OLR BILL ANALYSIS

SB 700-LCO 5866

Emergency Certification

AN ACT CONCERNING STATE REVENUES.

 

§ 1-BUSINESS ENTITY TAX

 

Among other things, PA 02-1, May 9 Special Session, imposed a $ 250 annual state tax on foreign and domestic limited liability companies (LLCs). PA 02-1 applied the tax to any LLC that is treated as a partnership for federal income tax purposes. This bill extends the tax to single-member LLCs if, for federal tax purposes, they are not considered to be entities separate from their owners.

 

EFFECTIVE DATE: Upon passage and applicable to tax years beginning on an after January 1, 2002.

 

§§ 2-4-CORPORATION AND INCOME TAX INTEREST AND PENALTY EXEMPTIONS

 

PA 02-1, May 9 Special Session, made several tax changes, including limiting total corporation tax credits, disallowing use of a special federal bonus depreciation rule for certain property under the corporation and income taxes, and prohibiting companies from using tax credits to reduce their corporation tax liability below a $ 250 annual minimum. Although PA 02-1 took effect July 1, 2002, it applies its tax changes to income and taxable years beginning before that date.

 

This bill exempts affected taxpayers from interest and penalty assessments if PA 02-1 creates or increases an underpayment in an estimated tax payment that was due on or before July 15, 2002. It also specifies that no penalties or interest accruals apply to corporation tax underpayments reported on supplemental, amended, or corrected returns if (1) the underpayment is created by PA 02-1 and (2) the original payment was due on or before August 1, 2002.

EFFECTIVE DATE: Upon passage

 

§§ 5 & 6-TAX AMNESTY EXCLUSIONS

 

The bill excludes additional people from participating in the tax amnesty program established under PA 02-1, May 9 Special Session. That act bars the Department of Revenue Services (DRS) commissioner from granting amnesty to anyone who (1) has received notice from DRS that he is being audited for the period for which he is seeking amnesty or (2) is a party to any criminal investigation or civil or criminal litigation pending on June 1, 2002 in any federal or state court for failure to file or pay or for state tax fraud. The bill also bars amnesty for anyone who (1) is a party to a closing or managed audit agreement with the DRS commissioner or (2) has offered a compromise that the commissioner has accepted.

 

The bill also corrects a mistaken reference.

 

EFFECTIVE DATE: Upon passage

 

§ 7-PROPERTY TAXES ON NEWLY BUILT POWER PLANTS

 

By law, any municipality may treat a power plant that completed construction after July 1, 1998, as though it were located in an enterprise zone and used for commercial or retail purposes. This means that, with the approval of its legislative body, it can fix the full amount of either the property tax or assessment on the plant's real and personal property both during and after construction, despite the enterprise zone law's requirement that towns fix property taxes or assessments only after the property improvement occurs.

 

This bill allows municipalities to treat certain power plants on which construction is completed after July 1, 2002 in the same way, except that it allows them to fix the plant's taxes or assessment at less than the full amount. The bill applies only to plants for which the operator submitted a permanent electric generating facility application to the Connecticut Siting Council between January 1, 2002 and March 30, 2002.

 

By law, the taxes or assessments set by the municipality must approximate the covered plant's projected tax liability based on a reasonable estimate of its fair market value that the municipality determined using its best efforts. Under this bill, the less-than-full amount of taxes or assessments the municipality fixes for a covered plant must approximate a "commensurate portion" of that projected liability.

 

EFFECTIVE DATE: Upon passage

 

§§ 8-12-TAX EXEMPTIONS FOR ALTERNATIVE FUELS

 

Petroleum Products Gross Earnings Tax (§ 8)

 

The bill exempts earnings from wholesale sales of petroleum products to be used as fuel cell fuel that occur between July 1, 2002 and June 30, 2004 from the petroleum products gross earnings tax. As under current law, a "fuel cell" is a device that produces electricity directly or indirectly from hydrogen or hydrocarbon fuel through an electro-chemical process, rather than by burning.

 

The bill also extends, from July 1, 2002 to July 1, 2004, the expiration date of the tax exemption for wholesale sales of propane for motor vehicle fuel and extends the exemption back to such sales that occurred between January 1, 2000 and July 1, 2001.

 

EFFECTIVE DATE: July 1, 2002

 

Utility Tax (§ 9)

 

The bill extends, from June 30, 2002 to June 30, 2004, the expiration date of an exemption from the utility gross earnings tax for gas company income earned from selling natural gas or propane for motor vehicle fuel.

 

EFFECTIVE DATE: July 1, 2002

 

Sales And Use Tax (§ 10)

 

The bill extends for one year, from July 1, 2002 to July 1, 2004, the expiration dates of sales and use tax exemptions for:

 

It also extends the exemption to cover vehicles powered exclusively by hydrogen and their associated fueling equipment.

