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OFA Fiscal Note and OLR Bill Analysis

sSB-932

AN ACT CONCERNING VARIOUS REVENUE MEASURES.

OFA SUMMARY IMPACT:

State Impact:

Agency Affected

Fund-Effect

FY 10 $

FY 11 $

Department of Revenue Services

GF - Revenue Gain

1. 653 billion

1. 600 to 1. 640 billion

Department of Revenue Services

GF - Cost

500,000

None

Note: GF=General Fund

Municipal Impact: None

In addition to the revenue impact outlined below the Department of Revenue Services will incur primarily one-time costs of $ 500,000 to administer the tax changes. These costs are likely to be incurred in FY 10.

OLR SUMMARY:

This bill increases the income tax by:

1. adding four higher-income brackets to the tax and raising the rates on those brackets from 5% to between 6% and 7. 95% and to a flat 7. 95% for trusts and estates,

2. lowering income eligibility for the property tax credit against the tax by 25% (27% for single filers) for the 2009 tax year and 75% (76% for single filers) for tax year 2010 and after,

3. delaying scheduled income tax reductions for single filers by three years, and

4. prohibiting taxpayers from using the federal domestic production activity deduction when calculating state income tax.

The bill increases business taxes by:

1. imposing a 30% corporation tax surcharge for income years 2009, 2010, and 2011;

2. reducing the maximum amount by which companies can use tax credits to reduce their corporation or insurance premium tax liability from 70% to 65% for the 2009 income year and 50% for 2010 and after;

3. barring companies from using the federal domestic production activity deduction to reduce their corporation tax liability; and

4. eliminating corporation tax exemptions for (a) domestic international service corporations (DISCs) and (b) income other companies receive from such companies.

The bill also:

1. increases the cigarette tax from $ 2 to $ 2. 50 per pack as of January 1, 2010;

2. imposes a 30% surcharge on estates of those who die during 2009, 2010, and 2011 that exceed $ 2 million and are subject to Connecticut estate tax;

3. suspends the sales tax free week for 2009 and 2010; and

4. as of July 1, 2010, eliminates many sales tax exemptions and extends the tax to charges for additional services.

The bill also makes technical and conforming changes.

EFFECTIVE DATE: Various. See below.

INCOME TAX

16 – Rate Increase

OFA Fiscal Impact

The bill is anticipated to result in General Fund revenue to the personal income tax of $ 1. 226 billion in FY 10 and $ 825. 9 million per year beginning in FY 11. The expected revenue gain for FY 10 is for 18 months (January 2009 through June 2010).

OLR Analysis

This bill increases income taxes for those with taxable incomes over $ 250,000 for joint filers, $ 132,500 for single filers, $ 200,000 for heads of household, and $ 125,000 for married people filing separately. It does so by adding four higher-income brackets and increasing the marginal tax rates for those brackets from a flat 5. 0% to a range of 6. 0% to 7. 95%. It increases the flat tax rate for trusts and estates from 5. 0% to 7. 95%.

Table 1 shows tax rates and brackets under the current law and the bill. (Note: The tax rates shown apply only to the taxable income in the applicable bracket, not to all of a taxpayer's income. )

TABLE 1: CURRENT AND PROPOSED TAX RATES AND BRACKETS

TAX RATES

CT TAXABLE INCOME

Married Filing Jointly

Single

Current

Bill

Over

But Not Over

Over

But Not Over

3. 0%

3. 0%

$ 0

$ 20,000

$ 0

$ 10,000

5. 0%

5. 0%

20,000

250,000

10,000

132,500

6. 0%

250,000

500,000

132,500

265,000

7. 0%

500,000

750,000

265,000

397,500

7. 5%

750,000

1,000,000

397,500

530,000

7. 95%

Over $ 1,000,000

Over $ 530,000

TAX RATES

Head of Household

Married Filing Separately

Current

Bill

Over

But Not Over

Over

But Not Over

3. 0%

3. 0%

$ 0

$ 16,000

$ 0

$ 10,000

5. 0%

5. 0%

16,000

200,000

10,000

125,000

6. 0%

200,000

400,000

125,000

250,000

7. 0%

400,000

600,000

250,000

375,000

7. 5%

600,000

800,000

375,000

500,000

7. 95%

Over $ 800,000

Over $ 500,000

EFFECTIVE DATE: July 1, 2009 and applicable to tax years starting on or after January 1, 2009.

