (20 original pages)
- Substitute SB1172. Doc. 1999-15730 (6 original pages)
- Substitute SB1186. Doc. 199-15676 (11 original pages)
- Substitute HB6819. Doc. 1999-15675 (5 original pages)
Reprinted with permission of State Tax Notes, May 3, 1999