OLR Bill Analysis

HB 7061 (as amended by House "A")*

AN ACT CONCERNING THE STATE BUDGET FOR THE BIENNIUM ENDING JUNE 30, 2017, AND MAKING APPROPRIATIONS THEREFOR, AND OTHER PROVISIONS RELATED TO REVENUE, DEFICIENCY APPROPRIATIONS AND TAX FAIRNESS AND ECONOMIC DEVELOPMENT.

SUMMARY:

This bill appropriates funds for state agencies and programs for FY 16 and FY 17. It also makes various state tax and revenue changes.

A full summary of the bill's budget provisions (§§1-64) may be found in the Office of Fiscal Analysis fiscal note. An analysis of the bill's revenue provisions (§§ 65-223) appears below.

*House Amendment “A”:

1. exempts from the sales and use tax computer and data processing services performed by an entity for one of its affiliates;

2. makes several changes to the combined reporting provisions, including (a) adding provisions concerning tax havens, (b) excluding companies statutorily exempt from the corporation business tax from the group of nontaxable members included in a combined group, and (c) requiring combined groups that intend to claim the bill's deduction for certain publicly-traded companies to file a statement with the Department of Revenue Services (DRS) commissioner;

3. requires the DRS commissioner to report to the legislature on (a) alternative apportionment and income sourcing methods for corporation business tax purposes and (b) their impact on Connecticut businesses;

4. transfers $90,000 from the Community Investment Account to the Military Department to provide funding for the Governor's Horse Guards;

5. eliminates a provision imposing procedural requirements on bills to reduce or eliminate Municipal Revenue Sharing Account funds;

6. reduces, from $43.1 million to $25 million, the amount of FY 16 General Fund revenue the comptroller may designate as revenue in FY 17; and

7. makes minor changes and technical corrections.

EFFECTIVE DATE: Various, see below.

§§ 1-64 — BUDGET PROVISIONS

Please refer to the fiscal note for an explanation and summary of these sections.

§§ 65-70 — INCOME TAX

Military Retirement Income (§ 65)

The bill fully exempts federally taxable military retirement pay from the state income tax. Current law exempts 50% of this retirement pay.

The exemption applies to federal retirement pay for retired members of the U.S. Army, Navy, Air Force, Marine Corps, Coast Guard, and Army and Air National Guard.

EFFECTIVE DATE: Upon passage and applicable to tax years beginning on or after January 1, 2015.

Marginal Rate Increases (§ 66)

The bill increases marginal income tax rates for those with taxable incomes over (1) $500,000 for joint filers, (2) $250,000 for single filers and married people filing separately, and (3) $400,000 for heads of household. It does so by (1) increasing the 6.7% marginal tax rate to 6.9% and (2) adding a seventh, higher-income tax bracket subject to a 6.99% marginal tax rate. It also increases the flat income tax rate for trusts and estates from 6.7% to 6.99%.

Table 1 shows the marginal tax rates and income brackets under current law and the bill.

Table 1: Current and Proposed Tax Rates and Brackets

CT TAXABLE INCOME

TAX RATES

Married Filing Jointly

Single

Over

But Not Over

Over

But Not Over

Current Law

Bill

$0

$20,000

$0

$10,000

3.00%

3.00%

20,000

100,000

10,000

50,000

5.00%

5.00%

100,000

200,000

50,000

100,000

5.50%

5.50%

200,000

400,000

100,000

200,000

6.00%

6.00%

400,000

500,000

200,000

250,000

6.50%

6.50%

500,000

1,000,000

250,000

500,000

6.70%

6.90%

Over $1,000,000

Over $500,000

6.99%

CT TAXABLE INCOME

TAX RATES

Head of Household

Married Filing Separately

Over

But Not Over

Over

But Not Over

Current Law

Bill

$0

$16,000

$0

$10,000

3.00%

3.00%

16,000

80,000

10,000

50,000

5.00%

5.00%

80,000

160,000

50,000

100,000

5.50%

5.50%

160,000

320,000

100,000

200,000

6.00%

6.00%

320,000

400,000

200,000

250,000

6.50%

6.50%

400,000

800,000

250,000

500,000

6.70%

6.90%

Over $800,000

Over $500,000

6.99%

EFFECTIVE DATE: Upon passage and applicable to tax years beginning on or after January 1, 2015.

Benefit Recapture (§ 66)

By law, taxpayers whose annual Connecticut adjusted gross income (CT AGI) exceeds specified thresholds are subject to a “benefit recapture” which eliminates the benefits they receive from having a portion of their taxable income taxed at lower marginal rates. These taxpayers must add specified amounts to their tax liability.

The bill establishes new benefit recapture schedules to reflect the new marginal rates and income bracket. Table 2 shows, for each filer type, the (1) CT AGI starting point for the recapture amounts, (2) CT AGI intervals and the recapture amount to be added at each interval, and (3) maximum recapture amount taxpayers must add to their tax liability.

Table 2: Additional Benefit Recapture Amounts

Married, Filing Jointly

Starting Point (AGI Over Specified Amount)

Recapture Amount

Maximum Additional Recapture Amount

$400,000

$180 for each $10,000 by which AGI exceeds $400,000

$5,400

$1,000,000

$100 for each $10,000 by which AGI exceeds $1,000,000

$900

Single/Married Filing Separately

Starting Point (AGI Over Specified Amount)

Recapture Amount

Maximum Additional Recapture Amount

$200,000

$90 for each $5,000 by which AGI exceeds $200,000

$2,700

$500,000

$50 for each $5,000 by which AGI exceeds $500,000

$450

Head of Household

Starting Point (AGI Over Specified Amount)

Starting Point (AGI Over Specified Amount)

Starting Point (AGI Over Specified Amount)

$320,000

$140 for each $8,000 by which AGI exceeds $320,000

$4,200

$800,000

$80 for each $8,000 of income by which AGI exceeds $800,000

$720

EFFECTIVE DATE: Upon passage and applicable to tax years beginning on or after January 1, 2015.

Delay in Scheduled Income Tax Reductions for Single Filers (§§ 67 & 68)

The bill delays scheduled income tax reductions for single filers by one year. It does so by delaying increases in (1) AGI exempt from the tax and (2) income thresholds for phasing out personal exemptions and credits.

Personal Exemption. Under current law, the maximum personal exemption for single filers increased from $14,500 to $15,000 on January 1, 2015. The bill instead reverts to the $14,500 exemption for an additional year, through the 2015 tax year.

By law, the personal exemption amounts gradually phase out at higher income levels until they are completely eliminated. The bill delays the scheduled increase in the personal exemption reduction threshold, from $29,000 to $30,000, to correspond to the delay. (The income tax personal exemption is reduced by $1,000 for each $1,000 of AGI over the specified threshold.)

Personal Credit. The bill delays by one year 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 thresholds do not qualify for a credit. Table 3 shows the qualifying personal credit income ranges for single filers under current law and the bill.

Table 3: Personal Credits for Single Filers

Tax Years

Qualifies for the Personal Credit (AGI)

Current Law

The Bill

Over

But Not Over

2014

Through 2015

$14,500

$62,500

2015 and after

2016 and after

15,000

64,500

EFFECTIVE DATE: Upon passage and applicable to tax years beginning on or after January 1, 2015.

EITC (§ 69)

The bill delays by two years the scheduled increase in the EITC. Under current law, the EITC is scheduled to increase to 30% for the 2015 tax year. The bill instead maintains it at 27.5% for two more years, through the 2016 tax year.

EFFECTIVE DATE: Upon passage and applicable to tax years beginning on or after January 1, 2015.

Property Tax Credit Reduced (§ 70)

Beginning in the 2016 income year, the bill reduces, from $300 to $200, the maximum property tax credit against the personal income tax. It also reduces, in two steps, the AGI threshold at which the maximum property tax credit starts to phase out, as shown in Table 4. By law, the percent of property tax paid that can be taken as a credit declines as income increases until it completely phases out.

Table 4: Property Tax Credit

Filing Status

Maximum Credit Threshold

(CT AGI)

Current Law

Proposed

Single

$64,500

$47,500 (2015)

$49,500 (2016 and thereafter)

Married Filing Separately

50,250

35,250

Head of Household

78,500

54,500

Married Filing Jointly

100,500

70,500

EFFECTIVE DATE: July 1, 2015, and applicable to income years commencing on or after January 1, 2015.

§§ 71-77 & 222 — SALES AND USE TAX

Luxury Tax Rate Increase (§§ 72 & 73)

The bill increases, from 7% to 7.75%, the sales and use tax rate on specified luxury items. By law, the rate applies to the full sales price of motor vehicles, jewelry, clothing, and footwear costing more than (1) $50,000 for motor vehicles, with certain exceptions; (2) $5,000 for jewelry (real or imitation); and (3) $1,000 for clothing, footwear, handbags, luggage, umbrellas, wallets, and watches.

EFFECTIVE DATE: July 1, 2015 and applicable to sales occurring on or after that date.

Regional Planning Incentive Account (§ 74)

For calendar quarters ending on or after July 1, 2016 and prior to July 1, 2017, the bill eliminates the requirement that the DRS commissioner deposit a portion of the hotel and rental car taxes into the Regional Planning Incentive Account. Under current law, the commissioner must allocate to the account every quarter (1) 6.7% of the revenue from the 15% hotel tax and (2) 10.7% of the revenue from the 9.35% rental car tax. By eliminating these required deposits, the bill requires these funds to go to the General Fund in FY 17.

By law, the OPM secretary uses the account to fund (1) annual grants to regional councils of government and (2) grants awarded under the regional performance incentive program.

EFFECTIVE DATE: Upon passage, and applicable to sales on or after October 1, 2015 and sales of services that are billed to customers for a period that includes October 1, 2015.

Sales Tax Revenue Diversion (§ 74)

The bill requires the DRS commissioner to direct a portion of the 6.35% sales tax rate to the Special Transportation Fund (STF) and Municipal Revenue Sharing Account (MRSA), according to the schedule shown in Table 5.

Table 5: Sales Tax Revenue Diverted to MRSA and STF

Calendar Quarters Ending On or After

MRSA

(% of 6.35% sales tax revenue)

STF

(% of 6.35% sales tax revenue)

December 31, 2015, but prior to July 1, 2016

4.7%

4.7%

July 1, 2016, but prior to July 1, 2017

6.3%

6.3%

July 1, 2017

7.9%

7.9%

EFFECTIVE DATE: Upon passage and applicable to sales occurring on or after October 1, 2015 and sales of services billed to customers for a period that includes October 1, 2015.

Computer and Data Processing Services (§§ 74-76)

The bill increases the sales and use tax rate on computer and data processing services from (1) 1% to 2% on October 1, 2015 and (2) 2% to 3% on July 1, 2016. For such services sold on or after October 1, 2015, the bill exempts services performed by an entity for one of its affiliates (i.e., a person who directly or indirectly owns, controls, or is owned or controlled by, or is under common ownership or control with another person.)

The bill also expands the types of computer and data processing services subject to the tax to include the creation, development, hosting, and maintenance of a web site.

EFFECTIVE DATE: October 1, 2015 and applicable to sales occurring on or after October 1, 2015 and sales of services billed to customers for a period that includes October 1, 2015, except that the computer and data processing service expansion is effective July 1, 2015 and applicable to sales occurring on or after July 1, 2015 and sales of services billed to customers for a period that includes July 1, 2015.