20 – Property Tax Credit

OFA Fiscal Impact

The bill is anticipated to result in a General Fund revenue gain to the personal income tax of $ 72. 5 million in FY 10 and $ 324. 0 million per year beginning in FY 11.

OLR Analysis

The bill lowers the income thresholds for phasing out the property tax credit against the income tax by 25% (27% for single filers) for the 2009 tax year and 75% (76% for single filers) for the 2010 tax year. It also makes the phase-out steps smaller so the credit phases out faster. These changes make fewer taxpayers eligible for the credit and reduce the maximum amounts taxpayers receive if their incomes exceed the lower phase-out thresholds. Table 2 shows the current and proposed credit phase-out thresholds for the two years, by filing status.

TABLE 2: MAXIMUM PROPERTY TAX CREDIT AND PHASE-OUT SCHEDULES BY FILING STATUS

Married Filing Jointly

Maximum

Credit

Current Law

The Bill: Tax Year 2009

The Bill: Tax Year 2010

CT AGI

Over

CT AGI

Not

Over

CT AGI

Over

CT AGI

Not

Over

CT AGI

Over

CT AGI

Not

Over

$ 500

$ 0

$ 100,500

$ 0

$ 75,375

$ 0

$ 25,125

450

100,500

110,500

75,375

82,875

25,125

27,625

400

110,500

120,500

82,875

90,375

27,625

30,125

350

120,500

130,500

90,375

97,875

30,125

32,625

300

130,500

140,500

97,875

105,375

32,625

35,125

250

140,500

150,500

105,375

112,875

35,125

37,625

200

150,500

160,500

112,875

120,375

37,625

40,125

150

160,500

170,500

120,375

127,875

40,125

42,625

100

170,500

180,500

127,875

135,375

42,625

45,125

50

180,500

190,500

135,375

142,875

45,125

47,625

0

Over $ 190,500

Over $ 142,875

Over $ 47,625

Single

Maximum

Credit

Current Law

The Bill: Tax Year

2009

The Bill: Tax Year 2010

CT AGI

Over

CT AGI

Not

Over

CT AGI

Over

CT AGI

Not

Over

CT AGI

Over

CT AGI

Not

Over

$ 500

$ 0

$ 58,500

$ 0

$ 42,375

$ 0

$ 14,125

450

58,500

68,500

42,375

49,875

14,125

16,625

400

68,500

78,500

49,875

57,375

16,625

19,125

350

78,500

88,500

57,375

64,875

19,125

21,625

300

88,500

98,500

64,875

72,375

21,625

24,125

250

98,500

108,500

72,375

79,875

24,125

26,625

200

108,500

118,500

79,875

87,375

26,625

29,125

150

118,500

128,500

87,375

94,875

29,125

31,625

100

128,500

138,500

94,875

102,375

31,625

34,125

50

138,500

148,500

102,375

109,875

34,125

36,625

0

Over $ 148,500

Over $ 109,875

Over $ 36,625

Head of Household

Maximum

Credit

Current Law

The Bill: Tax Year

2009

The Bill: Tax Year 2010

CT AGI

Over

CT AGI

Not

Over

CT AGI

Over

CT AGI

Not

Over

CT AGI

Over

CT AGI

Not

Over

$ 500

$ 0

$ 78,500

$ 0

$ 58,875

$ 0

$ 19,625

450

78,500

88,500

58,875

66,375

19,625

22,125

400

88,500

98,500

66,375

73,875

22,125

24,625

350

98,500

108,500

73,875

81,375

24,625

27,125

300

108,500

118,500

81,375

88,875

27,125

29,625

250

118,500

128,500

88,875

96,375

29,625

32,125

200

128,500

138,500

96,375

103,875

32,125

34,625

150

138,500

148,500

103,875

111,375

34,625

37,125

100

148,500

158,500

111,375

118,875

37,125

39,625

50

158,500

168,500

118,875

126,375

39,625

42,125

0

Over $ 168,500

Over $ 126,375

Over $ 42,125

Married Filing Separately

Maximum

Credit

Current Law

The Bill: Tax Year

2009

