OLR Bill Analysis

sHB 7312 (as amended by House "A")*

AN ACT CONCERNING THE DEPARTMENT OF REVENUE SERVICES' RECOMMENDATIONS FOR STATE TAXATION AND COLLECTION AND IMPROVING TAX GAP COMPLIANCE.

TABLE OF CONTENTS:

SUMMARY

1 — ORDER OF APPLYING PARTIAL PAYMENTS

Changes the order in which the DRS commissioner must apply partial tax payments

2 — INCOME TAX ON NONQUALIFIED COMPENSATION

Subjects certain deferred compensation attributed to services performed in the state to personal income tax

3 — SALES TAX PERMIT RENEWALS

Requires sales tax permits to be renewed every two years instead of every five

4 — WEEKLY SALES TAX REMITTANCE

Specifies methods for weekly sales tax remittance

4 — FILING SALES TAX RETURNS ON ANNUAL BASIS

Codifies the DRS rule for determining when the sales tax must be annually remitted

5 — SECURITY REQUIREMENT FOR WITHHOLDING TAX

Establishes conditions under which the DRS commissioner may require employers and payers to post a bond or other security to secure withholding tax payments

6 & 8 — INCOME TAX WITHHOLDING FOR PENSION AND ANNUITY PAYMENTS

Requires, rather than allows, income tax withholding for pension and annuity payments

7 — INFORMATION RETURNS BY PAYERS OF NONPAYROLL AMOUNTS

Advances the date by which payers of nonpayroll amounts that are not subject to income tax withholding must submit information returns to DRS

9 — INFORMATION RETURNS ON CREDIT AND DEBIT CARD SALES (1099-K FORMS)

Requires certain entities to file with DRS copies of the annual federal information returns that report the payment transactions they process for Connecticut retailers

10 — DRS TAX WARRANTS

Allows certain DRS tax warrants to provide for a continuous order to withhold intangible personal property for up to 180 days

11 — PERIODIC CRIMINAL BACKGROUND CHECKS FOR CURRENT DRS EMPLOYEES

Requires current DRS employees to undergo periodic criminal background checks

12-14 — BED AND BREAKFAST OCCUPANCY TAX RATE

Imposes a uniform occupancy tax rate on rent charged at bed and breakfast establishments

15-18 — TAX PREPARERS AND FACILITATORS

Establishes a regulatory structure for tax preparers and facilitators

19 — DELINQUENT TAXPAYER LIST

Requires the DRS commissioner to submit a delinquent corporation business taxpayer list to OPM only upon request

20, 22, 32, 35, 37 & 38 — TAX REGULATIONS

Eliminates provisions requiring or allowing the DRS commissioner to adopt regulations concerning various tax provisions

21 — DRS DATA MATCH PROGRAM

Makes administrative and policy changes to DRS's data match program

23 — CAPTIVE REAL ESTATE INVESTMENT TRUSTS

Modifies the definition of a captive real estate investment trust (REIT) for corporation income tax purposes

24 & 25 — CORPORATION TAX FILING DEADLINES

Extends the deadlines for filing corporation business tax returns

26 — DRY CLEANING DROP STORES

Exempts dry cleaning “drop stores” from the dry cleaning surcharge

27 — UTILITY COMPANIES TAX

Aligns the determination of utility companies' gross earnings with the way income is classified in PURA's uniform system of accounts

28 — SUCCESSOR LIABILITY FOR DEALER CIGARETTE SALES TAXES

Makes people who buy a cigarette dealer's business or product stock liable for back taxes

29 — CIGARETTE SALES TAX EXEMPTION FOR SALES TO U.S. VETERANS' HOSPITALS AND ARMED FORCES MEMBERS

Exempts cigarette sales to Veterans' Hospitals and Armed Forces members on military bases from the cigarette tax

30 — SUCCESSOR LIABILITY FOR TOBACCO PRODUCTS SALES TAXES

Makes people who buy a tobacco products distributor's or importer's business or product stock liable for back taxes

31 — TOBACCO PRODUCTS TAX RECORDS

Tightens requirements for maintaining tobacco products tax records and establishes a civil penalty of $1,000 per day for any distributor or importer who fails to immediately produce or provide electronic access to the records upon the commissioner's or agent's request

33 & 34 — USE TAX TRANSFERS TO DEDICATED ACCOUNTS AND FUNDS

Extends to the use tax the required revenue diversion for certain dedicated accounts, according to the same amounts and schedules specified under existing law for the sales tax