Sales Tax Exemptions Eliminated and New Taxable Service (§§ 71, 75, 77, & 219)

The bill eliminates the sales and use tax exemptions for:

1. clothing and footwear costing less than $50, currently scheduled to take effect on July 1, 2015;

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

3. goods or services purchased by a water company in maintaining, operating, managing, or controlling a pond, lake, reservoir, stream, well, or distributing plant or system to supply water to at least 50 customers.

The bill also (1) extends the sales and use tax to car washing services, excluding coin-operated car washes, and (2) limits the exemption for clothing and footwear during the “sales-tax-free-week” to items costing less than $100, rather than $300.

EFFECTIVE DATE: July 1, 2015, except for the car wash and parking provisions, which are effective July 1, 2015 and applicable to sales occurring on or after July 1, 2015 and sales of services billed to customers for a period that includes July 1, 2015.

§§ 78-82 — ALCOHOLIC LIQUOR POLICIES

Beer Growlers (§§ 78-80)

The bill allows restaurant, café, and tavern alcohol permittees to sell at retail permittee-provided and sealed containers with draught beer for off-premises consumption. In the case of a restaurant permittee, the bill (1) additionally requires that the containers be filled by the permittee and (2) prohibits manufacturer, out-of-state shipper, and wholesale permittees from supplying the restaurant permittee with the authorized containers or any draught system component, other than tapping accessories.

These retail sales are limited to (1) four liters of beer per day to any individual and (2) the authorized hours for off-premises alcohol consumption sales (see below).

EFFECTIVE DATE: July 1, 2015

Package Store and Druggist Permits (§ 81)

The bill increases the number of package store or druggist liquor permits in which a person may have an interest from (1) three to four, on July 1, 2015 and (2) four to five, on July 1, 2016.

EFFECTIVE DATE: July 1, 2015

Expanding Days and Hours for Sales (§ 82)

The bill expands the hours for off-premises alcohol sales by (1) package, drug, and grocery stores; (2) beer and beer and brew pub manufacturers; and (3) retailers selling gift baskets containing wine. These expanded hours also apply to package stores' on-premises offerings, tastings, classes, and demostrations.

The bill generally allows the off-premises sale and dispensing of alcohol on Sundays from 10:00 a.m. to 6:00 p.m., rather than 5:00 p.m., and any other day from 8:00 a.m. to 10:00 p.m., rather than 9:00 p.m. By law, permittees cannot sell or dispense alcohol for off-premises consumption on Thanksgiving Day, New Year's Day, or Christmas Day.

The bill also extends, by one hour, from 9:00pm to 10:00pm, the hours during which farm winery manufacturer, nonprofit golf tournament, and farmers' markets wine sales permittees may sell alcohol. In the case of farm winery manufacturer permittees, it similarly extends the hours during which they may offer tastings of free wine samples.

EFFECTIVE DATE: July 1, 2015

§§ 83-84 & 87-88 — CORPORATION INCOME TAX

Surcharge (§§ 83-84)

The bill (1) extends the 20% corporation income tax surcharge for two additional years to the 2016 and 2017 income years and (2) imposes a temporary 10% surcharge for the 2018 income year.

As under current law, the surcharge generally applies to companies that have more than $250 in corporation tax liability. Companies that have less than $100 million in annual gross income in those years are exempt from the surcharge, unless they file combined or unitary returns.

EFFECTIVE DATE: Upon passage and applicable to income years starting on or after January 1, 2015.

Net Operating Loss (NOL) (§ 87)

The law allows corporations to deduct NOLs (the excess of allowable deductions over gross income for a taxable year), thereby reducing their tax liability. Corporations may carry forward NOLs for 20 years. Beginning with the 2015 income year, the bill limits the amount of NOL a corporation may carry forward to the lesser of (1) 50% of net income, or for companies with taxable income in other states, 50% of the net income apportioned to Connecticut, and (2) the excess of NOL over the NOL being carried forward from prior income years.

EFFECTIVE DATE: Upon passage

Tax Credit Limit (§ 88)

Current law allows corporations to use tax credits to reduce their corporation tax liability by up to 70% in any income year. The bill reduces the tax credit limit to 50.01% beginning with the 2015 income year.

EFFECTIVE DATE: Upon passage

§ 85 — INSURANCE PREMIUM TAX CREDIT LIMIT

The bill extends, to 2015 and 2016, the temporary cap on the maximum insurance premium tax liability that an insurer may offset through tax credits.

The caps are part of a structure that, by law, (1) classifies insurance premium tax credits into three types, (2) specifies the order in which an insurer must apply the three credit types to offset liability, and (3) establishes the maximum liability that an insurer can offset by claiming one or more of these types of credits.

By law, (1) type one credits are film and digital media production, entertainment infrastructure, and digital animation tax credits; (2) type two credits are insurance reinvestment credits; and (3) type three credits are all other tax credits. Table 6 shows the order and reduction schedule under current law and the bill.

Table 6: Order and Reduction Schedule for Claiming Insurance Premium Tax Credits under Current Law and the Bill

Credit Types Claimed

Order of Applying Credits

Maximum Reduction in Tax Liability

Type 3

Not applicable

30%

Types 1& 3

1. Type 3

2. Type 1

Type 3 = 30%

Sum of two types = 55%

Types 2 & 3

1. Type 3

2. Type 2

Type 3 = 30%

Sum of two types = 70%

Types 1, 2, & 3

1. Type 3

2. Type 1

3. Type 2

Type 3 = 30%

Type 1 & 3 = 55%

Sum of all types = 70%

Type 1 & 2

1. Type 1

2. Type 2

Type 1 = 55%

Sum of two types = 70%

EFFECTIVE DATE: Upon passage and applicable to calendar years starting on or after January 1, 2015.

§ 86 — FILM AND DIGITAL MEDIA PRODUCTION TAX CREDIT MORATORIUM

The bill extends, to FY 16 and FY 17, the temporary moratorium on issuing film and digital media production tax credits for certain motion pictures. Under current law, the moratorium expires at the end of FY 15.

As under current law, the moratorium (1) bars the issuance of tax credit vouchers for motion pictures that were not designated as state-certified productions before July 1, 2013 and (2) excludes motion pictures that conduct at least 25% of their principal photography days in a Connecticut facility that (a) receives at least $25 million in private investment and (b) opens for business on or after July 1, 2013. Other types of qualified productions continue to be eligible for tax credits during FY 16 and FY 17, including documentaries; long-form, specials, mini-series, series, music videos, or interstitial television programming; relocated television productions; interactive television or games; videogames; commercials or infomercials; and any digital media format created primarily for public viewing or distribution.

EFFECTIVE DATE: Upon passage

§ 89 — HOSPITAL TAX CREDIT LIMIT

For calendar quarters beginning on or after July 1, 2015, the bill imposes a 50.01% limit on the amount of hospital tax liability that hospitals may reduce by using tax credits.

EFFECTIVE DATE: July 1, 2015

§ 90 — TOBACCO SETTLEMENT FUND DISBURSEMENTS

For FY 16 and FY 17, the bill eliminates the $12 million disbursement from the Tobacco Settlement Fund to the Tobacco and Health Trust Fund. Beginning in FY 18, it reduces the disbursement to $6 million per year, thus making permanent the temporary reduction to the disbursement made for FY 14 and FY 15.

The bill also reduces, from $10 million to $5 million, the FY 16 and FY 17 disbursements from the Tobacco Settlement Fund to the Smart Start competitive grant account.

EFFECTIVE DATE: July 1, 2015

§§ 91 & 92 — STF TRANSFERS

Petroleum Products Gross Earnings Tax Revenue Transferred to STF (§ 91)

Current law requires a specified amount of petroleum products gross earnings tax revenue to be deposited in the STF each fiscal year. Beginning July 1, 2015, the bill instead directs all such revenue to the STF. It requires the comptroller to deposit the revenue for calendar quarters ending on or after September 30, 2015.

To conform to this change, the bill also eliminates requirements that (1) General Fund revenues be used to cover the amount of a shortfall if petroleum products tax receipts are less than the total amount required for the STF transfer and any other transfers required by law and (2) the DRS commissioner (a) biennially calculate the percentage of petroleum products gross earnings tax revenue from gasoline sold for the prior fiscal year and (b) use this ratio as the basis for determining the required transfers from the General Fund to the STF.

EFFECTIVE DATE: July 1, 2015

Transfers from the General Fund to the STF (§ 92)

Beginning in FY 16, the bill eliminates statutorily scheduled transfers from the General Fund to the STF. Current law requires $152.8 million to be transferred for FY 16 and $162.8 million to be transferred in each fiscal year thereafter.

EFFECTIVE DATE: July 1, 2015

§ 93 — COMMUNITY INVESTMENT ACCOUNT (CIA)

From January 1, 2016 to June 30, 2017, the bill diverts to the General Fund, on a quarterly basis, 50% of the funds deposited in the CIA. It requires any funds remaining in the account to be distributed according to existing law.

By law, the CIA contains land use document recording fees town clerks remit to the state treasurer. Money from the account is distributed quarterly to the agriculture sustainability account for milk producer grants and to the departments of (1) Economic and Community Development, for certain historic preservation purposes; (2) Housing, for affordable housing programs; (3) Energy and Environmental Protection, for municipal open space grants; and (4) Agriculture, for various agricultural and farmland preservation purposes.

EFFECTIVE DATE: January 1, 2016

§§ 94-95 & 181-182 — TRANSFERS TO THE GENERAL FUND

The bill transfers funds from various sources to the General Fund, as shown in Table 7.

Table 7: Transfers to the General Fund

§

Source

Amount (millions)

FYs

94-95

Connecticut Health and Education Facilities Authority

$3.5

16 and 17

96-97

Public, Educational and Governmental Programming and Educational Investment Account (PEGPETIA)

4.2

16

4.3

17

98

Municipal Video Competition Trust Account

3.0

16 and thereafter

181-182

Banking Fund

7.0

16 and 17

EFFECTIVE DATE: Upon passage, except the (1) PEGPETIA transfers for FY 16 and FY 17 are effective July 1, 2015 and July 1, 2016, respectively, and (2) municipal video competition trust account transfer is effective July 1, 2015.

§§ 99-102 & 221 — PALLIATIVE MARIJUANA FEES

Under current law, all fees the Department of Consumer Protection (DCP) collects under its regulation of palliative marijuana are credited to the palliative marijuana administration account. The bill eliminates the account and requires the fees to be credited to the General Fund.

EFFECTIVE DATE: July 1, 2015

§§ 103-106 — KENO

The bill allows the Connecticut Lottery Corporation (CLC) to offer Keno games, generally subject to the same requirements as other state lottery games, including those concerning lottery sales agents, advertisements, and prizes. In Keno, players win prizes by correctly guessing some of the numbers generated by a central computer system using a random number generator, wheel system, or other drawing device. Under the bill, Keno is not operated on a video facsimile machine.

Under the bill, the CLC may not operate Keno until the state, through the Office of Policy and Management (OPM), enters agreements with the Mashantucket Pequot and Mohegan tribes regarding CLC's operation of Keno. The bill also gives CLC the exclusive right to operate and manage the sale of all lottery games in Connecticut, except on the Mashantucket Pequot and Mohegan reservations.

EFFECTIVE DATE: July 1, 2015

§ 107 — RENTAL SURCHARGE

Under current law, the state imposes a surcharge on short-term car, truck, and machinery rentals (i.e., 30 days or less). The surcharge is (1) 3% for car and truck rentals and (2) 1.5% for machinery rentals.

The bill limits the rental companies subject to the surcharge to people or businesses generating at least 51% of their total annual revenue from rentals, excluding retail or wholesale rental equipment sales. As under current law, the surcharge applies to companies that (1) are in the business of renting cars, trucks, or machinery and (2) have a fleet of at least five cars, trucks, or pieces of machinery in Connecticut.

