OFFICE OF FISCAL ANALYSIS

Legislative Office Building, Room 5200

Hartford, CT 06106 ↓ (860) 240-0200

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sSB-1

AN ACT CONCERNING THE PRESERVATION AND CREATION OF JOBS IN CONNECTICUT.

As Amended by Senate "A" (LCO 4808)

House Calendar No. : 471

Senate Calendar No. : 423

OFA Fiscal Note

State Impact:

Note: GF=General Fund

Municipal Impact: None

Explanation

The bill provides for an exemption from the business entity tax for two years in certain circumstances and imposes a tax on bonuses awarded to employees of certain companies. This results in a General Fund revenue loss of $12. 0 million in FY 11 and FY 12, and a General Fund revenue gain of more than $2. 8 million in FY 11 and FY 12, respectively.

Section 1 exempts certain businesses from the annual $250 business entity tax for the 2010 and 2011 tax years. This results in a General Fund revenue loss of approximately $12. 0 million per year in FY 11 and FY 12. Based on net income data reported by partnerships and pass-through entities,¹ it is estimated that approximately 48,000 entities will qualify for the exemption.

Sections 2 and 3 impose a higher personal income tax rate on certain bonuses paid to employees of companies receiving Troubled Asset Relief Plan (TARP) assistance. This results in a General Fund revenue gain of more than $2. 8 million in FY 11 and FY 12.

Based on actual 2009 wage and employee data from the Department of Labor (DOL) and information gathered by the New York State Attorney General, it is estimated that fewer than 100 employees in Connecticut will receive qualifying bonuses in excess of $1. 0 million. Applying the tax in the bill to bonuses in these amounts results in a revenue gain of between $2. 8 million and $4. 7 million. As the bill applies to bonuses in excess of $500,000, it is anticipated that the tax in the bill would result in a revenue gain of more than $2. 8 million. Due to the lack of available information on bonuses paid to relevant employees in amounts of $500,000 to $1. 0 million, the precise revenue gain associated with this bonus interval is indeterminate.

The revenue gain is dependent upon the extent to which: 1) the data on the distribution of bonuses contained in the New York report is substantially different than in Connecticut; 2) actual individual bonus payments are significantly greater than $3. 0 million; 3) companies alter their current bonus payment plans; and 4) actions are taken to minimize the potential increase in tax liability.

Sections 1-3 also result in a significant² one-time cost to the Department of Revenue Services (DRS) associated with modifying the business entity tax and income tax forms to capture business income, TARP information, and bonus information, as well as necessary modifications to the taxpayer service center (TSC).

Senate “A” lowers the threshold for the imposition of the higher personal income tax rate on TARP bonuses from $1. 0 million to $500,000, and eliminates the direct loan and loan guarantee program for businesses with fewer than 50 employees contained in the original bill, as well as the General Obligation bond authorization utilized to fund that loan program. This results in: 1) a General Fund revenue gain, 2) an elimination of the $319,459 and $432,566 salary and fringe cost in FY 11 and FY 12, respectively, and 3) an elimination of the General Fund debt service cost of $30. 5 million over 20 years.

The Out Years

A portion of the revenue gain identified above would continue into the future to the extent that relevant TARP bonuses are paid in the future for work performed during 2010 or 2011.

The preceding Fiscal Impact statement is prepared for the benefit of the members of the General Assembly, solely for the purposes of information, summarization and explanation and does not represent the intent of the General Assembly or either chamber thereof for any purpose. In general, fiscal impacts are based upon a variety of informational sources, including the analyst's professional knowledge. Whenever applicable, agency data is consulted as part of the analysis, however final products do not necessarily reflect an assessment from any specific department.