The Bill: Tax Year 2010

CT AGI

Over

CT AGI

Not

Over

CT AGI

Over

CT AGI

Not

Over

CT AGI

Over

CT AGI

Not

Over

$ 500

$ 0

$ 50,250

$ 0

$ 37,688

$ 0

$ 12,563

450

50,250

55,250

37,688

41,438

12,563

13,813

400

55,250

60,250

41,438

45,188

13,813

15,063

350

60,250

65,250

45,188

48,938

15,063

16,313

300

65,250

70,250

48,938

52,688

16,313

17,656

250

70,250

75,250

52,688

56,438

17,656

18,183

200

75,250

80,250

56,438

60,188

18,183

20,063

150

80,250

85,250

60,188

63,938

20,063

21,313

100

85,250

90,250

63,938

67,688

21,313

22,563

50

95,250

100,250

67,688

71,438

22,563

23,813

0

Over $ 100,250

Over $ 71,438

Over $ 23,813

EFFECTIVE DATE: July 1, 2009 and applicable to tax years starting on or after January 1, 2009.

18 & 19 – Delay in Scheduled Income Tax Reductions for Single Filers

OFA Fiscal Impact

The bill is anticipated to result in a General Fund revenue gain to the personal income tax of $ 23. 9 million in FY 10, $ 30. 2 million in FY 11, $ 36. 4 million in FY 12, $ 30. 8 million FY 13, $ 18. 9 million in FY 14, and $ 6. 3 million in FY 15.

OLR Analysis

The bill delays scheduled income tax reductions for single filers for three years. It delays scheduled increases in (1) their adjusted gross income (AGI) exempt from the tax and (2) income thresholds for reducing their personal exemptions and credits.

Personal Exemption. The maximum personal exemption for single filers for the 2008 tax year is $ 13,000. Under current law, the maximum exemption is scheduled to increase to $ 13,500 on January 1, 2009 and to rise in five more annual steps to $ 15,000 on January 1, 2012. The bill instead maintains the $ 13,000 personal exemption for three more years, through the 2011 tax year, delaying the increase to $ 13,500 and each subsequent increase by three years. It also delays scheduled increases in the exemption reduction thresholds to correspond, as shown in Table 3. (The income tax personal exemption is reduced by $ 1,000 for each $ 1,000 of AGI over a specified threshold, which varies according to filing status. )

TABLE 3: PERSONAL EXEMPTIONS FOR SINGLE FILERS

Tax Year(s)

Maximum Personal Exemption

(AGI)

Personal Exemption

Reduction Threshold (AGI)

Current

The Bill

2008

2008-2011

$ 13,000

$ 26,000

2009

2012

13,500

27,000

2010

2013

14,000

28,000

2011

2014

14,500

29,000

2012 and after

2015 and after

15,000

30,000

Personal Credit. The bill also delays by three years scheduled increases in income ranges that allow single filers to qualify for personal credits against their income tax. Personal credits range from 1% to 75% of tax liability depending on AGI. Filers with AGIs above specified levels, which vary depending on filing status, do not qualify for any credit. Table 4 shows qualifying personal credit income ranges for single filers under current law and the bill.

TABLE 4: PERSONAL CREDITS FOR SINGLE FILERS

Tax Year(s)

Qualifies for 1% to 75% Personal Credit (AGI)

Current

The Bill

Over

But Not Over

2008

2008-2011

$ 13,000

$ 56,500

2009

2012

13,500

58,500

2010

2013

14,000

60,500

2011

2014

14,500

62,500

2012 and after

2015 and after

15,000

64,500

EFFECTIVE DATE: July 1, 2009 and applicable to income years starting on or after January 1, 2009.