Under current law, the 1.5% surcharge applies to rentals for 30 days or less of heavy construction, mining, and forestry equipment without an operator. The bill expands it to cover (1) all equipment a rental company owns and (2) rentals of 364 days or less. It eliminates a provision specifying that the rental period for the equipment runs from the date the machinery is rented to the date it is returned to the rental company.

By law, the surcharge reimburses the rental company for Connecticut property taxes and Department of Motor Vehicles (DMV) licensing and titling fees paid on the equipment. The company must annually report to DRS on (1) the aggregate amounts of personal property taxes paid to towns and registration and titling fees paid to DMV, and (2) the aggregate amount of rental surcharges collected in the previous year on the rental machinery, along with any other information DRS requires. The bill requires the amounts and information to be submitted in a consolidated report.

EFFECTIVE DATE: July 1, 2015

§§ 108-111 — SALE AND MANUFACTURING OF ELECTRONIC CIGARETTES

Electronic Nicotine Delivery Systems and Vapor Products

By law, an “electronic nicotine delivery system” is an electronic device used to simulate smoking while delivering nicotine or another substance to a person who inhales from it. Under current law, delivery systems include electronic (1) cigarettes; (2) cigars; (3) cigarillos; (4) pipes; (5) hookahs; and (6) related devices, cartridges, or other components. The bill expands this list to include electronic cigarette liquid used in such a delivery system or vapor product.

Under existing law, a “vapor product” uses a heating element; power source; electronic circuit; or other electronic, chemical, or mechanical means, regardless of shape or size, to produce a vapor the user inhales. The vapor may or may not include nicotine.

Existing law bans (1) people from selling, giving, or delivering such systems or products to minors and (2) minors from buying or possessing them in public.

Dealer and Manufacturer Registration

Beginning March 1, 2016, the bill requires electronic nicotine delivery system dealers and manufacturers to register with DCP and annually renew their registration in order to sell or manufacture an electronic nicotine delivery system or vapor product. Under the bill, a manufacturer is anyone who mixes, compounds, repackages, or resizes any nicotine-containing electronic nicotine delivery system or vapor product.

Application. Beginning January 1, 2016, anyone seeking a dealer or manufacturer registration or registration renewal must apply to DCP, using a DCP-prescribed form. The application must include (1) the applicant's name and address; (2) the business' location; (3) a financial statement detailing any business transactions connected to the application; (4) the applicant's criminal convictions; and (5) proof that the business location will meet state and local building, fire, and zoning requirements. The bill authorizes DCP to conduct an investigation to determine whether to issue an applicant's registration.

The DCP commissioner must issue the registration within 30 days after the application date, unless he finds that the applicant (1) willfully made a materially false statement in the registration application or any other DCP-application, (2) owes state taxes, (3) was convicted of violating any state or federal cigarette or tobacco products tax laws, or (4) is not suitable because of his or her criminal record. The bill prohibits the commissioner from denying a registration due to a prior conviction of a crime except as permitted by law.

Fees. The bill requires applicants to pay a nonrefundable application fee of $75, in addition to the $400 annual fee for registered dealers and manufacturers. There is no application fee to renew a registration.

Dealer Posting Requirement. The bill requires dealers to post their registrations in a prominent location next to the electronic nicotine delivery system products or vapor products they sell.

Transferability and Attachment. A registration is not transferable under the bill, except for when a registered dealer or manufacturer dies, in which case the registration transfers to his or her estate.

The bill provides that a dealer or manufacturer registration is not property or subject to attachment and execution.

Partnerships. Under the bill, if the registration is issued to a partnership and the partnership adds one or more new partners, it must submit a new application and pay new application and annual fees. If one or more of the partners dies or retires, the remaining partners do not need to file a new application or pay an additional fee for the registration's unexpired portion. But they must notify DCP of the change, and DCP must endorse the registration to reflect the correct ownership.

Late Renewals. DCP may renew an expired registration if the applicant pays both the annual fee and the standard late renewal penalty the commissioner may impose. By law, the penalty must equal 10% of the renewal fee and must be at least $10 and no more than $100.

Dealers and manufacturers subject to administrative or court proceedings are not eligible for a late renewal.

Fines and Penalties for Violations. The bill makes it illegal to manufacture, sell, offer for sale, or possess with intent to sell an electronic nicotine delivery system or vapor product without a manufacturer or dealer registration. The penalty for each knowing violation is a fine of up to $50 per day. The commissioner may waive all or part of the fine if he is satisfied that the failure to obtain or renew the registration was due to reasonable cause.

Under the bill, the penalty is an infraction with a $90 fine for a manufacturer or dealer who operates for no more than 90 days after his or her license expires.

Prior to imposing a penalty, the bill requires the DCP commissioner to notify the dealer or manufacturer of the violation and give 60 days to comply. He must send the notice, within available appropriations, with a certificate of mailing or a similar U.S. Postal Service form that verifies the date on which it was sent. (A certificate of mailing is a receipt that provides evidence of the date that mail was presented to the U.S. Postal Service for mailing.)

Suspending or Revoking a Registration. DCP may, at its discretion, suspend or revoke a registration. Anyone aggrieved by a denial, suspension, or revocation may appeal by following the appeal process for liquor sale permits.

Public Hearing

The bill requires the Public Health Committee to hold a public hearing on any proposed federal rule changes deeming tobacco products subject to the Food, Drug, and Cosmetic Act. The committee must hold the hearing within 30 days after a rule becomes final and determine if Connecticut law needs to be changed to conform to this rule.

EFFECTIVE DATE: January 1, 2016, except the provision requiring the public hearing takes effect upon passage.

§§ 112-137 — DPH LICENSE RENEWAL FEES

The bill (1) increases by $5 license renewal fees for various DPH-licensed professionals, as shown in Table 8, and (2) directs the revenue generated to fund the professional assistance program for DPH-regulated professionals (currently, the Health Assistance InterVention Education Network (HAVEN)). By law, the program is an alternative, voluntary, and confidential rehabilitation program that provides support services to health professionals with a chemical dependency, emotional or behavioral disorder, or physical or mental illness.

The DPH commissioner must (1) certify the amount of revenue received as a result of the fee increase each January, April, July, and October (2) transfer it to the professional assistance program account, which the bill establishes, and (3) provide the funds to the to the professional assistance program.

Table 8: DPH License Renewals Subject To Fee Increase

§

License Renewal

Current Fee

Proposed Fee

112

Dentist

570

575

112

Optometrist

375

380

112

Midwife

15

20

112

Dental hygienist

100

105

112

Physician

570

575

112

Surgeon

570

575

112

Podiatrist

565

570

112

Chiropractic

565

570

112

Naturopathic

565

570

112

Registered Nurse

105

110

112

Advanced Practice Registered Nurse

125

130

112

Licensed Practical Nurse

65

70

112

Nurse Midwife

125

130

112

Physical Therapist

100

105

112

Physical Therapist Assistant

60

65

112

Physician Assistant

150

155

112, 120

Perfusionist

315

320

113

Nursing home administrator

200

205

114

Athletic trainer

200

205

115

Radiographer

100

105

116

Occupational therapist

200

205

116

Occupational therapy assistant

200

205

117

Alcohol and drug counselor

190

195

117

Certified alcohol and drug counselor

190

195

118

Licensed optician

200

205

119

Respiratory care practitioner

100

105

121

Psychologist

565

570

122

Marital and family therapist

315

320

123

Clinical social worker

190

195

123

Master social worker

190

195

124

Professional counselor

190

195

125

Veterinarian

565

570

126

Massage therapist

250

255

128

Dietician-nutritionist

100

105

129

Acupuncturist

250

255

130

Paramedic

150

155

131

Embalmer

110

115

131

Funeral director

230

235

131

Funeral services business inspection certificate

190

195

132

Electrologist

200

205

133

Audiologist

200

205

134

Hearing instrument specialist

250

255

135

Speech and language pathologist

200

205

EFFECTIVE DATE: July 1, 2015

§§ 138-163 — COMBINED REPORTING

The bill requires any company that is (1) a member of a corporate group of related companies meeting certain criteria and (2) subject to the Connecticut corporation tax (a “taxable member”) to determine its Connecticut corporation tax liability based on the net income or capital base of the entire group. Under the bill, a company must use this method of computing tax liability if it is part of a corporate group engaged in a “unitary business,” as defined in the bill. Under current law, a company doing business in Connecticut that is part of a larger group determines its Connecticut net income separately but may file a combined return under certain circumstances.

Unitary Business and Combined Group

The bill defines a “unitary business” as a single economic enterprise that is interdependent, integrated, or interrelated enough through its activities to provide mutual benefit and produce significant sharing or exchanges of value among its entities or a significant flow of value among its separate parts. A unitary business can be either separate parts of a single entity or a group of separate entities under common ownership. Businesses conducted or connected through partnerships or S corporations (“pass-through entities”) may be considered unitary if they meet certain conditions.

Under the bill, businesses are considered to be under common ownership if the same entity or entities directly or indirectly own more than 50% of voting control of each of them. The owners do not themselves have to be members of the combined group. Indirect control must be determined according to the federal tax law.

A “combined group” is all the companies that (1) have common ownership, (2) are engaged in a unitary business, and (3) have at least one member that is subject to the Connecticut corporation tax. Under the bill, combined group members include “taxable members” (i.e., subject to Connecticut corporation tax) and “nontaxable members” (i.e., members not subject to Connecticut corporation tax, excluding companies statutorily exempt from the tax).

Group Filing Requirements

For purposes of a unitary tax filing, the bill gives a combined group the option of determining its members' net income, capital base, and apportionment factors on a (1) world wide basis (i.e., including foreign affiliates) or (2) “affiliated group” basis (see below). The group's designated taxable member must make a world wide or affiliated group election for unitary filing on an original, timely filed tax return for an income year. The election is binding for the income year in which it is made and the following 10 years.

If the group does not elect a world wide basis or affiliated group basis, it must determine the net income, capital base, and apportionment factors of each of its taxable members on a “water's-edge basis.” Under the bill, a water's-edge basis means that a group must include the net income, capital base, and apportionment factors of nontaxable members only if:

1. they are incorporated in, or formed under the laws of, the United States, any state, the District of Columbia, or a U.S. territory or possession, excluding members that have at least 80% of their property and payroll during the income year located outside such jurisdictions;

2. 20% or more of their property and payroll during the income year is located in the United States, any state, the District of Columbia, or a U.S. territory or possession; or

3. they are incorporated in a jurisdiction determined to be a tax haven, as described below, unless the DRS commissioner is satisfied that the member is incorporated there for a legitimate business purpose.

Tax Havens. Under the bill, a “tax haven is a jurisdiction that:

1. has laws or practices preventing the effective exchange of information for tax purposes with other governments on taxpayers benefiting from the tax regime;

2. has a tax regime that lacks transparency;

3. facilitates the establishment of foreign-owned entities without the need for a local substantive presence or prohibits these entities from having any commercial impact on the local economy;

4. explicitly or implicitly excludes the jurisdiction's resident taxpayers from taking advantage of the tax regime benefits or prohibits enterprises benefiting from it from operating in the jurisdiction's domestic market; or

5. has created a tax regime favorable for tax avoidance, based on an overall assessment of relevant factors, including whether the jurisdiction has a significant untaxed offshore financial or services sector relative to its overall economy.

The bill requires the DRS commissioner, by September 30, 2015, to publish a list of jurisdictions that he determines to be tax havens. The list applies to income years beginning on or after January 1, 2015 and remains in effect until the commissioner publishes a revised list.