36 — SOURCING OF INCOME FROM REAL PROPERTY FOR INCOME TAX PURPOSES

Clarifies ownership requirements for the sourcing of income from certain real property

38 — DEADLINES FOR FILING CERTAIN INFORMATIONAL RETURNS

Sets an earlier date of January 31, instead of the last day of February, by which certain employers and payers must file informational returns with DRS for personal income tax purposes

39 — PENALTY WAIVER REQUESTS

Imposes a deadline for considering DRS penalty waiver requests

40 — ENFORCING THE GROSS EARNINGS TAX THAT FUNDS PEGPETIA

Extends the penalty for willfully failing to pay the tax that funds the “public, educational, and governmental programming and education technology investment account”

41 — RACKETEERING ACTIVITY

Extends the definition of racketeering activity under the Corrupt Organization Racketeering Act (CORA) to include violations of certain tobacco products-related crimes

42 & 43 — MENTAL HEALTH COMMUNITY INVESTMENT ACCOUNT

Allows income tax return contributions for mental health programs and services

44 & 45 — SECURITY REQUIREMENT FOR SALES AND USE AND ADMISSIONS AND DUES TAXES

Establishes conditions under which the DRS commissioner may impose the existing security requirement for sales and use and admissions and dues tax

46 — PENALTY FOR FAILING TO COMPLY WITH CERTAIN SALES AND USE TAX REQUIREMENTS

Authorizes the DRS commissioner to impose a civil penalty of $500 per violation for failing to comply with certain sales and use tax requirements

47 & 48 — MUNICIPAL REFUNDING BOND MATURITY

Temporarily allows municipalities, by a two-thirds vote of their legislative bodies, to issue refunding bonds with a maturity of up to 30 years

49 & 50 — MUNICIPAL DEFICIT FINANCING

Excludes refunding bonds and tax anticipation notes from the municipal deficit financing law

background

SUMMARY

This bill makes numerous tax law changes, including (1) shortening the validity period of sales tax permits; (2) establishing methods for weekly sales tax remittance; (3) requiring, rather than allowing, income tax withholding for certain pension and annuity payments; and (4) creating a regulatory structure for tax preparers and facilitators.

The bill also (1) temporarily allows municipalities, by a two-thirds vote of their legislative bodies, to issue refunding bonds with a maturity of up to 30 years and (2) excludes certain types of municipal bonds from the municipal deficit financing law.

*House Amendment “A”:

1. adds the provisions in 15 through 50;

2. makes minor and technical changes to the weekly sales tax remittance provisions ( 4);

3. establishes conditions under which the DRS commissioner may require employers and payers to post security to secure withholding tax payments, rather than just authorizing him to impose the security requirement ( 5);

4. eliminates provisions requiring hosting platforms to collect and remit occupancy taxes; and

5. makes technical changes.

EFFECTIVE DATE: Various, see below.

1 — ORDER OF APPLYING PARTIAL PAYMENTS

Changes the order in which the DRS commissioner must apply partial tax payments

The bill changes the order in which the DRS commissioner must apply partial tax payments. Under current law, the commissioner must apply partial payments first to any penalties, then to interest, and the remaining balance to the tax. Under the bill, the commissioner must still apply the payment to the penalties first, but any remaining balance must be applied first to the tax and then to the interest.

EFFECTIVE DATE: July 1, 2018

2 — INCOME TAX ON NONQUALIFIED COMPENSATION

Subjects certain deferred compensation attributed to services performed in the state to personal income tax

The bill requires taxpayers to include in Connecticut adjusted gross income, to the extent it is not properly includable in gross income for federal income tax purposes, compensation that is deferred under a nonqualified deferred compensation plan of a nonqualified entity. A nonqualified deferred compensation plan is an arrangement between an employer and an employee or service provider to pay compensation in the future, thus deferring the tax liability on the compensation. Such plans exclude qualified employer plans (e.g., 457(b) plans) and bona fide vacation leave, sick leave, compensatory time, disability pay, and death benefit plans (26 U.S.C.A. 457A & 409A). A nonqualified entity is generally a foreign corporation.

Federal law generally provides that any compensation that is deferred under a nonqualified deferred compensation plan of a nonqualified entity is includable in gross income when the compensation is no longer subject to a substantial risk of forfeiture (26 U.S.C. 457A). Under federal law, such deferred compensation earned and deferred before January 1, 2009 must be recognized for federal tax purposes by 2017.