CORPORATION TAX

3 & 7 – Surcharge

OFA Fiscal Impact

The bill is anticipated to result in a General Fund revenue gain to the corporation tax of $ 160. 0 million in FY 10, $ 106. 0 million in FY 11, and $ 49. 0 million in FY 12.

OLR Analysis

The bill imposes a 30% corporation tax surcharge for income years 2009, 2010, and 2011. Companies must calculate their surcharges based on their tax liability excluding any credits. The surcharge is due, payable, and collectible as part of each company's total tax for the year.

The surcharge applies to all companies that pay the tax, except those owing only the $ 250 minimum tax. It applies both to companies that pay the tax on their net income and those that pay on their capital base.

EFFECTIVE DATE: July 1, 2009 and applicable to income years starting on or after January 1, 2009.

2, 4 & 6 – Exemptions for Domestic International Service Companies (DISCs)

OFA Fiscal Impact

The bill is anticipated to result in a General Fund revenue gain to the corporation tax of $ 50 million per year beginning in FY 10.

OLR Analysis

The bill eliminates corporation tax exemptions for (1) companies that qualify under the federal tax code as domestic international service companies (DISCs) and (2) dividends that other companies receive from DISCs. It also requires companies to include receipts from DISCs in their total receipts for interstate apportionment purposes.

Under the federal tax code, companies that meet certain conditions (see BACKGROUND) and receive most of their income from qualified exports, can elect to be treated as interest charge DISCs (IC-DISCs) for federal tax purposes. Unlike most corporations, IC-DISCs are not generally subject to federal tax on their income. Instead, their shareholders pay taxes on the income when it is actually distributed, but federal law allows the taxes on those distributions to be deferred if the shareholders pay annual interest on the deferred amounts. The IRS establishes the annual interest rate based on the 12-month Treasury bill interest rate (Internal Revenue Code, 992; 995(f)).

EFFECTIVE DATE: July 1, 2009 and applicable to income years starting on or after January 1, 2009.

1 & 5 – TAX CREDIT LIMITS – INSURANCE PREMIUM AND CORPORATION TAX

OFA Fiscal Impact

The bill is anticipated to result in a General Fund revenue gain to the corporation tax and insurance premiums tax of $ 10. 0 million in FY 10 and $ 40. 0 million per year beginning in FY 11.

OLR Analysis

The bill reduces the maximum total value of tax credits that a company can take against its insurance premium or corporation tax liability for any income year from 70% of its liability without the credits to (1) 65% for the income year starting January 1, 2009 and (2) 50% for income years starting on or after January 1, 2010.

EFFECTIVE DATE: July 1, 2009 and applicable to income years beginning on or after January 1, 2009.

4 & 17 – DECOUPLING FROM THE FEDERAL DOMESTIC PRODUCTION ACTIVITY DEDUCTION

OFA Fiscal Impact

The bill is anticipated to result in a General Fund revenue gain to the corporation business tax of $ 27. 5 million per year beginning in FY 10.

OLR Analysis

The bill bars companies and individuals from using the federal tax deduction for domestic production activity when determining their taxable income for the state corporation and income taxes, thus increasing their state tax liability.

Federal tax law allows corporations, individuals, and pass-through companies to deduct a percentage of qualifying income they earn from eligible production activities taking place wholly or mostly within the United States. Eligible production activity includes manufacturing, construction, engineering, energy production, computer software, films and videotape, and agricultural products processing. The percentage deduction is 6% for 2008 and 2009 and 9% for 2010 and after (Internal Revenue Code 199).

The bill requires (1) corporations to exclude the domestic production activity deduction when calculating net income for purposes of the state corporation tax and (2) individuals to add back any such deduction included in their federal AGI when calculating Connecticut AGI for state income tax purposes.