Affiliated Group Election. Under the bill, an “affiliated group” is generally any group treated as an affiliated group for federal tax purposes (as described below), except that it also includes:

1. domestic corporations that are commonly owned, directly or indirectly, by any member of the group, regardless of whether the group includes corporations (a) included in more than one federal consolidated return, (b) engaged in one or more unitary business, or (c) not engaged in a unitary business with any other affiliated group member; and

2. any member of the combined group, determined on a world-wide basis, incorporated in a tax haven, as described above.

A group making an affiliated group election must include the net income or loss and apportionment factors of all of its members that are subject to tax or would be if they were conducting business in the state, regardless of whether they are engaged in a unitary business.

Under federal tax law, an “affiliated group” is a group of corporations or corporate chains connected to the same parent corporation in which (1) one or more of the corporations included in the group directly owns at least 80% of the voting power and 80% of the total value of the common stock of each of the other included corporations and (2) their common parent directly owns at least 80% of the voting power and 80% of the total value of the common stock of at least one of the included corporations (IRC § 1504).

Net Income and Capital Base

Net Income or Loss. When determining the total income or loss subject to apportionment for Connecticut corporation tax purposes, the bill requires the combined group to include and aggregate the following.

1. For each group member incorporated in the United States and included in a consolidated federal corporate return, its gross income minus Connecticut corporation tax deductions as if it were not consolidated for federal tax purposes.

2. For each group member not included in a consolidated federal return but required to file its own return, its gross income minus Connecticut corporation tax deductions.

3. For each member incorporated outside the United States, not included in a federal consolidated return and not required to file its own federal return, the income determined from regularly maintained profit and loss statements for each foreign office or branch adjusted on any reasonable basis to conform to U.S. accounting standards and expressed in U.S. dollars. Reasonable alternative procedures may be applied if the DRS commissioner determines that the reported income reasonably approximates the income determined under the Connecticut corporation tax law.

4. If the unitary business has income from a pass-through entity, the members' direct and indirect share of that entity's unitary business income.

Under current combined filings, most income and deductions from inter-company transactions within a combined group must be eliminated. The bill establishes requirements for treating the following income and deductions in a unitary filing.

1. Dividends paid by one group member to another must be eliminated.

2. Business income from an intercompany transaction with another group member must be deferred as required under federal tax rules unless the object of the transaction is sold or otherwise removed from the unitary business or the buyer and seller cease to be members of the same combined group.

3. Charitable expenses incurred by a group member may be deducted from the combined group's net income, subject to federal income limits applicable to the entire group's business income. If the part of the deduction is carried over to a later year, it must be treated in that year as incurred by the same group member.

4. Capital gains and losses must be combined for all members without netting among classes of gains and losses, apportioned to Connecticut, and applied to the income or loss of the Connecticut taxable members. If the deduction for a loss is limited and a loss carryover is required, the loss must be treated in a later year as being incurred by the same member.

5. Expenses directly or indirectly attributable to federally tax-exempt income must be disallowed in determining the combined group's net income.

Income Apportionment Factors. By law, multistate companies subject to the Connecticut corporation tax must apportion their net income or loss and alternate capital base using statutory apportionment formulas. Most companies must use a formula that combines the ratios of their property, payroll, and sales (receipts) in Connecticut to all their property, payroll, and sales. However, some types of businesses, including manufacturers, broadcasters, and financial institutions, are allowed to use a single factor apportionment formula based entirely on the ratio of their sales in Connecticut to all their sales.

In apportioning its income or loss for the Connecticut corporation tax, the bill requires each taxable member of a combined group to use the otherwise applicable Connecticut statutory apportionment percentage. It specifies how taxable members of the combined group must incorporate the property, payroll, and sales of nontaxable group members into the apportionment factors they use to apportion the group's income for purposes of the taxable members' Connecticut corporation tax liability.

Under the bill, though each taxable member's apportionment is based on the Connecticut apportionment formula that applies to that member, the taxable member must add in a share of the nontaxable members' sales, property, and payroll factors as follows.

1. Each taxable member must add to its sales factor numerator a share of the aggregate sales of the groups' nontaxable members. This share is the ratio of the taxable member's Connecticut sales to the Connecticut sales of all the group's taxable members.

2. The property and payroll factor denominators are the aggregate property and payrolls for the entire group, including taxable and nontaxable members, even if some group members are subject to single-factor apportionment (i.e., based on sales only).

3. Transactions between or among group members must be eliminated in determining the apportionment factors.

Once the applicable apportionment factors for each taxable member have been determined, they must be applied to the combined group's taxable income to determine each taxable member's net income or loss apportioned to Connecticut.

Net Operating Loss. Once it calculates its share of net income or loss apportioned to Connecticut, the bill allows each taxable group member to deduct its share of the group's net operating loss (NOL) from that income. It allows the following NOL carryovers.

1. For income years starting on or after January 1, 2015, if the combined group's net income computation results in a net operating loss, the taxable members can carry forward the share apportioned to Connecticut consistent with NOL carryover limits (see § 22). If the taxable member has more than one NOL carryover, it must apply them in the order they were incurred, deducting the older one first. The bill allows a taxable member who has an NOL carryover derived from the combined group in an income year beginning on or after January 1, 2015, to share it with other taxable group members if they were part of the group when the loss was incurred. Any such sharing reduces the taxable member's original NOL carryover.

2. A taxable member can deduct an NOL carryover derived from either pre-January 1, 2015 losses or losses incurred before the taxable member joined the combined group and can share it with other members that were part of the same (a) combined group in the year the loss was incurred or (b) unitary group under the state's current combined reporting law.

Net Income and Capital Base Calculation. By law, corporations must calculate their Connecticut corporation tax liability on the basis of both their net income and capital base and pay the higher of the two amounts. The bill requires taxable members of combined groups to do the same and specifies how they must calculate their net income and capital base tax liability.

As under current law, each taxable member must calculate its net income tax liability by multiplying its Connecticut apportioned net income or loss by the statutory corporation tax rate of 7.5%.

The bill requires combined groups to determine their alternative capital bases by combining their separate bases, including those of the nontaxable members, as determined under current law, but excluding deductions for inter-corporate or private company stockholdings in the combined group. Group members that are financial services companies must (1) calculate the value of their annual capital base as required by existing law and (2) not be included in calculating the combined group's alternative capital base, as described above.

A taxable member must apportion the combined group's capital base according to the ratio of the taxable member's individual capital base to that of the combined capital bases of all taxable members of the group. As with the income apportionment, a share of the nontaxable members' capital bases must be included according to the ratio of the taxable member's Connecticut capital base to the combined Connecticut capital bases of all the group's taxable members.

As under existing law, the maximum aggregate tax calculated under the capital base method is $1 million. Under the bill, if the aggregate amount of tax calculated on each taxable member's capital base exceeds $1 million, each member must prorate its tax, in proportion to the group's tax calculated regardless of the $1 million cap, such that the group's aggregate additional tax equals $1 million.

Minimum Tax. Under the bill, as under existing law, taxable members must pay a minimum tax of $250 regardless of tax credits. In addition, no taxable member may use tax credits to reduce its tax liability by more than the applicable tax credit limit.

Tax Credits. The bill requires each taxable member to separately apply its tax credits, subject to the tax credit limit, but allows it to share tax credits and credit carryover with other taxable members under certain conditions.

The bill allows a taxable member to share tax credits it earns beginning on or after the 2015 income year with other taxable members in the group. Any credit amount used by another taxable member reduces the amount of credit carryover available to the taxable member that originally earned it. If the taxable member has a credit carryover derived from an income year beginning on or after 2015, it may share the carryover credit with the group's taxable members as long they were taxable members in the income year in which the credit was earned.

A taxable member with a credit carryover derived from an income year prior to 2015 or during which it was not a member of the combined group may (1) continue to use the carryover and (2) share it with other group members that were part of its combined or unitary group under current law. Taxable members eligible to claim more than one corporation business tax credit in an income year must claim the credits according to the existing law that establishes the order for claiming corporation business tax credits.

Deduction for Certain Publicly-Traded Companies

The bill allows certain unitary groups to offset any increase in their members' “net deferred tax liability” or decrease in their “net deferred tax assets” resulting from the newly imposed unitary reporting requirements. It does so by allowing them to deduct the increase or decrease from their net income over seven years, beginning in the 2018 income year.

Under the bill, a member's “net deferred tax liability” is the amount by which its deferred tax liabilities exceed the group's deferred tax assets, while its “net deferred tax assets” are its deferred tax assets that exceed the group's deferred tax liabilities. Both must be determined according to generally accepted accounting principles (GAAP).

The deduction applies only to publicly-traded companies, including affiliated corporations participating in a publicly-traded company's financial statements, prepared according to GAAP, as of the bill's passage. From the 2018 to 2024 income years, such groups may deduct from their net income an amount equal to one-seventh of the amount necessary to offset the increase in net deferred tax liability or decrease in net deferred tax asset or the aggregate of both, resulting from unitary reporting. They may carry forward any excess deduction to future income years until it is fully utilized.

The groups must calculate the deduction regardless of its impact on federal taxes and without altering the tax basis of any asset. Any events that occur after the deduction is calculated, including the disposition or abandonment of assets, must not reduce it.

Combined groups intending to claim this deduction must, by July 1, 2016, file a statement with the commissioner specifying the total amount of the deduction claimed. The statement must (1) be made on a form and in a manner the commissioner prescribes and (2) contain any information or calculation the commissioner specifies. No deduction is allowed for any income year unless it is claimed by July 1, 2016.

The bill specifies that its provisions do not limit the commissioner's authority to review or redetermine the proper amount of any deduction claimed, whether claimed on the statement described above or on a tax return for any income year.

Annual Return

The bill requires a combined group to designate one of its Connecticut taxable members to file the unitary return and pay the tax on behalf of all its taxable members. To this end, the designated member may, on the taxable and nontaxable members' behalf, (1) sign a unitary return, (2) apply for filing extensions, (3) agree to an examination or assessment of the return, (4) make offers of compromise and closing agreements regarding tax liability, and (5) receive refunds and credits for tax overpayments.

A combined group member whose income year is different from that of the rest of the group must report amounts from its return for its income year that ends during the “group income year.” Under the bill, the “group income year is (1) the designated taxable member's income year or (2) if two or more members in the group file in the same federal consolidated tax return, the income year used on the federal return. No such reporting is required until the beginning of the member's first income year starting on or after January 1, 2015.

The bill allows the designated taxable member to recover the payments from the other taxable members and prohibits those members from holding the designated taxable member liable for the payments. However, each taxable member of the combined group is jointly and severally liable for the taxes plus any interest, penalties, or additions due from any other taxable member.

A combined group required to name a designated member must give the DRS commissioner written notice of the selection by the date the tax is due. The commissioner must approve any change in the designated member.

The bill gives the commissioner the sole discretion to (1) send notices, make deficiency assessments, and provide tax refunds and credits to the designated member or any other group member and (2) require a unitary return to be filed electronically and any tax payment to be made by electronic funds transfer.

Estimated Tax

The bill applies estimated tax requirements to taxable members of combined groups required to file unitary returns. It makes the designated taxable member responsible for paying the estimated tax installments.

By law, corporations must pay the following percentages of their annual taxes by the following dates: 30% by March 15, 40% by June 15, 10% by October 15, and 20% by December 15. The bill extends the due dates for the first estimated tax payment for combined groups whose 2015 group income years start in (1) January or February to July 15, 2015 or (2) March August 15, 2015. Such groups must pay 70% (i.e., a combination of the first and second payment) of the required annual payment on those dates.