EFFECTIVE DATE: July 1, 2017, and applicable to tax years commencing on or after January 1, 2017.

3 — SALES TAX PERMIT RENEWALS

Requires sales tax permits to be renewed every two years instead of every five

For sales tax permits issued on or after October 1, 2017, the bill shortens the period, from five to two years, during which they are valid.

EFFECTIVE DATE: October 1, 2017

4 — WEEKLY SALES TAX REMITTANCE

Specifies methods for weekly sales tax remittance

Period for Weekly Remittance

By law, a person or entity (i.e., taxpayer) required to collect the sales tax must remit it on a monthly, quarterly, or annual basis, depending on the amount of sales tax they collect. But the DRS commissioner can require taxpayers to remit the tax every week if they fail to remit it on time (i.e., weekly remittance).

Taxpayers that remit the tax every week can still file claims for refunds and exercise the other rights the law affords them.

Methods for Weekly Remittance

The bill specifies the methods taxpayers must use to remit sales taxes when the commissioner requires them to do so weekly. They must remit the tax through a certified service provider, unless they elect to establish a separate account with a financial institution for depositing the tax payments.

Taxpayers that choose to remit the tax through a service provider must select one that is certified by the Streamlined Sales Tax Governing Board, Inc. Those that choose to remit by establishing an account with a financial institution may select a bank, Connecticut credit union, federal credit union, an out-of-state bank that maintains a branch in Connecticut, or an out-of-state credit union that maintains an office in the state. The account may be a demand deposit, checking, negotiable order of withdrawal, or a share draft account. In any case, the account must be one that allows the depositor to make transfers or withdrawals by negotiable or transferable instrument, payment orders of withdrawals, electronic transfers or other similar mechanisms for making payments of transfers to third parties.

The commissioner must inform taxpayers of these options when he sends the notice, required by law, informing them that they must remit the tax every week. The bill requires the notice to include a:

1. statement informing the taxpayer about the remittance options;

2. list of certified service providers and how they can be contacted; and

3. form for choosing such a provider.

The commissioner cannot use the bill's methods for weekly remitting the sales tax in place of the methods the law authorizes for collecting delinquent taxes.

A taxpayer's choice for weekly remittance is irrevocable and remains in effect until the commissioner notifies the taxpayer that he or she no longer must weekly remit the tax. Current law fixes the period for weekly remittance at one year. The bill allows the commissioner to relieve the taxpayer after one year if the evidence shows that the taxpayer continuously remitted the tax on a weekly basis for 12 months. But the bill also allows the commissioner to relieve the taxpayer sooner.

Certified Service Provider

A taxpayer that chooses to remit the sales tax through a service provider must complete and return to the commissioner the form that accompanies the notice within two business days after receiving the notice. Taxpayers that miss this deadline must establish an account with a financial institution as described below. Otherwise, a taxpayer has 30 days from the commissioner's notice to (1) contract with a certified service provider and (2) begin weekly remittance. Upon request, the taxpayer must provide the commissioner (1) a copy of the contract with the provider, (2) a statement authorizing the commissioner to contact the provider for information about the taxpayer, and (3) any other information the commissioner needs about the taxpayer's arrangement with the provider.

The provider must electronically remit the taxes. In doing so, it may, if the commissioner approves, keep a portion of the remitted tax, up to the amount the provider charged the taxpayer for its services.

Bank Account

Establishment. A taxpayer that chooses not to remit the taxes through a certified service provider must, within 30 days after receiving the commissioner's notice, establish an account with a financial institution exclusively for remitting the taxes. The account must be separate from the taxpayer's other accounts, bear the taxpayer's name, and be designated as “Trustee, Special Fund in Trust of the State of Connecticut, Department of Revenue Services, Under Section 12-408 of the Connecticut General Statutes.”

The establishment of the account and the commissioner's authority to order payments from it do not affect the financial institution's right to recover uncollected funds credited to the account, including the right to remove funds from it as a charge-back to recover uncollected funds.

If the commissioner requests it, the taxpayer must provide the name of the financial institution where the taxpayer established the account, the account number, and any other account information the commissioner requires, including account balances, dates and amounts of credits and debits to the account, and other account-related nonpublic personal information. The taxpayer, as the account's trustee, must also provide a written consent to the financial institution that authorizes it to disclose this account-related information to the commissioner. This authorization also serves as the statutorily-required request the commissioner must make to the financial institution before it can disclose information to him.