EFFECTIVE DATE: July 1, 2009. The corporation tax change applies to income years starting on or after January 1, 2009 and the income tax change applies to tax years starting on or after January 1, 2009.

8-10 – CIGARETTE TAX

OFA Fiscal Impact

The bill is anticipated to result in a General Fund revenue gain of $ 36. 0 million in FY 10 and $ 63. 0 million per year beginning in FY 11. The estimates include the impact to: 1) the cigarette excise tax, 2) the sales and use tax, and 3) a one-time revenue gain of $ 4. 4 million in FY 10 as a result of the floor tax.

OLR Analysis

The bill increases the cigarette tax by 50 cents, from $ 2 to $ 2. 50 per pack of 20 (from 10 cents to 12. 5 cents per cigarette), starting January 1, 2010.

The bill also imposes a 50-cent “floor tax” on each pack of cigarettes that dealers and distributors have in their inventories at the later of the close of business or 11: 59 p. m. on December 31, 2009. By March 15, 2010, each dealer and distributor must report to the Department of Revenue Services (DRS) the number of cigarettes in inventory as of that time and date and pay the inventory tax. If a dealer or distributor does not report by the due date, the DRS commissioner must file the report, estimating the number of cigarettes in the dealer's or distributor's inventory using any information the commissioner has or obtains.

Failure to file the report by the due date is grounds for DRS to revoke a dealer's or distributor's license, and willful failure to file subjects the dealer or distributor to a fine of up to $ 1,000, one year in prison, or both. A dealer or distributor who willfully files a false report can be fined up to $ 5,000, sentenced to one to five years in prison, or both. Late filers are also subject to the same interest and penalties as apply to other late cigarette tax payments.

EFFECTIVE DATE: January 1, 2010. The increased rate applies to cigarette sales on or after that date.

11 – ESTATE TAX SURCHARGE

OFA Fiscal Impact

The bill is anticipated to result in a General Fund revenue gain to the estate and gift tax of $ 42. 7 million in FY 10, $ 51. 2 million in FY 11, and $ 53. 3 million in FY 12.

OLR Analysis

The bill imposes a 30% surcharge on the estate tax of those who die during 2009, 2010, and 2011. The estate tax applies to taxable gifts and estates over $ 2 million. Under the bill, the surcharge must be added to the Connecticut estate tax due and is payable in the same manner as the underlying tax.

EFFECTIVE DATE: July 1, 2009 and applicable to estates of those who die on or after January 1, 2009.

SALES TAX

13 – Sales Tax Free Week

OFA Fiscal Impact

The bill is anticipated to result in a General Fund revenue gain to the sales and use tax of $ 4. 2 million in FY 10 and $ 4. 4 million in FY 11.

OLR Analysis

The bill suspends the sales tax free week for the 2009 and 2010 calendar years. Under current law, clothing and footwear costing less than $ 300 is not subject to the state's 6% sales tax when purchased between the third Sunday in August and the following Saturday.

EFFECTIVE DATE: July 1, 2009

12, 14, 15 & 21-32 – Sales Tax Exemptions Eliminated

OFA Fiscal Impact

The bill is anticipated to result in a General Fund revenue gain to the sales and use tax of approximately $ 80 to $ 120 million per year beginning in FY 11. The bill is also anticipated to result in a General Fund revenue loss to the real estate conveyance tax of approximately $ 1 to $ 3 million per year beginning in FY 11.

OLR Analysis

Starting July 1, 2010, the bill repeals many sales tax exemptions and extends the 6% sales tax to certain services that are currently exempt. Table 5 lists the eliminated exemptions, by category. Exemptions requiring additional explanation are described separately below. The bill also makes technical and conforming changes.

