OLR Research Report

July 31, 2006





By: Judith Lohman, Chief Analyst

You asked for (1) a description of the 1991 law that established the State Tax Review Commission, an explanation of the commission's charge and authority, and a list of its members; (2) a summary of the commission's recommendations and the legislative action taken on them; (3) what happened to the commission and its authorizing statute after it filed its initial report; and (4) information on any statute that later repealed the commission. You also asked for a brief description of the history and operation of the state spending cap enacted in 1991.

This report provides the requested information on the State Tax Review Commission. We attach an Office of Fiscal Analysis background paper that provides the requested information on the state spending cap.


The State Tax Review Commission was established in 1991. It had 10 members appointed by the governor and legislative leaders and five ex officio members. The ex officio members were the chairmen and ranking members of the Finance, Revenue and Bonding Committee and the revenue services commissioner. The commission was originally charged with evaluating the state's entire tax system and making a single report, with findings and recommendations, by December 15, 1992. In 1993, after it made the required report, the legislature expanded its charge and required it to make reports every year by December 15. The commission duly filed a report on January 6, 1994, but then fell into inactivity as the appointed members' three-year terms expired at the end of 1994 and the appointing authorities made no new appointments or reappointments. The legislature repealed the statutory authorization for the commission, along with those of 13 other boards and commissions, in 1997. But, the repeal was part of much larger act with many other provisions, and the governor vetoed it. As a result, the commission's authorizing statute (CGS 12-34d) remains on the books but the commission does not operate.

The commission's 1992 report contained many recommendations concerning the state income, corporation, sales and use, and succession and estate taxes. The legislature adopted most of those concerning the income, corporation, and succession taxes in subsequent years, although its initial 1993 attempt to enact the several of the commission's income tax recommendations was foiled by a gubernatorial veto. The commission's sales and use tax recommendations were largely ignored.

The commission was unable to come to any consensus on recommendations to reform the property tax. The 1992 report provides a list of suggested property tax measures for the legislature to consider. Of these, only one, a property tax credit against the income tax, was eventually enacted.

The commission's 1994 report had a narrower focus and was much less comprehensive. It dealt with a proposed rental car surcharge, phasing out the succession tax, property tax relief for commercial vehicles, and the alternative minimum income tax. Of its four recommendations, the legislature adopted the succession tax and alternative minimum tax proposals, adopted part of the commercial vehicle property tax relief proposal, and rejected the commission's recommendation against adopting a rental car surcharge.


1991 Law

The 15-member State Tax Review Commission was established by the same law that established the state personal income tax, among other things. The 1991 law required the commission to study and evaluate state and local tax bases and revenue. It was to place particular emphasis on wide-ranging views of the system, its incidence on the state population, and its effects on economic activity in the state (PA 91-3, June Special Session, 154).

The law required the commission to submit an initial report, including findings and recommendations, to the governor and the General Assembly by December 15, 1992. The report was to be a detailed study of the state's total revenue system. If the commission considered it appropriate, the report was to recommend a complete revision of the system or a revision to eliminate any direct taxes on income.

Commission Members

The commission had 15 members. They were: (1) the chairmen and ranking members of the Finance, Revenue and Bonding Committee; (2) the revenue services commissioner; (3) one member appointed by each of the six legislative leaders; and (4) four members appointed by the governor. The legislative appointees had to include at least one representative each from labor, business, and academia. The governor had to appoint one representative each from the Connecticut Conference of Municipalities and the Council of Small Towns, one executive branch representative, and one public member. Commission members could be legislators. Appointed members' terms were three years and members were limited to no more than two terms.

Table 1 shows the commission members and the appointing authorities for the 10 appointed members.

Table 1: 1991 State Tax Review Commission Members

Appointed Members

Appointing Authority

Chester Malinowski, Jr.