Deposits. After establishing the account, the taxpayer has up to two days to deposit in the account the taxes it collected or received on a given day. The taxpayer may deposit no other funds in the account except for its maintenance. Money in the account constitutes a fund in trust for the state. As such, it is deemed property of the state, payable only to DRS. No liens can be placed on the account.

Withdrawals. The taxpayer must obtain the commissioner's approval before withdrawing funds from the account for purposes other than remitting sales taxes. A taxpayer withdrawing funds without the commissioner's prior approval is guilty of larceny with each unauthorized withdrawal constituting a separate offense.

Account Status. The commissioner may request a financial institution to provide information about an account established for remitting the sales tax. But he must also identify, in consultation with banking industry representatives, acceptable methods for providing that information.

Failure to Remit Taxes. The bill authorizes the commissioner to order the payment of funds from the account if the taxpayer fails to remit the tax and the commissioner determines that it might not be collected. The commissioner may do this to recoup only the delinquent taxes, not associated penalties and interest charges, which he may collect by other means the law authorizes.

In these cases, the commissioner may serve notice on the institution where the account was established and order the payment from the account. The commissioner must determine, in consultation with banking industry representatives, acceptable ways to provide this notice.

Upon receiving the commissioner's payment notice, the financial institution must remove from the taxpayer's account the funds deposited there or an amount equal to the tax the commissioner ordered paid, whichever is less. The institution must remove the amount by midnight of the banking day following the banking day it received the notice (i.e., midnight deadline) and pay the amount within two business days after the midnight deadline.

If the institution refuses to pay the requested amount, the commissioner may ask the attorney general to take an action in the Superior Court for the Hartford Judicial District to compel the institution to pay the amount.

Taxpayer Rights. The bill allows taxpayers to file a claim against the commissioner if he withdraws funds from an account that contains funds deposited for purposes other than remitting taxes.

The commissioner must notify taxpayers about this right at the same time he notifies the institution about the withdrawal. He must do so by providing a notice, which he may deliver in person, leave at taxpayer's dwelling or usual business place, send by first class mail to the taxpayer's last-known address, or send by email or fax.

Claim Process. The taxpayer has up to 10 business days from the receipt of notice to file a claim on a form the commissioner prescribes. If the taxpayer misses the 10-day deadline, he or she waives any demand against the state.

Within 10 business days of receiving a claim, the commissioner must determine if it is valid. If he determines that it is, he must return only those funds that are not remitted taxes. These funds are not the state's property and cannot be used to offset the taxpayer's other tax liabilities.

If the commissioner determines the claim is not valid, he must send a notice to the taxpayer to that effect. The taxpayer may protest the denial by notifying the commissioner in writing within five days and specifying the grounds for the protest. The commissioner has up to 10 days from the taxpayer's protest notice to reconsider the denial. He must notify the taxpayer in writing about his decision. If the commissioner denies the claim or returns part of the money, he must specify his findings of fact and the basis for his decision.

The taxpayer may appeal the decision to the Superior Court for the New Britain judicial district, as the law specifies. The appeal is subject to the requirements of the Uniform Administrative Appeals Act.

Penalty Waivers

The bill prohibits the commissioner from waiving any penalties imposed on taxpayers that must remit the sales tax on a weekly basis.

Electronic Filing

Taxpayers that must remit sales taxes weekly must continue to file their tax returns on a monthly or quarterly basis. The bill requires them to do so electronically.

EFFECTIVE DATE: January 1, 2018

4 — FILING SALES TAX RETURNS ON ANNUAL BASIS

Codifies the DRS rule for determining when the sales tax must be annually remitted

The bill codifies the DRS's current requirements for remitting sales taxes on an annual basis. The requirement for annual remittance applies to taxpayers that collect and remit less than $1,000 in sales taxes for the 12-month period beginning July 1 and ending June 30. These taxpayers must also file their tax returns annually by January 31 for sales reported during the previous calendar year.