Under the bill, taxable members of combined groups required to file unitary returns are not subject to interest and penalties for underpaying estimated tax in 2015 if:

1. they pay estimated taxes equal to at least 90% of that shown on their unitary tax filing for the 2015 group income year or

2. if the 2014 income year was a 12-month year, the taxable members of the combined group pay estimated taxes of 100% of the tax liability, before credits, shown on either their individual separate 2014 returns or their optional 2014 combined return, as applicable.

Current Combined Reporting Provisions and Conforming Sections

Under current law, a corporate group doing business in Connecticut that files a consolidated federal corporate tax return has the option of filing a combined Connecticut return but first has to separately apportion each member's net income or capital base separately among the states where the member operates. The separately apportioned Connecticut shares of income and losses of group members doing business here are then combined to determine their corporation tax liability. The DRS commissioner can also require groups that do not file consolidated federal returns to file combined Connecticut reports under certain circumstances. The bill eliminates these combined return provisions for income years starting on or after January 1, 2015 (when the bill's unitary reporting requirements begin).

The bill makes additional statutory changes to conform to the mandatory unitary filing requirements and the elimination of current combined reporting provisions.

EFFECTIVE DATE: Upon passage and applicable to income years starting on or after January 1, 2015.

§ 164-169 — BUDGET RESERVE FUND

The bill establishes a mechanism for diverting projected surpluses in certain tax revenues to the Budget Reserve (i.e. “Rainy Day”) Fund (BRF). It establishes a (1) formula and process for calculating the revenue diversion and (2) Restricted Grants Fund (RGF) to hold the diverted funds until after the close of General Fund accounts each fiscal year, at which point they transfer to the BRF.

The bill applies to revenue (referred to as “combined revenue”) from the (1) corporation income tax and (2) personal income tax's estimated and final payments (i.e., income tax revenue generated from taxpayers who make estimated income tax payments on a quarterly basis).

Threshold Level for BRF Deposits

Beginning in FY 16, the bill requires the state comptroller to annually certify the threshold level for BRF deposits using a formula based on (1) a 10-year average of the state's combined revenue and (2) the rate of growth in combined revenue. Under the bill, a “10-year average” is the average amount of combined revenue in the 10 fiscal years preceding a given fiscal year.

Formula. The comptroller must determine the threshold using a three-step calculation. The first step is to calculate the 10-year average for the current fiscal year.

The second step is to calculate the rate of growth in combined revenue over the preceding 10 years. To do so, the comptroller must:

1. calculate the 10-year average for each fiscal year preceding the current fiscal year;

2. calculate, for each of these years, the difference between the actual combined revenue for the given fiscal year and the 10-year average for that same fiscal year, divided by the 10-year average for that fiscal year (“differential”); and

3. take the average of these 10 differentials and add one.

The last step is to multiply the two numbers derived from steps one and two. The threshold level for BRF deposits is the product of this multiplication.

Certifying and Reporting the Threshold Level. Beginning in FY 16, the bill requires the comptroller to include a statement certifying the threshold level for the current fiscal year in the annual report he submits to the governor on the state's financial condition. By law, he must submit this report by September 30 and make a published copy available to the public by December 31.

The bill requires the OPM secretary and OFA director to annually report the comptroller's certified threshold level by November 10, after adjusting for enacted laws projected to impact the estimated and final portion of the income tax or corporation income tax revenue by more than 1%. Presumably, the threshold is adjusted upward by the amount of a projected revenue increase and downward by the amount of a projected revenue decrease.

The OPM secretary and OFA director may (1) recalculate their threshold level adjustments to reflect any consensus revenue (see BACKGROUND) revisions in January and April impacting these revenue sources and (2) continue making the adjustments (a) for up to 10 fiscal years following the implementation of the law that created the revenue impact or (b) until there is no longer a revenue impact of more than 1%, whichever comes first. They must report any such revisions in their January and April consensus revenue estimates and include information on how (1) they determined the revenue impact and (2) used that information to adjust the threshold level.

The bill also requires the OPM secretary and OFA director to each report the estimated threshold level, using the bill's formula, for the three fiscal years following the current fiscal year.

Required Transfers from General Fund to RGF and BRF

Beginning in FY 17, the bill diverts, to the newly created RGF, projected surpluses in combined revenue based on January and April consensus revenue estimates. The bill requires the state treasurer to transfer the surpluses from the RGF to the BRF after the close of General Fund accounts each fiscal year. As with the BRF under existing law, the bill authorizes the treasurer to invest all or part of the RGF in certain statutorily prescribed investments and directs her to credit all investment interest to the General Fund.

January. The bill requires the state treasurer to transfer funds from the General Fund to the RGF if the January 15 consensus revenue estimate projects combined revenue for the current fiscal year that exceeds the threshold level. The treasurer must transfer the amount projected to exceed this level annually by January 31.

Under the bill, there is no transfer if (1) combined revenue is projected to be less than or equal to the threshold level or (2) the consensus revenue estimate for the current fiscal year projects a year-end General Fund deficit.

April. The bill requires the treasurer to adjust the amount diverted to the RGF in January based on the April 30 revised consensus estimate for combined revenue. It does so by requiring the state treasurer to transfer (1) additional funds from the General Fund to the RGF or (2) funds out of the RGF and back into the General Fund. In certain cases, it requires a transfer to the RGF after the April 30 estimate even if no transfer was made in January.

As Table 9 shows, the transfer depends on whether the (1) January estimate was more or less than the threshold level and (2) April estimate (a) increases or decreases the January estimate or (b) is more or less than the threshold level. The treasurer must transfer the required amounts to or from the RGF annually by May 15. As with the January estimate, there is no transfer if the April 30 estimate for the current fiscal year projects a year-end General Fund deficit.

Table 9: Transfers Required Following April 30 Consensus Revenue Estimate

January 15 Combined Revenue Projection

April 30 Combined Revenue Projection

Transfer Required Under the Bill

Exceeded the threshold level

Revised upward

Difference between January and April combined revenue projection must be transferred to RGF

Revised downward but still more than the threshold level for deposits

Difference between January and April combined revenue projection must be transferred from RGF to the General Fund

Revised downward to a level less than the threshold level for deposits

Difference between January combined revenue projection and the threshold level must be transferred from RGF to the General Fund

Less than or equal to the threshold level

Revised upward to a level exceeding the threshold level

Difference between April combined revenue projection and threshold level must be transferred to the RGF

Revised upward but remaining less than the threshold level

No transfer to RGF

Deficit Mitigation Plan. The bill authorizes the governor to direct the treasurer to transfer money in the RGF to the General Fund as part of a required deficit mitigation plan. By law, the governor must submit a deficit mitigation plan whenever the comptroller projects a current year deficit of more than 1% of General Fund appropriations.

Reducing or Eliminating Transfers to RGF or BRF. The bill requires at least three-fifths of the members of the Appropriations and Finance, Revenue and Bonding committees to approve any bill that, if passed, would reduce or eliminate the amount of any deposit to the BRF or RGF. It is unclear whether this provision is enforceable against future legislatures (see BACKGROUND).

BRF

Purpose. The bill expressly provides that the BRF is to be maintained and invested to reduce revenue volatility in the General Fund and reduce the need for tax increases and state aid cuts due to economic changes.

Maximum Balance. The bill increases the BRF's maximum balance from 10% to 15% of net General Fund appropriations for the current fiscal year but appears to allow the balance to exceed 15% under certain circumstances. Specifically, if a required transfer to the BRF would cause the balance to exceed 15%, the bill appears to allow such a transfer to be made in whole, thus causing the balance to exceed 15%. As under existing law, once the BRF reaches the maximum, the treasurer may not transfer additional funds to it. Any remaining funds must go towards (1) the State Employee Retirement Fund's unfunded liability and (2) paying off outstanding state debt.

Authorized Use of Funds in the BRF. Beginning in FY 17, the bill provides statutory authority for the legislature to transfer funds from the BRF to the General Fund in the three fiscal years following a fiscal year in which the April 30 consensus revenue estimate projects a 2% drop in General Fund tax revenue from the current fiscal year to the next fiscal year.

Directing BRF Transfers to Pay Unfunded Pension Liability. By law, any unappropriated surplus that remains after the BRF reaches its maximum balance must be used for paying the State Employee Retirement Fund's unfunded liability. Beginning in FY 17, the bill additionally earmarks for that purpose a percentage of any amount transferred to the BRF. The percentage depends on the BRF's balance, as shown in Table 10.

Table 10: BRF Transfer Directed to Unfunded Pension Liabilities

BRF's Balance as a % of Net General Fund Appropriations

Percentage of BRF Transfer Directed to State Employee Retirement Fund

Less than 5%

5%

5% ≤ balance < 10%

10%

10% ≤ balance < 15%

15%

Reports to the Legislature and Governor

Beginning by December 15, 2020, and every five years thereafter, the bill requires the OPM secretary, OFA director, and state comptroller to each report to the Finance, Revenue and Bonding Committee and the governor on the bill's BRF deposit formula and include any recommended changes to the formula or BRF cap that are consistent with the BRF's purpose, as described above.

The reports must analyze the:

1. formula's impact on General Fund tax revenue volatility,

2. adequacy of the formula's required deposits to replace potential future revenue declines resulting from economic downturns,

3. amount of additional payments toward unfunded liability made as a result of the formula, and

4. adequacy of the BRF's cap.

EFFECTIVE DATE: July 1, 2019

§ 170 — RESIDENT STATE TROOPER

Under current law, towns participating in the resident trooper program must pay (1) 70% of the regular cost and expense of having a trooper assigned to the town and (2) 100% of any overtime costs and the portion of the fringe benefits directly associated with those costs. The bill instead requires participating towns to pay (1) 85% of the compensation, maintenance, and other expenses of the first two troopers assigned to the town; (2) 100% of such costs for any additional troopers assigned there; and (3) 100% of the overtime costs and the portion of the fringe benefits directly associated with those costs.

EFFECTIVE DATE: July 1, 2015

§ 171 — INSURANCE REINVESTMENT ACT PROGRAM CHANGES

Credit Cap Increase

The bill increases the aggregate cap on Insurance Reinvestment Act Tax credits by $150 million, from $200 million to $350 million. It does not change the program's $40 million annual cap. The credits apply to the insurance premium tax, and insurers qualify for them by investing in eligible businesses through state-certified business investment funds, which current law names “Insurance Investment Funds.” The bill renames these funds, “Invest CT Funds.”

Leveraged Capital

By law, funds must obtain investments from other sources besides insurers (leveraged capital) before the Department of Economic and Community Development commissioner can certify a fund and allocate credits to it on behalf of its insurance company investors. The bill increases the share of such capital from 5% to 10% of the insurers' total investment. The commissioner may begin certifying funds and allocating credits based on this investment criterion starting on or after September 1, 2015.

Investment Goals

As under existing law, funds must apply to the commissioner for certification. In doing so, a fund must, among other things commit to investing a portion of the funds in green technology and newly forming businesses (pre seed). For funds seeking certification or credit allocations on or after September 1, 2015, the bill increases from 3% to 7% the amount the funds must invest in pre seed businesses, but requires funds to meet this goal within four years after they received their credit allocation, rather than three years, as current law requires. The bill continues to require funds to invest at 25% of their funds in green technology businesses, but also creates two additional investment targets:

1. at 25% of the funds must be invested in businesses located in municipalities with over 80,000 people (targeted areas businesses) and

2. at least 3% must be invested in cybersecurity businesses.