Senate president pro tempore

Michael Bartone

House speaker

Douglas A. Joseph

Senate majority leader

E. Jon Majkowski

Senate minority leader

Harry Harris

House majority leader

Peter Gillin

House minority leader

Charles Lenore


C. Francis Driscoll


Elizabeth Perrault


William Cibes


Ex Officio Members


Sen. William DiBella

Finance Committee chairman

Rep. Richard Mulready

Finance Committee chairman

Sen. William Nickerson

Finance Committee ranking member

Rep. Linda Emmons

Finance Committee ranking member

Allan A. Crystal

Commissioner of Revenue Services

Initial Report – December 17, 1992

The commission submitted its initial report to the governor and General Assembly on December 17, 1992. According to its preface, the commission divided its work for the report into two parts: (1) to decide whether the state should retain the personal income tax enacted in 1991 and (2) to assess the pros and cons of each existing tax. Each of the report's recommendations was agreed to by a majority of the commission members. The commission recommended retaining the income tax and made several other recommendations regarding that tax and the corporation, sales and use, and estate and succession taxes.

With respect to the property tax, the commission found that the tax creates “significant economic and social dislocations and should be addressed soon.” It pointed especially to the competitive disadvantage resulting from Connecticut being one of the few industrialized states to impose the property tax on production machinery and equipment. But the commission could reach no consensus on reforming the system. Instead, it suggested that legislators consider:

● Establishing a property tax credit against the income tax based on the taxpayer's income.

● Greater use of property tax circuit breakers to limit overall property tax burdens to a taxpayer's ability to pay.

● Unrestricted grants to high-tax municipalities that are phased out as effective tax rates decline.

● Reducing the categories of property eligible for property tax exemptions.

● Providing greater state support for payments in lieu of taxes.

● Having the state assume the cost of certain services provided by municipalities that serve a region or the state as a whole.

● Regional tax sharing among towns.

● State-reimbursed homestead exemptions.

Legislative Action in the 1993 Session

In the 1993 session, the General Assembly passed several acts to address elements of the commission's initial report. Many of the commission's income tax recommendations were included in PA 93-2, which the governor vetoed. The vetoed act would have (1) changed the personal credit to reduce income tax cliffs (a tax “cliff” is a structural provision that drastically increases the amount of tax when a person earns one additional dollar), (2) established a new bracket for higher-income taxpayers with a 6.25% tax rate, (3) increased the standard deduction for single filers, and (4) established an income-based property tax credit against the income tax.

Because of the veto, only two commission recommendations became law in 1993. PA 93-74 conformed Connecticut's estimated income tax payments to federal income tax rules and PA 93-361 authorized the Department of Revenue Services (DRS) commissioner to issue “administrative pronouncements” interpreting tax laws. (Please see Table 2 below for a full list of the commission's 1992 and 1994 recommendations and the legislative action taken on each one.)

PA 93-74 also expanded the tax review commission's scope, requiring it to study (1) property tax treatment of people or businesses who rent or lease motor vehicles without drivers; (2) property tax treatment of commercial vehicles that transport freight in Connecticut, including a comparison with other states and an assessment of the effect the property tax has on the industry; (3) the succession tax, including the effect of repealing it and replacing it with a sponge tax (a sponge tax makes state death taxes equal the maximum federal estate tax credit for an estate); and (4) a reduced tax rate on the sale, furnishing, and distribution of gas for use directly by manufacturers. The act also required the commission to file annual reports, starting by December 15, 1993.

Interim Report – January 6, 1994

In conformance with PA 93-74, the commission filed a second report with the governor and the General Assembly on January 6, 1994. The report made recommendations on (1) enacting a surcharge on rental car fees to reimburse rental car companies for property taxes, (2) eliminating the succession tax, (3) property tax relief for commercial transport vehicles, and (4) the Connecticut alternative minimum income tax. Legislative action on these recommendations is included in Table 2 below.