TABLE 5: SALES TAX EXEMPTIONS ELIMINATED

STATUTE

CONSUMER ITEMS

12-412 (52)

Cloth or fabric for noncommercial home sewing of clothes

12-412 (53)

Disposable pads for incontinency

12-412 (91)

Safety apparel or protective clothing an employees wears or uses at work

12-412 (102)

Bicycle helmets

12-412 (108)

Child car seats

12-412 (109)

College textbooks and related workbooks

12-412 (111)

Specially formulated gum, inhalants, or similar products designed to help someone stop smoking

STATUTE

UTILITIES & ENERGY SYSTEMS

12-412 (90)

Items or services used by a water company in maintaining, operating, managing, or controlling a well, water body, or distributing plant or system to supply water to at least 50 consumers

12-412 (117)

Solar electricity generating, water, and space heating systems and geothermal resource systems and related equipment and service

STATUTE

MOTOR VEHICLES

12-412 (82) & (83)

Commercial motor vehicles or motor buses when, for at least one year after purchase, a minimum of 75% of their revenue comes from out-of-state or interstate trips

12-412 (110)

High mileage vehicles with an EPA mileage rating of 40 mpg or more (This exemption is currently scheduled to expire on July 1, 2010. )

12-430 (6)

Trade-in allowance for licensed motor vehicle dealers (see explanation below)

12-430a

Trade-in allowance on certain construction equipment (see explanation below)

STATUTE

PRINTING & PHOTOGRAPHY

12-412 (31)

Printed material manufactured in Connecticut for use outside the state

12-412 (71)

Commercial printing machinery, equipment, tools, materials, and supplies

12-412 (72)

Machinery, equipment, tools, materials, and supplies for typesetting, color separation, finished copy, and similar products

12-412 (88)

Machinery, equipment, tools, and materials used exclusively for processing photographic film and paper

STATUTE

MOTION PICTURES & BROADCASTING

12-407(a) (8)(B)(viii) and (9) (B) (viii)

Separately stated charges for compensation, fringe benefits, workers' compensation, and payroll taxes or assessments paid to a media payroll services company

12-407 (a) (27)

Noncable communications service bought by a cable network (Noncable telecommunications services are telecommunications services other than video programming or information and subscriber interactions that are provided through cable, satellite, or similar means. )

12-412 (44) (A)

Taped or filmed radio or t. v. programs and materials that become components for such programs, if the programs (a) will be broadcast to the public by a radio or t. v. station or (b) used for accredited medical or surgical training

12-412 (44) (B)

Motion picture or video production or sound recording equipment to become part of master tapes, records, or videotapes used for commercial entertainment, advertising, or educational purposes

12-412 (44) (C)

Equipment, including antennas, that radio or t. v. stations use to broadcast programs to the general public

12-407(a)(2) (J); 12-412 (50)

Lease or rental of movies for display by a theater owner or operator

STATUTE

COMMERCIAL FISHING & FARMING

12-412 (40)

Commercial fishing boats and machinery and equipment for use in them

12-412 (63)

Items sold exclusively for agricultural production by a farmer engaged in the business of farming

STATUTE

MANUFACTURING & MISCELLANEOUS BUSINESS

12-407(a) (8)(B)(viii) and (9) (B) (viii)

Separately stated wages and benefits paid to or on behalf of (1) leased employees and (2) worksite employees by professional employer organizations under professional employer agreements

12-412 (21) & (22)

Items or services used to operate waste treatment or air pollution control facilities

12-412 (43)

Replacement parts for machinery sold to a business located in an enterprise zone

12-412 (64)

Equipment for producing or cleaning computer discs and for maintaining climate-controls needed for those processes

12-412 (65)

Metal casting foundry purchases of molds, dies, patterns, and sand handling equipment

12-412 (66)

Pattern shop sales of molds, dies, and patterns to metal casting foundries or their customers for use in foundries, and pattern shop purchases in connection with such sales

12-412 (74)

Computer and data processing services (1) sold to a customer by a company that acquired the operations of a data processing facility from that customer or (2) by any other company that subsequently acquires the facility, for services it continues to provide to the original customer

12-412 (89)

Machinery, equipment, tools, materials, supplies, and fuel used directly in the biotechnology industry

12-412 (95)

Items or services for operating a Department of Environmental Protection-certified waste-to-energy facility

12-412 (113)

Materials, tools, fuel, machinery, and equipment used in a fuel cell manufacturing facility

12-412c

Sale and resale of mobile manufactured, modular, or prefabricated homes (see explanation below)

12-412i

Partial exemption for materials that become ingredients or components of tangible personal property to be sold

STATUTE

HOSPITALS, NURSING HOMES, ETC.