Under the bill, cybersecurity businesses are those that primarily provide information technology products, goods, or services aimed at detecting, preventing, or responding to attacks on information technology systems or the information stored in or transiting such systems. The attacks include attempting to obtain unauthorized access to, exfiltration or manipulation of, or impairment to the system's integrity, confidentiality, or availability.

The bill makes changes to the requirements for claiming credits and distributing returns conforming to these new investment targets.

Claiming Credits

By law, the credit equals 100% of an insurer's investment, but must insurers must claim them over 10 years, according to a statutory schedule. The bill changes the schedule, pushing back the first year when an insurer may begin claiming credits, beginning on or after September 1, 2015. Under the bill, the insurer may begin claiming 20% of the credit starting in sixth year and may continue claiming them at that annual rate until the l0th year. Under current law, the insurer may begin claiming credits in fourth year, claiming up to 10% per year in years four through seven and 20% per year in the last three years. As under existing law, the insurer may carry forward unused credits, but cannot transfer them to other taxpayers.

Performance Standards

As under current law, insurance investors' ability to claim credits depends on whether the fund meets its annual investment goals. The bill resets the investment goals for funds awarded credit allocations after September 1, 2015. The changes align with the investment commitments funds must make when they apply for certification.

Under the bill, a fund must have invested at least 60% of its credit-eligible capital in eligible businesses within six years after the commissioner allocated the credit. Under current law, funds must achieve this goal within four years after the credit allocation date. The fund must also have invested at least 7% of its credit-eligible capital in pre seed businesses by within four years of that date.

The fund must also have invested at least 25% in targeted area businesses and 3% in cybersecurity businesses, but the bill does not specify a date by which they must do so.

The bill requires funds to include information on these investments in their annual report to the commissioner.

Distributions

Besides the tax credits, the insurance company investors also receive a return on their investments (distributions). The bill adds conditions a fund must meet met before it can distribute returns. The conditions apply to funds certified after September 1, 2015 and align with the investment goals the bill sets for them. The fund must have invested at least 25% of its funds in target area businesses, 7% in pre seed businesses, and at least 3% in cybersecurity businesses. As under current law, it must also have invested at least 25% of the funds in green technology businesses. And it must have invested all of the credit-eligible capital in eligible businesses.

The bill allows funds to distribute returns before they meet these investment targets under the same conditions that apply under current law.

Fund Decertification

The bill extends the period during which the commissioner may decertify a fund and cause it to forfeit future unclaimed credits. By law, the commissioner may decertify a fund if it fails to submit required reports, meet its investment targets, or comply with the distribution rules. Under current law, the fund must forfeit unclaimed credits if the commissioner decertifies it within four years after she allocated its credits and the fund failed to invest at least 60% of its funds. For funds receiving credit allocations on or after September 1, 2015, the bill requires the fund to forfeit the credit if the commissioner decertifies it within the first six years of the credit allocation and the fund failed to meet the 60% investment goal.

EFFECTIVE DATE July 1, 2015

§ 172 — AMBULATORY SURGICAL CENTER TAX

The bill imposes a 6% gross receipts tax on Department of Public Health-licensed and Medicare-certified ambulatory surgical centers. These centers perform surgery and related services on patients that take less than a day and do not require hospitalization. The centers must remit the tax quarterly, beginning with the last quarter calendar of 2015. The tax is due on the last day of the month preceding the quarter. When it does so, it must file the return electronically and remit the tax by electronic funds transfer. The return must identify the center's name and location and provide any other information the Department of Revenue Services commissioner requires.

Centers that fail to remit the tax face a 10% penalty or $50, whichever is greater, plus interest at 1% per month. The bill gives the commissioner the same statutory enforcement powers he has under the law to enforce admission and dues taxes.

The bill authorizes the comptroller to record the revenue the tax generates each fiscal year no later than five business days after the end to the fiscal year.

EFFECTIVE DATE: October 1, 2015

§ 173 — FY 16 GENERAL FUND REVENUE

The bill allows the comptroller to designate up to $25 million of General Fund revenue for FY 16 as General Fund revenue in FY 17.

EFFECTIVE DATE: Upon passage

§§ 174 & 175 — ESTATE AND GIFT TAX CAP

The bill puts a $20 million cap on the maximum amount of (1) estate tax imposed on the estates of residents and nonresidents who die on or after January 1, 2016 and (2) gift tax imposed on taxable gifts donors make on or after January 1, 2015. The cap must be reduced by the amount of any gift taxes the decedent, the decedent's estate, or the decedent's spouse paid on taxable gifts made on or after January 1, 2016. The cap on estate taxes cannot be reduced to the point where the estate pays no taxes. By law, these taxes apply to the aggregate amount of taxable gifts and estates over $2 million.

EFFECTIVE DATE: Upon passage and applicable to estates of decedents who die on or after January 1, 2016 and gifts made on or after January 1, 2015.

§§ 176-180 — CIGARETTE TAX

The bill increases the cigarette tax in two steps, from (1) $3.40 to $3.65 per pack on October 1, 2015 and (2) $3.65 to $3.90 per pack on July 1, 2016.

It imposes a 25-cent “floor tax” on each pack of cigarettes that dealers and distributors have in their inventories at the earlier of the close of business or 11: 59 p.m. on (1) September 30, 2015 and (2) June 30, 2016.

By November 15, 2015 and August 15, 2016, each dealer and distributor must report to DRS the number of cigarettes in inventory as of September 30, 2015 and June 30, 2016, respectively, and pay the floor 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. If this occurs, the dealer or distributor is subject to a penalty of 10% of the tax due or $50, whichever is greater, plus interest of 1% per month.

Failure to file the report by the due date is grounds for DRS to revoke or not renew a cigarette dealer's or distributor's license and any other DRS-issued license or permit the person or entity holds. 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, namely, 10% of the tax due or $ 50, whichever is greater, plus interest of 1% per month.

EFFECTIVE DATE: The (1) October 1, 2015 increase is effective on October 1, 2015 and applicable to sales occurring on or after that date, (2) July 1, 2016 increase is effective on July 1, 2016 and applicable to sales occurring on or after that date, and (3) floor tax takes effect upon passage.

§§ 183-205 — PAYMENT IN LIEU OF TAXES (PILOT) PROGRAM

The bill restructures the state's PILOT programs by establishing minimum annual reimbursement rates and a method for disbursing PILOT grants when appropriations are not enough to fund the full grant amounts.

Eligible Property and Reimbursement Rates

By law, the state makes annual PILOT payments to municipalities to reimburse them for a part of the revenue loss from (1) state-owned property, Indian reservation and trust land, and municipally owned airports (“state, municipal, and tribal property”) and (2) private nonprofit college and hospital property (“college and hospital property”). Under current law, these PILOTs are based on (1) a specified percentage of taxes that each municipality would otherwise collect on the property and (2) the amount the state appropriates for the payments.

Beginning in FY 17, the bill sunsets the current PILOT programs and requires all PILOTs to be paid under a new consolidated program. The new program reimburses municipalities for the same types of property, at the same reimbursement rates, using the same application and payment process as the current program. As under current law, the rate is (1) 45% for state-owned property, (2) 77% for college and hospital property, and (3) between 45% and 100% for other specified properties (see BACKGROUND).

The bill also retains the following PILOTs for municipalities that host specified properties or institutions:

1. $100,000 to Branford for Connecticut Hospice,

2. $1 million to New London for the U.S. Coast Guard Academy, and

3. an additional $60,000 to Voluntown for state-owned forest land.

Eligible Municipalities

Under current law, only towns and boroughs are eligible for state, municipal, and tribal property PILOTs. The bill conforms the law to current practice by extending such PILOTs to cities, consolidated towns and cities, and consolidated towns and boroughs.

As under existing law, the bill provides college and hospital property PILOTs to towns, boroughs, cities, consolidated towns and cities, and consolidated towns and boroughs, and village, fire, sewer, or combination fire and sewer districts, and other municipal organizations authorized to levy and collect taxes.

FY 17 PILOTs

Under current law, the PILOTs are proportionately reduced if the amount appropriated is not enough to fund the full amount to every municipality or district. For FY 17, the bill maintains this requirement, but adds two mitigating features. It (1) requires municipalities and districts to receive PILOTs that equal or exceed the reimbursement rates they received in FY 15 for such property and (2) establishes an additional PILOT grant, funded from the select PILOT account described below, for certain municipalities and districts. It specifies the additional grant amount that these municipalities and districts must receive.

PILOTs Beginning in FY 18

Beginning in FY 18, the bill maintains the requirement that PILOTs be proportionately reduced, but establishes a new method for disbursing the grants. It establishes minimum reimbursement rates for specific types of PILOT-eligible property, based on a municipality's mill rate, as described below. In addition, it requires that PILOTs for all other eligible properties (i.e., “qualified state, municipal, and tribal property” and “qualified college and hospital property”) be proportionately reduced, but no lower than the reimbursement rate the municipality or district received in FY 15 for such property.

Minimum Reimbursement Rates for Specific PILOT Properties. The bill establishes a minimum reimbursement rate for PILOTs on (1) “select state property” (i.e., the category of state-owned property reimbursed at 45%); and (2) “select college and hospital property” (i.e., private, nonprofit colleges and universities, nonprofit general and chronic disease hospitals, certain urgent care facilities).

Under the bill, the Office of Policy and Management (OPM) must rank each municipality based on (1) its mill rate and (2) the percentage of tax-exempt property on its 2012 grand list, excluding correctional and juvenile detention facilities. OPM must give boroughs and districts the same rankings as the municipalities in which they are located.

The bill divides municipalities into three tiers based on this ranking and sets a minimum reimbursement rate for each tier, as shown in Table 1. It requires that the PILOTs grants to tiers one and two that exceed the minimum reimbursement rate for tier three (i.e., 32% for college and hospital PILOTs and 24% for state property PILOTs) be paid from the select PILOT account.

Table 1: Minimum PILOT Reimbursement Rates

Municipalities

College and Hospital Property

State Property

Tier one: 10 municipalities with the highest percentage of tax-exempt property and a mill rate of at least 25

42%

32%

Tier two: Next 25 municipalities with a mill rate of at least 25

37%

28%

Tier three: All other municipalities

32%

24%

The bill also specifies a procedure for reducing PILOTs beyond the minimum reimbursement rates in Table 1 if the amount appropriated for the grants and available in the select PILOT account (described below) is not enough to fund them. Under this procedure, OPM must proportionately reduce the college and hospital property grants such that the tier one and tier two grants are 10 percentage points and 5 percentage points greater than the tier three grants, respectively. Similarly, OPM must proportionately reduce the state property PILOTs such that the tier one and tier two grants are 8 percentage points and 4 percentage points greater than the tier three grants, respectively. It must pay the grants to tiers one and two that exceed the grants paid to tier three from the select PILOT account.

Select PILOT Account

The bill requires OPM to fund certain PILOT grants from the select PILOT account, which the bill establishes as a separate, nonlapsing General Fund account. It capitalizes the fund with sales tax revenue transferred from the municipal revenue sharing account, as specified below.

The bill requires OPM to use the account to fund (1) the additional PILOT grants FY 17 and (2) beginning in FY 18, the portion of PILOT grants paid to tiers one and two exceeding the reimbursement rates paid to tier three.

The bill requires the account to contain any money legally required to be deposited into it. 

Reporting Requirement

The bill requires OPM, beginning by July 1, 2017, to annually report for four years to the Finance, Revenue and Bonding Committee on the PILOTs and include its recommendations for changes.