EFFECTIVE DATE: January 1, 2018

5 — SECURITY REQUIREMENT FOR WITHHOLDING TAX

Establishes conditions under which the DRS commissioner may require employers and payers to post a bond or other security to secure withholding tax payments

The bill authorizes the DRS commissioner, under certain conditions, to require employers and payers to deposit securities (e.g., bonds or cash deposits) with the commissioner to ensure their compliance with withholding tax requirements. Under the bill, the commissioner may impose the security requirement whenever any employer or payer required to deduct and withhold income tax (1) owes withholding taxes that have been finally due and payable for at least 90 days and for which any administrative or judicial remedies (or both) have been exhausted or have lapsed or (2) has failed to file at least one required withholding tax return. (The bill imposes similar conditions for security requirements for other taxes. See 15-16 below.)

The bill gives the commissioner discretion to determine the type and amount of security required, up to six times the employer's or payer's estimated liability for the prior or future 12-month period. He may increase or decrease the security amount subject to these limitations.

Under the bill, the commissioner may sell the security at public auction if necessary to recover any taxes, amounts required to be collected, interest, or penalty due. He may serve notice of the sale in person or by mail to the person depositing the security. Mailings must be made to the person's address listed in DRS records, in the same way DRS sends tax deficiency assessment notices. After the sale, the commissioner must return any surplus above the amounts due to the person depositing the security.

EFFECTIVE DATE: October 1, 2017

6 & 8 — INCOME TAX WITHHOLDING FOR PENSION AND ANNUITY PAYMENTS

Requires, rather than allows, income tax withholding for pension and annuity payments

Current law allows Connecticut residents receiving pensions or annuities to instruct the payer of the pension or annuity to withhold Connecticut income tax. The bill eliminates this option and instead requires income tax withholding by certain payers of pensions and annuities. These distributions include those from an employer pension, annuity, profit-sharing plan, stock bonus, deferred compensation plan, individual retirement arrangement, endowment, or life insurance contract.

The withholding requirement applies to payers of pension or annuity distributions that (1) maintain an office or transact business in Connecticut and (2) make taxable payments to resident individuals. Under the bill, such payers must deduct and withhold from the taxable portion of any such distribution, as far as practicable, an amount substantially equal to the tax reasonably estimated to be due from the payee during the calendar year. With the exception of “lump sum distributions,” the method of determining the amount to be withheld must be the same as the method employers use for payroll withholding. A lump sum distribution must be taxed at the highest marginal rate unless (1) any portion of the distribution was previously taxed or (2) it is a rollover effected as a direct trustee-to-trustee transfer. The bill defines lump sum distributions as payments from a payer to a resident payee of the payee's entire retirement account balance, excluding any other tax withholding and administrative charges and fees.

EFFECTIVE DATE: January 1, 2018

7 — INFORMATION RETURNS BY PAYERS OF NONPAYROLL AMOUNTS

Advances the date by which payers of nonpayroll amounts that are not subject to income tax withholding must submit information returns to DRS

Under the bill and current DRS practice, payers making nonpayroll amounts to payees during the calendar year, other than those payers subject to income tax withholding, must provide to each payee, annually by the next January 31, a written statement showing the amount of nonpayroll amounts paid, the amount deducted and withheld from such payments, and any other information the DRS commissioner requires (e.g., federal Form 1099-MISC, Miscellaneous Income). Under current DRS practice, such payers must generally file copies of these forms with DRS by March 31. The bill instead requires them to do so by January 31.

By law, nonpayroll amounts include:

1. gambling winnings paid to Connecticut residents that are subject to federal income tax withholding (i.e., payments over $5,000);

2. Connecticut lottery winnings that must be reported to the IRS, regardless of whether they are subject to federal withholding (i.e., payments of $600 or more and at least 300 times the wager amount);

3. pension and annuity distributions paid to Connecticut residents requesting state income tax withholding (subject to mandatory withholding under the bill);

4. military retirement paid to Connecticut residents requesting state income tax withholding;

5. unemployment compensation paid to those requesting state income tax withholding; and

6. nonwage payments to athletes or entertainers from which the DRS commissioner requires withholding (generally, payments over $1,000 unless DRS grants a waiver).

EFFECTIVE DATE: January 1, 2018

9 — INFORMATION RETURNS ON CREDIT AND DEBIT CARD SALES (1099-K FORMS)

Requires certain entities to file with DRS copies of the annual federal information returns that report the payment transactions they process for Connecticut retailers

Federal law requires certain “reporting entities” to file with the IRS annual information returns that report the payment transactions they process for retailers (i.e., federal Form 1099-K). The bill requires such entities processing payments for Connecticut retailers (i.e., participating payees) to file copies of these information returns with DRS within 30 days after filing them with the IRS, in the manner and form prescribed by the DRS commissioner. DRS currently receives copies of such forms from the IRS about six months after they are filed.