The Commission After 1994

Although CGS 12-34d makes the commission permanent and requires it to issue annual reports, the commission did not issue any further reports after its January 6, 1994 Interim Report. The appointed commission members' terms expired in September and October of 1994 and neither the governor nor the legislative leaders made new appointments or reappointments. Without members, the commission ceased to operate. In 1997, the General Assembly passed an act that, among other things, repealed the commission's authorizing law along with statutes authorizing 13 other boards and commissions. The repealers were included in a larger act that authorized 57 task forces to study legislative issues (PA 97-310). The governor vetoed PA 97-310 and it did not become law. There has been no other proposal to repeal the tax review commission's authorizing statute, which consequently remains on the books.


Table 2 summarizes the commission's recommendations from both reports and lists the initial legislative action, if any, on each one. As the table shows, many of the commission's recommendations that required legislation were implemented, though not right away.

Table 2: Legislative Action on Tax Review Commission Recommendations

Initial Report – December 17, 1992



Legislative Action

Income tax

Retain the income tax.

None needed


Remove the “cliffs” in the tax resulting from the way the personal credit against the tax is phased out.

PA 93-2 (VETOED)

PA 94-4, May Special Session


Retain the federal adjusted gross income as the state tax's starting point and do not enact state versions of various federal deductions.

None needed


Encourage DRS to adopt rules for collecting Connecticut taxes on Connecticut-sourced income paid to nonresidents that make as their primary objectives: (1) balancing revenue goals with promoting Connecticut's competitiveness, (2) providing certainty to taxpayers and employers, and (3) establishing a manageable implementation system.

Not needed




Legislative Action


DRS rules should treat residents and nonresidents equally with respect to Connecticut-sourced income. DRS rules in this area should be prospective only and allow ample scope for comment by taxpayers and employers.

Not needed

Corporation Tax

Simplify estimated tax payments by conforming corporation tax due dates and safe harbors to federal rules

PA 95-327


Credit overpayments to estimated tax as of the date the state receives the payment or the 15th day of the third month of the estimated tax year, whichever is later.

PA 95-327


Reduce the 20% interest rate on tax and estimated tax underpayments and adjust the interest rate periodically according to a generally recognized objective index.

PA 94-4, May Special Session (Rate reduction only)


DRS should establish guidelines for exercising its authority to redetermine taxable income apportionable to Connecticut.

Limits on DRS' discretion adopted in PA 94-4, May Special Session


Enact legislation to establish clear safe harbors for (1) taxpayers using the statutory apportionment structures and (2) deduction of dividend-related expenses.

Addressed in PA 94-4, May Special Session


Establish legislative rules for use of net operating losses in corporate mergers, reorganizations, and liquidations that follow federal guidelines.

PA 96-197 allows DRS to adopt regulations to do this, which may follow federal guidelines


Reduce the punitive “preference tax” rates. The preference tax recovered up to $25,000 of tax savings derived from corporate affiliated groups filing combined returns that allow profitable group members to save taxes by using other group members' losses. Allow a preference tax exemption for small groups where the savings from filing a combined return is less than the preference tax amount.

Not implemented. PA 03-6, June 30 Special Session increased the maximum preference tax from $25,000 to $250,000.


Eliminate corporate income tax on S corporations and treat them like partnerships for income tax purposes.

PA 96-175 phased out the corporation tax on S corporations over five years.




Legislative Action

Sales and Use Tax

By statute or regulation, prevent double taxation when both the seller and buyer are audited and charged on the same transaction.

No legislation


Eliminate the tax on taxable business analysis, management, management consulting, and public relations services or better define taxable services.

Not implemented


Repeal or phase out the tax on computer and data processing services.

PA 94-4, May Special Session adopted a five-year phase-out to run from 1996 though 2001.


To eliminate a disincentive for multistate companies to be headquartered in Connecticut, allow such companies to apportion taxable services within and without the state to reflect multistate operations.

No legislation


Reduce 20% interest rate on late tax payments.

PA 94-4, May Special Session


Require the state to pay interest on late refunds of sales tax overpayments.