Mashantucket Pequot and Mohegan Fund Distribution

Current law annually allocates a portion of the Mashantucket Pequot and Mohegan Fund to municipalities according to distribution formulas that are linked to the state, municipal, and tribal property and college and hospital property PILOTs ($20,000,000 and $20,123,916, respectively). The bill instead sets each municipality's distribution of the funds equal to the amount they received in FY 15. It also makes a conforming change to reflect the bill's PILOT provisions.

EFFECTIVE DATE: July 1, 2016, except that the provisions sunsetting the current PILOT programs and modifying Mashantucket Pequot and Mohegan Fund grants are effective July 1, 2015.

§§ 206 & 208 — MOTOR VEHICLE PROPERTY TAX MILL RATES

Beginning with the October 1, 2015 grand list, the bill allows municipalities and special taxing districts to tax motor vehicles at a different rate than other taxable property, but caps the motor vehicle rate at (1) 32 mills for the 2015 assessment year and (2) 29.36 mills for the 2016 assessment year and thereafter. The bill (1) applies to any town, city, borough, consolidated town and city, consolidated town and borough, and village, fire, sewer, or combination fire and sewer districts, and other municipal organizations authorized to levy and collect taxes and (2) supersedes any special act, municipal charter, or home rule ordinance.

The bill further limits the motor vehicle mill rate special taxing districts and boroughs may impose by barring them from setting a rate that, if combined with the municipality's motor vehicle mill rate, would exceed (1) 32 mills for the 2015 assessment year and (2) 29.36 mills for the 2016 assessment year and thereafter. Presumably, a district or borough would set its motor vehicle mill rate after the municipality in which it is located does so.

It also makes a conforming change to a provision allowing municipalities with more than one taxing district to set a uniform citywide mill rate for taxing motor vehicles.

EFFECTIVE DATE: October 1, 2015, and applicable to assessment years beginning on or after that date.

§§ 207 & 209 — MUNICIPAL REVENUE SHARING ACCOUNT (MRSA) DISTRIBUTIONS

The bill establishes a schedule for distributing sales tax revenue directed to MRSA. Under the bill, OPM must transfer or disburse MRSA funds in the following amounts and order:

1. $10 million each year for FYs 16 and 17 for education cost sharing grants;

2. beginning in FY 17, an amount sufficient to make the grants payable from the select PILOT account;

3. beginning in FY 17, an amount sufficient to make motor vehicle property tax grants to municipalities, as described below;

4. in FY 17, an amount sufficient to pay municipal revenue sharing grants, as specified below;

5. $3 million in FY 17 and $7 million for each fiscal year thereafter, for regional services grants to councils of government (COG) (described below); and

6. beginning in FY 18, any remaining MRSA funds to provide municipal revenue sharing grants to municipalities, according to a specified formula (see below).

The bill also eliminates the current process for distributing MRSA funds, which requires OPM to (1) provide manufacturing transition grants to municipalities and (2) distribute any remaining funds according to a specified municipal revenue sharing formula.

Motor Vehicle Property Tax Grants

Beginning in FY 17, the bill requires OPM to distribute motor vehicle property tax grants to municipalities to mitigate the revenue loss attributed to the motor vehicle mill rate cap described above. Under the bill, the FY 17 grant is equal to the difference between the amount of property taxes a municipality levied on motor vehicles for the 2013 assessment year and the amount of the levy for that year at 32 mills. In FY 18 and thereafter, the grant is equal such difference, based on 29.36 mills.

Regional Services Grants

Beginning in FY 17, the bill requires OPM to distribute regional services grants to COGs on a per capita basis, based on the most recent Department of Public Health (DPH) population estimate. Beginning in FY 18, it requires the COGs to submit a spending plan for the grant funds for OPM's approval in order to receive a grant.

The bill requires COGs to use the grants (1) for planning purposes and (2) to achieve efficiencies in delivering municipal services on a regional basis, including consolidating services on a regional basis. The bill specifies that the efficiencies must not diminish the services' quality. A COG's council members must unanimously approve any grant expenditure.

The bill also requires COGs, beginning by October 1, 2017, to biennially report to the Planning and Development and Finance, Revenue and Bonding committees, (1) summarizing how they have spent the grants and (2) providing recommendations for expanding, reducing, or modifying them.

Municipal Revenue Sharing Grants

Beginning in FY 17, the bill requires OPM to distribute municipal revenue sharing grants to municipalities. In FY 17, OPM must distribute the grants according to the amounts specified in the bill. Beginning in FY 18, it must do so according to a formula the bill establishes.

The formula for calculating each municipality's grant amount depends on its motor vehicle mill rate (MVMR). As explained below, it gives more weight to municipalities with relatively high motor vehicle mill rates by setting a 25-mill threshold and basing the distribution on whether a municipality's MVMR is above or below that threshold.

Formula for Distributing Grants to Municipalities below the Threshold. OPM must calculate grant amounts for municipalities below the 25-mill threshold using the bill's per capita and pro rata formulas. A municipality's grant is the lesser of the per capita and pro rata distributions.

OPM must calculate each municipality's per capita distribution by multiplying the municipality's share of the state's total population (based on the most recent DPH estimate) by the total amount of funds available for the revenue sharing grants.

OPM must calculate each municipality's pro rata distribution using a multi-step formula, as follows:

1. First, it must calculate a municipality's “weighted mill rate,” which is its MVMR for FY 15 divided by the average FY 15 MVMR for all municipalities.

2. Next, it must multiply the municipality's weighted mill rate by its per capita distribution. (This step increases a municipality's share of the sales tax revenue if the municipality's FY 15 MVMR is greater than the statewide FY 15 MVMR average and lowers it if the MVMR is less than that average. The bill refers to the outcome of this step as the “municipal weighted mill rate calculation.”)

3. OPM must then (1) divide the municipal weighted mill rate calculation by the sum of all municipal weighted mill rate calculations and (2) multiply the result by total amount of funds available for the revenue sharing grants, thus yielding the municipality's pro rata distribution.

Grant Formula for Municipalities At or Above the 25-mill Threshold. The formula for municipalities at or above the 25-mill threshold also begins by calculating the per capita and pro rata distributions, but OPM must select the greater of the two amounts and increase it based on a specified percentage. OPM must determine that percentage by:

1. subtracting the total pro rata grants for municipalities below the 25-mill threshold from the total per capita grants for such municipalities and

2. dividing the difference by the sum of the pro rata and per capita distributions for municipalities at or above the 25-mill threshold.

The bill caps the grant amounts for specified municipalities. It caps Hartford's grant at 5.2% of the total amount of revenue sharing grants distributed, Bridgeport's at 4.5%, New Haven's at 2.0%, and Stamford's at 2.8%. OPM must redistribute any funds remaining after determining these caps to all other municipalities with MVMRs at or above the 25-mill threshold according to the pro rata distribution formula used to determine their initial grant amounts.

Grant Schedule. The bill requires OPM to distribute the funds deposited in MRSA for municipal revenue sharing grants between (1) October 1 and June 30 on the following October 1 and (2) between July 1 and September 30 on the following January 31. But it allows municipalities to apply to OPM on or after July 1 for an early disbursement. OPM may approve a municipality's application if it finds that the early disbursement is required to meet the municipality's cash flow needs. It must issue such disbursements by September 30.

Proportionate Reductions. OPM must proportionately reduce each municipality's grant if the total amount of grants for all municipalities exceeds the available MRSA funds.

Special Taxing Districts. The bill authorizes a municipality to disburse any municipal revenue sharing grant funds to special taxing districts located in such municipality.

Spending Cap. Beginning in FY 18, OPM must reduce the grant amount for those municipalities whose spending, with certain exceptions, exceeds the bill's spending limit. Each fiscal year, OPM must determine the municipality's percentage growth in spending over the prior fiscal year and reduce the grant if the growth rate is equal to or greater than 2.5% or the inflation rate, whichever is greater. The reduction is generally equal to 50 cents for every dollar the municipality spends over this cap. However, for municipalities that taxed motor vehicles at more than 32 mills for the 2013 assessment year (for taxes levied in FY 15), the reduction may not exceed the difference between the amount of property taxes the municipality levied on motor vehicles for the 2013 assessment year and the amount the levy would have been had the motor vehicle mill rate been 32 mills.

The bill requires each municipality to annually certify to the OPM secretary, using an OPM-prescribed form, whether it has exceed the spending cap and if so, the amount over the cap.

Under the bill, municipal spending does not include expenditures:

1. for debt service, special education, or implementing court orders or arbitration awards;

2. associated with a major disaster or emergency declaration by the president or disaster emergency declaration issued by the governor under the civil preparedness law; or

3. for any municipal revenue sharing grant the municipality disburses to a special taxing district, up to the difference between the amount of property taxes the district levied on motor vehicles in the 2013 assessment year and the amount the levy would have been had the motor vehicle mill rate been 32 mills, for FY 17 disbursements, or 29.63 mills, for FY 18 disbursements and thereafter.

Property Tax Statements. The bill requires municipal tax collectors to include, as part of property tax bills, a statement informing taxpayers of the bill's spending penalty. The statement must be in the following form:

To encourage property tax relief for taxpayers, municipal revenue sharing grants from the state to municipalities will be reduced if municipal spending grows beyond the amount provided in section 25 of this act.

EFFECTIVE DATE: October 1, 2015

§ 210 — PILOT AND MUNICIPAL REVENUE SHARING GRANT REPORTING REQUIREMENT

The bill requires OPM, by January 1, 2016, to report to the Planning and Development and Finance, Revenue and Bonding committees on the bill's PILOT and municipal revenue sharing grant provisions. OPM must include its recommendations for (1) enacting further legislation concerning such provisions, (2) making statutory changes that would facilitate their implementation, (3) adjusting the grant amounts or formulas, and (4) improving and enhancing such provisions.

EFFECTIVE DATE: Upon passage

§§ 211-215 — PROPERTY TAX BASE REVENUE SHARING PROGRAM

The bill authorizes COGs to establish a property tax base revenue sharing program under which the municipalities in their planning regions (1) tax C&I property at a composite mill rate, based in part on the average mill rate in their regions, and (2) share up to 20% of the property tax revenue generated by the growth in their C&I property tax bases since 2013, which the bill designates as the base year. The revenue sharing must be administered by an auditor elected by a COG's members.

The bill allows a COG to implement the program only if its member municipalities unanimously authorize it to do so. It appears that COGs must decide whether to participate by August 1, 2016.

It allows COGs to establish the program beginning with the 2015 assessment year and, for those doing so, requires municipalities to begin, on or after January 1, 2017, annually remitting revenue sharing payments by February 1, for redistribution as described below.

Mill Rate

Growth in C&I Property Tax Base. In regions implementing the revenue sharing program, the growth in a municipality's C&I property tax base must be taxed at a composite rate determined according to the following formula. Under the bill, growth in a municipality's C&I property tax base is measured as the difference between the total assessed value of its C&I property for the current year, minus the total assessed value of its C&I property for the base year (“increase from base year”).

The bill defines C&I property as real property used for:

1. selling goods or services, including nonresidential living accommodations, dining establishments, motor vehicle services, warehouses, distribution facilities, retail services, banks, office buildings, multipurpose buildings, commercial condominiums for retail or wholesale use, recreation facilities, entertainment facilities, airports, hotels, and motels; and

2. producing or fabricating durable and nondurable man-made goods from raw materials or compounded parts.

It includes the lot or land on which a building is situated and any accessory improvements, including pavement and storage buildings, but excludes any real property located in an enterprise zone.