12-412 (5) (A)

Goods or services sold by nonprofit charitable hospitals, nursing homes and residential care homes

12-412 (5) (B)

Items sold by a tax-exempt organization on the premises of a hospital

12-412 (5) (C)

Items sold to an acute-care, for-profit hospital operating as such on May 12, 2004. To be exempt, the items must be sold to the institution in connection with building and equipping any of its facilities that have a certificate of need application filed before, and pending on, May 12, 2004.

12-407 (a) (37) (N)(i)

Non-metered parking in seasonal lots with 30 or more spaces provided by a nonprofit charitable hospital, nursing home, rest home, residential care home, certain acute-acre for-profit hospitals, or a nonprofit organization exempt from federal income taxes

STATUTE

SERVICES

12-407(a) (37) (BB)

Services of a massage therapist or electrologist licensed by the Department of Public Health

12-407 (a) (37) (D) (i)

Security, patrol, and protection services provided by off-duty police officers or firefighters

12-407 (a) (37) (J) (ii)

Training services for businesses provided by colleges and universities accredited by the Board of Governors of Higher Education

12-407 (a) (37) (N) (ii)

Non-metered motor vehicle parking spaces in an employer-operated lot owned or leased for a minimum of 10 years and operated for the exclusive use of its employees

12-407 (a) (37) (N) (iii)

Airport valet parking

12-407 (a) (37) (N) (iv)

Space in state-owned or operated or municipally operated railroad parking facilities located in an area designated as a severe nonattainment area for ozone under the federal Clean Air Act. (This exemption is obsolete because Connecticut no longer has any such areas. )

12-407 (a) (37) (S)

Consignment services (other than auctioneer services) for someone selling (a) works of art or (b) clothing and footwear other than that for specialized athletic or protective use or accessories, such as jewelry

Currently exempt

Car washing

Currently exempt

Tax preparation

Currently exempt

Amusement and recreation (see explanation below)

12-412 (41)

Services to determine the human health consequences of consuming or using any product, substance, or element

12-412 (58)

Personnel, management, or research services when both the seller and recipient are participating in a joint venture for research and new product development

12-412 (104) (A)

Calibration services for manufacturing production machinery, equipment, or instrumentation

12-412 (104) (B)

Compliance practices and services associated with quality management and quality assurance standards created by the International Organization of Standards

EFFECTIVE DATE: July 1, 2010 and applicable to sales occurring on or after that date.

12 – Amusement and Recreation Services (Revised)

The bill extends the sales tax to certain amusement and recreation services.

Under the bill, the sales tax applies to charges for activities included in major group 79 of the 1987 Standard Industrial Classification Manual or sector 71 in the 1997 North American Industrial Classification Manual. These classifications cover such activities, events, and venues as performing arts; professional and other spectator sports; museums and historical sites; zoos and botanical gardens; the amusement, gambling, and recreation industries, including amusement and theme parks and arcades; golf and country clubs; marinas; skiing facilities; fitness and recreational sports centers; dance studios; and bowling alleys.

The bill continues to exempt charges for dancing lessons and amusement and recreation services provided:

1. (a) by the federal, state, or local government or other state political subdivision; a nonprofit charitable hospital, nursing home, rest home, or residential care home; or a federally tax-exempt entity or (b) in a facility owned or managed by the federal, state, or local government or other state political subdivision; and

2. with no additional charges, dues, or fees for participation that are subject to the state admissions or dues tax.

The governmental and nonprofit exemptions specified above do not apply to athletic or sporting activities unless they are organized exclusively for people under age 19.

EFFECTIVE DATE: July 1, 2010 and applicable to sales occurring on or after that date.

