OFFICE OF FISCAL ANALYSIS

Legislative Office Building, Room 5200

Hartford, CT 06106 (860) 240-0200

http: //www. cga. ct. gov/ofa

sSB-485

AN ACT CONCERNING TAX FAIRNESS.

OFA Fiscal Note

State Impact:

Agency Affected

Fund-Effect

FY 11 $

FY 12 $

Department of Revenue Services

GF - Revenue Gain

Up to $88. 0 million

Up to $88. 0 million

Department of Revenue Services

GF - Cost

Significant

None

Note: GF=General Fund

Municipal Impact: None

Explanation

The bill requires member companies of corporate groups paying Connecticut corporation taxes to determine corporation tax liability based on the net income and capital base of the entire group. This results in a potential General Fund revenue gain of up to $88. 0 million annually beginning in FY 11.

The estimate is based on data from Maryland, which recently required corporations to report data which would be required to prepare combined returns. According to the Maryland data, combined reporting increased the existing collections by up to 20. 0%. It should be noted that the impact in Connecticut will be influenced by: 1) recent measures to prevent the shifting of expenses from Delaware Holding Companies (e. g. interest add-back, trademark/royalty expensing) to companies that have nexus for Connecticut corporation tax purposes, 2) the current provision in Connecticut law that allows taxpayers to elect to file a combined return, and 3) the potential utilization of additional tax credits1 to further reduce liability under the corporation tax.

The bill also results in a significant2 one-time cost to DRS associated with modifying current tax forms and necessary changes to the taxpayer service center (TSC).

The Out Years

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

Sources:

Maryland State Comptroller, Bureau of Revenue Estimates

 

State of Connecticut Department of Revenue Services Fiscal Year 2008-2009 Annual Report

1 There are approximately $1. 8 billion in corporation tax credits outstanding.

2 The Office of Fiscal Analysis defines “significant” as any amount in excess of $100,000 for the purposes of fiscal notes.