Municipal Commercial Industrial Mill Rate. The bill requires municipalities in participating COGs that have experienced an increase in their C&I tax base from the base year to tax C&I property at a “municipal commercial industrial mill rate,” rather than their local mill rates. Municipalities that have experienced no change or a decrease in their C&I tax base since the base year must tax C&I property using their local mill rates.

The municipal commercial industrial mill rate is calculated according to a formula that incorporates the average mill rate in the municipality's planning region (“regional mill rate”) and the municipality's mill rate for the following fiscal year (i.e., the mill rate effective July 1 of the current year). Although the bill does not specify when the municipality must calculate this rate, presumably it would do so after finalizing its budget for the following year (typically in May or June).

The mill rate is determined by dividing the sum of the following three amounts by the total assessed value of the municipality's C&I property for the current assessment year:

1. the revenue sharing percentage determined by the COG (i.e., 0.2 or less, as described below) multiplied by the (a) increase from the base year and (b) regional mill rate;

2. One minus the revenue sharing percentage (i.e., 0.8 or less) multiplied by the (a) increase from the base year and (b) municipal mill rate for the following fiscal year; and

3. the total assessed value of C&I property for the base year (“municipal base value”) multiplied by the municipal mill rate for the following fiscal year.

Revenue Sharing

Percentage. The municipalities in a planning region that implements the program must share a portion of the revenue generated by the growth in their C&I tax base. Each COG implementing the program must determine the revenue sharing percentage. That percentage, which must be 20% or less, is a variable in the formulas used to calculate the (1) municipal commercial industrial mill rate and (2) municipal contribution to the area-wide tax base, described below.

Municipal Contribution to the Area-Wide Tax Base. Starting January 1, 2017, each municipality in a participating COG must annually remit, by February 1, its property tax revenue sharing payment (i.e., its “municipal contribution to the area-wide tax base”) to the administrative auditor (see below). The payment is a portion of the property taxes paid on the growth in the municipality's C&I tax base since 2013, based on the regional mill rate.

The municipality must calculate the payment amount by (1) multiplying its increase from the base year by the revenue sharing percentage, (2) dividing that number by 1000, and (3) multiplying the result by the regional mill rate.

Municipal Distribution Index. By March 1, annually, the administrative auditor must distribute the property tax revenue sharing payments according to a distribution index based on municipal fiscal capacity (“municipal distribution index”). For each municipality, the index equals the municipality's population multiplied by a ratio measuring the average fiscal capacity in the region compared to the municipality's fiscal capacity.

Specifically, the ratio's numerator is the assessed value of all taxable real property and PILOT-eligible property in the planning region divided by the region's total population (“average fiscal capacity”). The denominator is the total assessed value of all taxable real property and PILOT-eligible property in the municipality divided by the municipality's total population (“municipal fiscal capacity”).

The auditor must distribute the revenue sharing payments in the same proportion as the municipality's municipal distribution index bears to the total of all municipal distribution indices with the region. In other words, if the municipality's fiscal capacity is the same as the regional average, its share of the funds will be the same as its share of the region's population. If its fiscal capacity is above the regional average, its share will be smaller. If its fiscal capacity is below the regional average, its share will be larger.

Municipalities must use the revenue sharing payments in the same way and for the same purposes for which they use real property tax revenue.

Administrative Auditor

The bill requires each COG implementing the program to elect, from among its members, an administrative auditor to coordinate the property tax revenue sharing payments under the program. The COG must elect the auditor by August 1, 2016 and in succeeding even-numbered years. If a majority of the COG's members is unable to agree on a person to serve as the auditor, the OPM secretary must appoint one from among the members.

The auditor serves for two years and until the COG elects his or her successor. If he or she ceases to serve as a COG member during his or her term, a successor must be chosen to serve for the unexpired term, in the same manner in which the original auditor was chosen (i.e., by the COG or OPM secretary).

The auditor must use the planning region's staff and facilities. The COG's member municipalities must reimburse it for the marginal expenses its staff incurs. Each municipality's share of the total expenses is based on its relative share of population in the region. Annually, by February 1, the auditor must certify, to each municipality's treasurer or other fiscal officer, the amount of total expenses for the preceding calendar year and the municipality's share of the expenses. The treasurer or officer must pay such amount to the planning region's treasurer or fiscal officer by the following March 1.

EFFECTIVE DATE: October 1, 2015, and applicable to assessment years beginning on or after that date, except for the provision requiring COGs to elect an administrative auditors, which is effective October 1, 2015.

§ 216 — ADMISSIONS TAX

From July 1, 2015 to June 30, 2017, the bill exempts from the 10% admissions tax Atlantic League professional baseball games played at Bridgeport's Harbor Yard Ballpark.

EFFECTIVE DATE: July 1, 2015

§ 217 — SWIMMING POOL INSTALLER LICENSE

The bill creates a swimming pool installer license, generally subject to the same provisions governing the swimming pool builder license under existing law.

Under current law, anyone who, for financial compensation, builds or installs permanent spas or in-ground or partially above-ground swimming pools more than 24 inches deep must be licensed as a swimming pool builder and registered as a home improvement contractor with the Department of Consumer Protection (DCP). Once DCP adopts implementing regulations, this bill extends the license and registration requirements to anyone who, for financial compensation, installs above-ground swimming pools more than 24 inches deep. People building or installing pools on their own residential property are exempt from the requirements under the law and the bill.

As is currently the case for the swimming pool builder licensee, the bill prohibits the swimming pool installer licensee from performing electrical; plumbing and piping; or heating, piping, and cooling work without being licensed to perform this type of work.

As is the case for the swimming pool builder, the initial fee for the swimming pool installer license is $150, and the annual renewal fee is $100. The annual registration fee is $120, and the required annual contribution to the Home Improvement Guaranty Fund is $100.

The bill does not contain specific penalties for swimming pool installer license violations. But by law, DCP may impose penalties for violations, such as license revocation and suspension on DCP licenses. Under the bill, a swimming pool installer licensee who violates the home improvement contractor registration provisions is also subject to a range of penalties.

Pool Installer Regulations

By April 1, 2016, the bill requires the DCP commissioner to adopt implementing regulations establishing the amount and type of experience, training, continuing education, and examination requirements for getting and renewing a license.

Once DCP adopts regulations, the bill prohibits anyone from installing, for financial compensation, an above-ground swimming pool more than 24 inches deep, except on his or her own property, without first obtaining a DCP-license and registering with DCP as a home improvement contractor.

After DCP adopts regulations, anyone who applies for a pool installer's license, by January 1, 2017, does not have to take a license examination, provided his or her experience and training are equivalent to that required to qualify for the examination under DCP regulations.

Home Improvement Registration Requirements

The bill requires the swimming pool installer licensees to comply with the home improvement contractor registration requirements.

Fees. By law, home improvement contractors must register with DCP and pay a $220 annual fee, of which $100 goes to the Home Improvement Guaranty Fund, which reimburses consumers (up to $15,000 per claim) unable to recover losses suffered because the registered contractor failed to fulfill a contract valued over $200 (CGS § 20-432).

Requirements. Among other things, registered contractors must (1) include their registration numbers in advertisements, (2) show their registration when asked to do so by “any interested party,” and (3) use written contracts that meet certain statutory requirements (CGS §§ 20-427(a) & 429).

Violations and Penalties. DCP may investigate refuse, suspend, or revoke a contractor's registration and impose fines. It may impose civil fines ranging from $500 for a first offense to $1,500 for third and subsequent offenses for such things as working without a required registration or willfully employing an unregistered individual ( CGS § 20-427(d)).

In addition, by law, certain violations involving (1) an element of fraud are class B misdemeanors (punishable by a maximum of six months imprisonment, a fine of up to $1,000 or both) and (2) over $10,000 are class A misdemeanors (punishable by a maximum of one year imprisonment, a fine of up to $2,000 or both). And the court may impose probation of up to five years if the contractor cannot pay the restitution in full (CGS § 20-427(c)).

Finally, a violation of the Home Improvement Act constitutes a violation under the Connecticut Unfair Trade Practices Act (CUTPA) (CGS § 20-427(c)).

EFFECTIVE DATE: Upon passage

§ 218 — GOVERNOR'S HORSE GUARDS

The bill transfers $90,000 each year in FY 16 and FY 17 from the Community Investment Account to the Military Department for Personal Services. For each fiscal year, it directs $45,000 to fund the First Company Governor's Horse Guard unit at the Avon facility and $45,000 for the Second Company Governor's Horse Guard unit at the Newtown facility.

EFFECTIVE DATE: July 1, 2015

§ 219 — DRS STATE CORPORATION BUSINESS TAX REPORT

By February 1, 2016, the bill requires the DRS commissioner to (1) review the impact of alternative apportionment and income sourcing methods for corporation business tax purposes on Connecticut businesses and (2) provide any recommendations to the Finance, Revenue, and Bonding committee.

EFFECTIVE DATE: Upon passage

§§ 220 & 223 — MRSA TRANSFER

The bill repeals the requirement that the DRS commissioner deposit $12.7 million of FY 15 sales and use tax payments into MRSA and distribute the funds to municipalities according to a specified municipal revenue sharing formula. By June 30, 2015, it allows the comptroller to designate up to $12.7 million of General Fund revenue for FY 15 as General Fund revenue in FY 16.

EFFECTIVE DATE: Upon passage

BACKGROUND

Planning Regions

By law, the OPM secretary designates the state's local planning regions. There are currently nine regions: Capitol, Greater Bridgeport, Lower CT River Valley, Naugatuck Valley, Northeastern, Northwest Hills, South Central, Southeastern, and Western.

PILOT Rates for Specific Types of Property

By law, PILOT reimbursement rates differ for specific types of properties, as shown in Table 2.

Table 2: PILOT Rates for Specified Property Types

Type of Property

PILOT (% of lost tax revenue)

State-Owned Property PILOT

Correctional facility or juvenile detention center

100%

John Dempsey Hospital permanent medical ward for prisoners

100

Mashantucket Pequot reservation land (1) designated within 1983 settlement boundary and (2) taken into trust by the federal government for the Mashantucket Pequots on or after June 8, 1999

100

Land in any town where more than 50% of the land is state-owned

100

Connecticut Valley Hospital

65

Mashantucket Pequot reservation land (1) designated within the 1983 settlement boundary and (2) taken into trust by the federal government for the Mashantucket Pequots before June 8, 1999

45

Mohegan reservation land taken into trust by the federal government

45

Municipally owned airports

45

State-owned property

45

College and Hospital PILOT

U.S. Department of Veterans Affairs Connecticut Healthcare Systems campuses

100

Private, nonprofit colleges and universities

77

Nonprofit general and chronic disease hospitals

77

Certain urgent care facilities

77

Legislative Entrenchment

Legislative entrenchment refers to one legislature restricting a future legislature's ability to enact legislation. For example, CGS § 2-35 previously prohibited appropriations bills from containing general legislation. (This provision has since been repealed.) In Patterson v. Dempsey, 152 Conn. 431 (1965), the Connecticut Supreme Court held that this provision of CGS § 2-35 was unenforceable, writing that, “to hold otherwise would be to hold that one General Assembly could effectively control the enactment of legislation by a subsequent General Assembly. This obviously is not true, except where vested rights, protected by the constitution, have accrued under the earlier act. ”

Consensus Revenue Estimates

By law, the OPM secretary and OFA director must annually issue consensus revenue estimates by November 10 and any necessary consensus revisions of those estimates by January 15 and April 30. The estimates must (1) cover the current biennium and the three following years and (2) be the basis for the governor's proposed budget and the revenue statement included in the budget act the legislature passes.