Not implemented

Succession & Estate Taxes

Repeal the succession tax.

PA 95-256 enacted a multi- year succession tax phase-out. PA 05-251 repealed the remaining tax.


Consider adopting a sponge tax to allow the state to collect a tax equal to the maximum federal estate tax credit for state death taxes paid.

Existing sponge tax effectively repealed by 2001 federal law eliminating the federal estate tax credit. PA 05-251 replaced the sponge tax with new state estate tax.




Legislative Action

Interim Report – January 6, 1994

Rental Car Surcharge

Do not impose a 3%-5% surcharge on car rentals in Connecticut to reimburse car rental companies for property taxes imposed on rental vehicles.

Rejected. PA 95-294 adopted a 3% rental car surcharge.

Succession Tax

Phase-out the succession tax.

PA 95-256 enacted a multi-year succession tax phase-out. PA 05-251 repealed the remaining tax.

Property Tax on commercial transport vehicles

(1) Repeal the property tax on commercial vehicles with an offsetting increase in registration fees and (2) use the additional revenue from the higher registration fees to offset municipal revenue loss from the property tax repeal.

Partially implemented. PA 96-265 exempted new commercial vehicles from property tax for five years, with towns' revenue losses reimbursed by a state payment in lieu of taxes.

Connecticut Alternative Minimum Income Tax (AMT)

Replace the AMT adopted in 1993 with one that (1) covers only those items that reduce Connecticut income tax liability and (2) has the same rate as the overall income tax. Make the AMT change retroactive to January 1, 1993 but require taxpayers to pay the lesser of the old or the amended AMT tax for the 1993 income year.

PA 94-4, May Special Session revised the AMT along these lines.

The Connecticut Spending Cap

Office of Fiscal Analysis

Connecticut General Assembly


The state's constitutional limit on spending has exerted a major influence on Connecticut's budgetary process over the last ten years. The governor and legislators have frequently cited the spending cap as having narrowed the options available to the General Assembly in establishing a level of expenditures for the biennium. The cap may also be responsible for limiting the overall growth of the state's budget, especially when surplus funds become available. The state's spending restrictions are based upon both constitutional law and statutory authority. Article III section 18, the constitutional provision passed by the general electorate by a four-to-one margin in 1992, sets forth the requirements for a balanced state budget, the procedure to be followed for applying a budgetary spending cap, and the use of surplus funds.

While the constitutional provision establishes the basic elements of the spending cap, it is left to the legislature to define key terms needed to make the cap operational. Those terms in need of defining include “general budget expenditures”, “increase in personal income”, and “increase in inflation”. Left undefined, the calculation of the spending cap would be unworkable. The constitutional amendment also requires a three-fifths vote of the General Assembly to enact or amend statutory definitions as well as to authorize a spending level that exceeds the cap. Any unappropriated surplus must first go into the budget reserve fund (rainy day fund) or be used to reduce bonded indebtedness unless the legislature authorizes some other use by a three-fifths vote.

Recognizing the need to define these terms, the legislature passed statutory language in 1991 prior to the adoption of the constitutional amendment in 1992. In fact the statute was passed on the same day that the constitutional resolution was passed by the General Assembly. That proposed legislation was cited by its introducer on the floor of the House of Representatives as “statutory definitions to a temporary spending cap”. Connecticut General Statutes Section 2-33a sets forth the specific definitions of terms used in the constitutional provision. These definitions, passed by a simple majority (not the three-fifths as subsequently required by the Constitution amendment), have governed the calculation of the cap for the past ten years. In 1993, the House Minority Leader posed a series of questions to the Attorney General concerning the relationship between the statutory and constitutional spending caps. The Attorney General issued an opinion that has been frequently cited as the authority under which the spending cap is currently operational (Op. Atty. Gen. 93-006). In that opinion, the AG determined that even though the definitions were passed by the legislature prior to the ratification of the constitutional amendment, it is vested with constitutional authority and thus binds future legislatures to those statutory provisions.