 

EFFECTIVE DATE: July 1, 2002

 

Business Tax Credits (§ 11)

 

The bill extends, from January 1, 2002 to January 1, 2004, the termination date of the credits against various business taxes for investments in alternative fuel vehicles and related fueling equipment. The credit is 10% of the added costs of buying a vehicle powered exclusively by alternative fuels (compressed natural gas (CNG), liquefied petroleum gas (LPG), liquefied natural gas (LNG), or electricity).

 

The bill also extends, from January 1, 2002 to January 1, 2004, the termination date of the corporation tax credit for 50% of expenditures for (1) building or modifying a filling station to provide CNG, LPG, or LNG, (2) buying or installing equipment to convert a vehicle to run on one of these fuels or electricity, and (3) buying or installing fueling equipment for any of these fuels.

 

EFFECTIVE DATE: July 1, 2002 and applicable to income years beginning on or after January 1, 2002.

 

Motor Fuels Tax (§ 12)

 

The bill extends, from July 1, 2002 to July 1, 2004, the expiration date of an exemption from the motor fuels tax for CNG, LPG, and LNG.

 

EFFECTIVE DATE: July 1, 2002 and applicable to sales or occurring on or after that date.

 

§§ 13-15- SALES AND USE TAXES ON STORAGE UNITS

 

The bill suspends, from July 1, 2002, to October 1, 2002, the 6% sales and use taxes on businesses that rent space, other than space a person lives in, for storing personal property. PA 02-1, May 9 Special Session, imposed the tax.

 

The bill specifies that, after October 1, 2002, the tax applies only to businesses that rent storage space (1) for tangible, rather than any, personal property; (2) consisting of secure areas, such as rooms or containers, designated for customer use; (3) where the customer can store and retrieve his property; and (4) to which the customer has either unlimited free access or free access within business hours or with reasonable notice.

 

Under the bill, the tax does not apply to (1) rental of an entire building or warehouse; (2) general warehousing and storage where warehouse employees typically retrieve customer property and do not allow customers free access to the storage space; or (3) accepting specific property items for storage, such as clothing at a dry cleaning establishment or golf bags at a golf club.

 

EFFECTIVE DATE: Section 13 is effective July 1, 2002, and applicable to sale occurring on or after that date. Section 14 is effective October 1, 2002 and applicable to sales occurring on or after that date. Section 15 is effective January 1, 2003 and applicable to sales occurring on or after that date.

 

§ 16-SALES AND USE TAXES ON COMMUNITY ANTENNA TELEVISION SERVICE

 

The bill exempts noncable communications services bought by a cable network from the 6% sales and use taxes on community antenna television service. By law, "noncable communications services" are two-way communications services, such as telephone service, that a community antenna television system could provide.

 

EFFECTIVE DATE: Upon passage

 

§ 17-INCOME TAX ON NONRESIDENTS' GAMBLING WINNINGS

 

This bill eliminates a provision of PA 02-1, May Special Session, that extended the state income tax to nonresidents' winnings from non-lottery gambling activities that take place within Connecticut's borders, including at casinos on Indian reservations within the state. The tax was to apply to gambling winnings in any amounts that federal tax law or regulations require a payer to report to the Internal Revenue Service (currently, any winnings over $ 5,000). Nonresidents' Connecticut lottery winnings over $ 5,000 remain subject to Connecticut income tax.

 

EFFECTIVE DATE: July 1, 2002 and applicable to tax years beginning on or after January 1, 2002.

 

§ 18-RENEWAL DEFENSE-DEPENDENT MUNICIPALITY DETERMINATION

 

This bill allows the Department of Economic and Community Development (DECD) commissioner renew for two, rather than one, two-year periods, his determination that a municipality is severely harmed by defense cutbacks. This allows the determination to continue for up to six years instead of the current maximum of four. As under current law, the commissioner must still hold a public hearing and make specific findings before each renewal. The determination entitles certain manufacturing facilities located in the municipality to property tax exemptions and business tax credits for nondefense economic development projects and entitles the municipality to a grant equal to one-half the foregone property tax revenues.

 

EFFECTIVE DATE: Upon passage

 

§ 19-ELIGIBILITY FOR R&D CREDIT REFUNDS

 

By law, qualifying companies that have no corporation tax liability are entitled to payment of refunds for 65% of the value of unused corporation tax credits for research and development (R&D) expenses, up to certain limits. This bill extends this provision to companies that pay the $ 250 minimum corporation tax to qualify for the R&D credit refunds. PA 02-1, May 9 Special Session barred companies from using tax credits to reduce their corporation tax liability below the minimum, so it is no longer possible for a company to have no tax liability.

 

EFFECTIVE DATE: Upon passage and applicable to income years starting on or after January 1, 2002