The bill's reporting requirement applies to the same entities subject to the federal reporting requirement (i.e., payment settlement entities, third party settlement organizations, electronic payment facilitators, or other third parties acting on behalf of a payment settlement entity). These entities generally include domestic and foreign entities that process credit, debit, and payment card transactions on behalf of retailers.

Reporting entities that fail to file the returns within the prescribed time are subject to a civil penalty of (1) $50 for each failure if the return is submitted within one month after it was due and (2) an additional $50 for each month or part of a month that the failure continues, up to $250,000 per year per reporting entity. The commissioner may waive all or part of the penalties imposed if the reporting entity's failure to timely file the return was not due to willful neglect, but rather based on reasonable cause. If the commissioner chooses to do so, he must follow the statutory procedure for waiving penalties over $1,000.

EFFECTIVE DATE: July 1, 2017, and applicable to information returns due for calendar years commencing on or after January 1, 2017.

10 — DRS TAX WARRANTS

Allows certain DRS tax warrants to provide for a continuous order to withhold intangible personal property for up to 180 days

Existing law allows DRS to issue a tax warrant on the intangible personal property (e.g., bank accounts, receivables, and securities) of a taxpayer who fails to pay state taxes and serve the warrant on a third person (e.g., bank or payment settlement entity) who possesses the property or is obligated to it in some respect.

The bill allows such warrants to include an order to the third person to continually deliver the intangible property that is due and becomes due to the taxpayer during the 180 days immediately following the warrant's issuance date or until the tax is fully paid, whichever is earlier. The bill specifies that such warrants have the same force and effect as executions issued under the existing postjudgment procedures law, as is the case with other DRS tax warrants.

EFFECTIVE DATE: July 1, 2017

11 — PERIODIC CRIMINAL BACKGROUND CHECKS FOR CURRENT DRS EMPLOYEES

Requires current DRS employees to undergo periodic criminal background checks

The bill requires current DRS employees periodically to undergo the same criminal background checks the law currently requires for prospective DRS employees. At least once every 10 years, each current DRS employee must:

1. disclose in writing any criminal convictions and pending charges and, if charges are pending, the court in which they are pending;

2. allow themselves to be fingerprinted; and

3. submit to state and national criminal record checks under Connecticut's uniform criminal records check procedure.

As with prospective employees, DRS must enforce these requirements consistent with the law prohibiting employers from requiring prospective employees to disclose information in certain erased criminal records (CGS 31-51i).

EFFECTIVE DATE: Upon passage

12-14 — BED AND BREAKFAST OCCUPANCY TAX RATE

Imposes a uniform occupancy tax rate on rent charged at bed and breakfast establishments

The bill applies a uniform 11% room occupancy tax to rent received by bed and breakfast establishments (B&Bs) and specifies that rent received by hotels, lodging houses, and B&Bs includes any meals that are included with the occupancy charge. Under the bill, rent received by hotels and lodging houses continues to be subject to the current 15% room occupancy tax.

Under current DRS practice, B&B room occupancy charges that include lodging and meals at a fixed price are allocated according to a specified schedule such that the percentage allocated to meals is taxed at the general 6.35% sales tax rate and the percentage allocated to the room is taxed at the 15% occupancy tax rate (DRS Policy Statement 2003 (1)).

The bill defines a B&B as a private operator-occupied house, other than a hotel or lodging house, with 12 or fewer rooms, in which people are lodged for hire and a full morning meal is included in the rent. It also specifies that “lodging house” includes furnished residences in which people are lodged for hire, thus explicitly subjecting rent received for lodging in such residences to the room occupancy tax.

EFFECTIVE DATE: October 1, 2017, and applicable to sales occurring on or after that date.

15-18 — TAX PREPARERS AND FACILITATORS

Establishes a regulatory structure for tax preparers and facilitators

The bill establishes a regulatory structure for most tax preparers and facilitators who are not otherwise regulated. It also prohibits a number of actions by anyone who provides tax preparation services, including those who are otherwise regulated.

EFFECTIVE DATE: October 1, 2018, except the provisions described under “Prohibited Conduct” are effective October 1, 2017.