15 – Trade-In Allowance for Licensed Motor Vehicle Dealers

The bill eliminates the sales tax trade-in allowance for licensed motor vehicle dealers. Under current law, when a dealer replaces a vehicle that was registered to the dealer and that is no longer in the dealer's possession, the sales tax applies only to the difference between the cost of the new vehicle and the wholesale value of the one being replaced. The bill makes the tax apply to the full price of the new vehicle.

EFFECTIVE DATE: July 1, 2010 and applicable to sales occurring on or after that date.

32 – Trade-In Allowance on Certain Construction Equipment or Machinery

The bill eliminates a trade-in allowance against the sales tax on new self-powered construction machinery or equipment. Under current law, the sales tax on sales of new machinery or equipment must be based on the difference between the amount allowed by the retailer as trade-in value on the old equipment and the price of new equipment.

EFFECTIVE DATE: July 1, 2010 and applicable to sales occurring on or after that date.

32 – Mobile Manufactured Home Exemptions

The bill eliminates sales tax exemptions for (1) 30% of a manufacturer's sale price for a new mobile manufactured, modular, or prefabricated home and (2) resale of a modular home or mobile manufactured home located in mobile home parks or on a single-family lot. It also eliminates a requirement that subjects the resale of a mobile manufactured or modular home to the real estate conveyance tax.

EFFECTIVE DATE: July 1, 2010 and applicable to sales occurring on or after that date.

32 – Sales Tax Credit for Computer Equipment Provided to Higher Education Institutions

The bill eliminates a sales tax credit on computer equipment a qualifying company buys on or after July 1, 2000 to use in Connecticut for electronic commerce. A qualifying company is one that (1) is selected by the commissioner of higher education and (2) holds a direct pay sales tax permit.

The credit equals the resources the permit holder provides on or after July 1, 2000 to a Connecticut college or university for (1) designing, planning, building, or renovating buildings or classrooms; (2) acquiring computer equipment; or (3) acquiring property or licenses needed to operate computer programs used for student instruction in business studies related to electronic commerce or workforce development. In calculating the amount of the resources provided, a company can include cash and the value of property and services. The maximum credit is $ 2 million.  

EFFECTIVE DATE: July 1, 2010 and applicable to sales occurring on or after that date.

22 & 30 – Effects of Certain Conforming Changes

Property Tax Exemption for High Mileage Vehicles. The bill eliminates a municipal option to provide a property tax exemption for a high-mileage passenger vehicle covered by state sales tax exemption for such vehicles. The repeal takes effect on the same dates the sales tax exemption is scheduled to expire, i. e. , on July 1, 2010.

Deer Damage Permit Application. By eliminating the farmer sales tax exemption permit, the bill also eliminates a provision allowing a person to whom such an exemption permit is issued and who leases land to sign an application for a Department of Environmental Protection permit to kill deer causing damage to crops on the land. Thus, under the bill, only the landowners may sign a deer damage permit application.

EFFECTIVE DATE: July 1, 2010

BACKGROUND

IC-DISCs

To be an IC-DISC, a corporation must be organized under the laws of a state or the District of Columbia and:

1. derive at least 95% of its gross receipts during the tax year from qualified exports;

2. at the end of the tax year, have at least 95% of its assets as qualified export assets;

3. have only one class of stock with a par or stated value of at least $ 2,500 on each day of the tax year;

4. maintain separate books and records;

5. not be a member of any controlled group of which a foreign sales corporation (FSC) is also a member (a FSC is an affiliate of a U. S. company that is incorporated in a qualifying foreign country and serves as an agent for the U. S. exporter);

6. have a tax year that conforms to the tax year of its largest shareholder in terms of voting power; and

7. elects to be treated as an IC-DISC for the tax year.

The Out Years

The annualized ongoing fiscal impact identified above would continue into the future subject to inflation.

COMMITTEE ACTION

Finance, Revenue and Bonding Committee

Joint Favorable Substitute

Yea

38

Nay

18

(04/02/2009)