An examination of the opinion provides guidance to the constitutional authority granted the statutory spending cap. The Attorney General found that the statutory cap is not repealed by the subsequent passage of the Constitutional amendment. He states that the “cap remains in place until the General Assembly enacts the Constitutional definitions…”. The attorney general goes on to conclude that amending the statutory provision by less than three-fifths would render the constitutional amendment a nullity and states that it remains in place until new definitions are passed in accordance with constitutional law. It is this “temporary” spending cap that continues to guide the calculation of the spending cap.


The statute established the methodology for calculating the cap and defined three key terms: general budget expenditures, personal income, and inflation. The method for calculating the cap requires that the General Assembly limit general budget expenditures for the next fiscal year by a specific percentage increase over the previous year. General budget expenditures are those monies from appropriated funds authorized by public or special act of the General Assembly. Excluded from the spending limitation are appropriations for debt service, statutory grants to distressed municipalities in effect on July 1, 1991 and federal mandates or court orders for one year. The percentage increase to which the legislature is limited is either the current rate of inflation, defined by consumer price index published by the federal Bureau of Labor Statistics, or the five year average of the annual personal income growth for the state as compiled by the federal Bureau of Economic Analysis. The higher of two percentages establishes the growth rate for the cap calculation. Since its inception the growth in personal income has exceeded the inflationary increase. The key features of the spending cap are as follows:

● The spending limitation for the next fiscal year is calculated from the total appropriated funds of the previous fiscal year (the base year).

● The percentage growth rate (either 5-year income average or single year's rate of inflation) is multiplied by the base year and additional appropriated funds are limited to that amount.

● Excluded from the base year and the next fiscal year expenditures are debt payments, grants to distressed municipalities, federal mandates and court orders.

Expenditures fall into two categories: capped and non-capped. Non-capped expenditures include debt payments, distressed grants, federal mandates, and court ordered expenditures. All other expenditures fall under the spending cap growth rate and are subject to limitations.

The authority and responsibility to calculate the spending cap is not identified by constitutional amendment or statute, but has historically been done by the Office of Policy and Management (OPM) and the Office of Fiscal Analysis (OFA). The calculation first appears in the Governor's budget message to the legislature and is done by OPM. The final calculation is done by OFA based upon the appropriations passed by the General Assembly.

Exceeding the Spending Cap

To exceed the spending cap the Constitution requires two actions to be taken. First the governor must declare “an emergency or the existence of extraordinary circumstances” and second at least three-fifths of the General Assembly must approve the action. The legislature cannot act on its own to exceed the cap; it must first receive a declaration from the governor. The state exceeded the cap in years in which a surplus existed and was appropriated for specific purposes. In all those years surplus spending was accompanied by a declaration and a super majority vote. The governor also has the authority to decide if surplus spending, when appropriated in the base year, is to be counted in the base for purpose of calculating the spending cap. In each of the years that the cap was exceeded surplus appropriations were not included in the base when calculating the cap for the subsequent year.

Spending Cap for FY 06 and FY 07

The Governor has recommended an all funds appropriation of $15.2 billion in FY 06 and $15.8 billion in FY 07. The recommended budget is calculated to be over the spending cap by $198.7 million in FY 06 and under the cap by $63.6 million in FY 07. The Governor recommends that $244 million in expenditures that results from the imposition of a provider tax on nursing homes be excluded, one-time, from “capped” budget expenditures in FY 06. This will be achieved by including the $244 million of expenditures in the category of “uncapped expenditures”. If this is approved by three-fifths of the General Assembly and the Governor presents the legislature with a declaration as required by the Connecticut Constitution, then the Governor's proposed budget would be under the cap by $45.3 million in FY 06 and $63.6 million in FY 07. The governor recommends appropriating sufficient funds in FY 05 to raise the base to allow for additional room under the cap in FY 06.