Definitions

Under the bill, “tax preparation services” means preparing or assisting in preparing another person's federal or state personal income tax return for a fee or other consideration. A person who provides tax preparation services is a “tax preparer.”

The bill defines “facilitator” as a person who, individually or with another person, (1) solicits, processes, receives, or accepts an application or agreement for a refund anticipation loan or refund anticipation check; (2) serves or collects upon a refund anticipation loan or a refund anticipation check; or (3) facilitates the making of such loans or checks in any other manner. “Facilitator” does not include any employee who provides clerical or comparable support services to a facilitator.

The bill defines “refund anticipation check” as a check, debit card, stored value card, or other payment mechanism that (1) represents federal or state income tax refund proceeds, (2) is issued by a bank or other person that received a direct deposit of the tax refund or tax credits; and (3) is paid for by a fee or other consideration.

Under the bill, a “refund anticipation loan” is a loan secured by, or that a creditor arranges to be repaid directly or indirectly from, the proceeds of a federal or state personal income tax refund. It includes any sale, assignment, or purchase of a tax refund at a discount or for a fee, whether or not the amount is required to be repaid to the buyer or assignee if the IRS or DRS denies or reduces the amount of the tax refund.

Prohibited Conduct

The bill prohibits anyone who provides tax preparation services or acts as a facilitator, including those who are exempt from the bill's other provisions (see below) from doing the following:

1. imposing a fee or other consideration for making or facilitating a refund anticipation loan or refund anticipation check other than the originating creditor's or bank's fee;

2. engaging in unfair or deceptive acts in making or facilitating a refund anticipation loan or refund anticipation check, including any statements contradicting the Taxpayer Bill of Rights under the Internal Revenue Code or the Connecticut Taxpayer's Bill of Rights (CGS 12-39n);

3. directly or indirectly arranging for a third party, other than the originating bank or creditor, to impose any interest, fee, or charge related to a refund anticipation loan or refund anticipation check;

4. taking or arranging for a creditor to take a security interest in a taxpayer's property interest, other than the proceeds of a tax refund, to secure payment of a refund anticipation loan;

5. engaging in collecting an outstanding or delinquent refund anticipation loan for any creditor or assignee;

6. materially misrepresenting any fact in obtaining a permit;

7. refusing or failing to return a taxpayer's documents within a reasonable period of time;

8. refusing or failing to provide a taxpayer, for his or her own records, with a copy of any document requiring his or her signature within a reasonable time after signing the document;

9. failing to maintain a copy of a prepared return for a period of four years from the later of the return's due date or completion date;

10. requiring or allowing a taxpayer to sign blank or incomplete tax forms;

11. requiring a taxpayer to designate the tax preparer or facilitator as the payee for a federal or state personal income tax refund; or

12. requiring a taxpayer to designate and use a specific bank, debit card, or stored value care provider for the purposes of a federal or state personal income tax refund.

The bill also prohibits anyone who provides tax preparation services or acts as a facilitator from including any of the following provisions in documents provided with respect to a refund anticipation loan or refund anticipation check, including in the loan application or agreement:

1. a hold harmless clause;

2. a confession of judgment clause;

3. an assignment of or order for payment of wages or other compensation for services;

4. a waiver of any provision of the Taxpayer Bill of Rights or the Connecticut Taxpayer's Bill of Rights; or

5. a waiver of the right to injunctive, declaratory, or other equitable relief or relief on a class-wide basis.

It also requires tax preparers to sign returns they prepare and include their IRS-issued tax identification number.

Penalties. The bill allows the DRS commissioner to impose a civil penalty of $500 per violation on any tax preparer or facilitator who violates the provisions described above. But he may waive the penalty if the violation is proven to be due to reasonable cause and not intentional or due to neglect.

Permits

Beginning January 1, 2019, the bill requires anyone who furnishes tax preparation services or acts as a facilitator, or advertises or solicits business as such, to hold a DRS-issued tax preparer permit or facilitator permit, unless the person is exempt (see below). For individuals who act as both a preparer and a facilitator, the commissioner must issue a single permit covering both activities.

Under the bill, anyone seeking to obtain or renew a permit must apply to the DRS commissioner electronically in the form and manner the commissioner prescribes. Applicants must pay $100 for an initial permit and $50 when they renew their permit, which they must do every two years. The commissioner must notify an applicant in writing of his application decision within 60 days after he receives the application.

Under the bill, if a permittee no longer provides tax preparation services or acts as a facilitator, he or she may apply to DRS for inactive permit status. Permittees with inactive permits may not provide tax preparation services or act as facilitators or advertise such services. Inactive permits do not need to be renewed, but can be reactivated with payment of a renewal fee.

The bill requires DRS to maintain a public registry containing the names and principal business addresses of each permittee. Permittees are prohibited from advertising their permit as a DRS endorsement of their services.

Applicant Criteria. An applicant must (1) be age 18 or older, (2) hold a high school diploma, and (3) hold an IRS-issued preparer tax identification number, which must be used by the preparer or facilitator for each refund anticipation check or refund anticipation loan he or she signs. The applicant must also provide evidence that proves, to the commissioner's satisfaction, that he or she has experience, education, or training in tax preparation services. Starting January 1, 2020, this evidence must include a certificate of completion of an IRS-administered annual filing season program. (Presumably, a person who obtains a permit before January 1, 2020 must present a certificate of program completion when renewing the permit after that date.)

The bill also allows the DRS commissioner to issue permits to someone who proves he or she is an authorized tax preparer or facilitator in another state that has substantially similar professional requirements.

If any information a permittee provided to DRS becomes inaccurate, he or she must promptly provide updated information to the commissioner.

Permit Suspension, Revocation, or Denial. Beginning October 1, 2018, the bill prohibits tax preparers or facilitators who are not exempt (see below) from doing any of the following:

1. engaging in a criminal act that is substantially related to their qualifications as a tax preparer or facilitator and that results in a conviction;

2. engaging in unprofessional conduct that is substantially related to their qualifications as a tax preparer or facilitator and that results in disciplinary action by the federal government, any state or jurisdiction of the United States, any other government agency, or a professional licensing board;

3. obtaining or attempting to obtain a tax preparer or facilitator permit by material misrepresentation or fraud; or

4. violating, attempting to violate, or assisting in the violation of the bill's provisions regarding permits, activities by permittees, and disclosures.

If a tax preparer does any of the above, the bill allows the DRS commissioner to suspend, revoke, or deny the issuance of any permit. He may issue a written order notifying a preparer or facilitator that their permit is revoked or suspended for good cause. The notice must inform a permittee that he or she may request in writing, a hearing, as long as he or she does so within 30 days after the order's date.

If a hearing is requested, the bill requires the DRS commissioner to convene a hearing, within 30 days of receiving the request, according to hearing procedures outlined in the Uniform Administrative Procedures Act. Within 60 days of receiving the request, the DRS commissioner must make a final decision. Anyone aggrieved by the decision may appeal to the Superior Court.

Under the bill, the commissioner may also discipline a tax preparer or facilitator by issuing a written warning or temporarily suspending his or her permit for up to one year.

Finally, the bill specifies that its provisions do not prevent the state from pursuing other available legal remedies against a tax preparer or facilitator.

Other Penalties. Beginning January 1, 2019, if the commissioner finds that a person acted as tax preparer or facilitator without a permit, he may impose a $100 civil penalty for each day the person did so. If a preparer, facilitator, or a person who employs tax preparers (i.e., a “commercial tax return preparation business”) employs a tax preparer or facilitator who does not hold the required permit, the commissioner may impose a civil penalty of $500 per violation.

Confidentiality

The bill generally requires the DRS commissioner to keep confidential any personal financial information, including tax returns and return information, he gathers while investigating alleged violations of the bill's provisions. However, he may disclose such information if it is (1) necessary to investigate or prosecute an alleged violation or (2) otherwise expressly permitted by state or federal law.

Disclosures

Under the bill, a tax preparer who is not exempt (see below) must provide a written disclosure to anyone requesting tax preparation services prior to providing the services. The disclosure must include:

1. the tax preparer's name, principal business address, and primary business telephone number;

2. an estimate of the total charge for all requested tax preparation services; and

3. a warranty that the tax preparer will securely store and transmit a taxpayer's personal and tax record information by encryption or other means.

Exemptions

The following are exempt from the bill's provisions, except as noted above (see “Prohibited Conduct”):

1. accountants who hold an active license issued by the State Board of Accountancy or a valid, active license or similar credential issued by another jurisdiction;

2. attorneys admitted to practice law in this state or other jurisdictions and anyone who provides tax preparation services under the supervision of an attorney;

3. individuals enrolled to practice before the IRS (i.e., under Circular 230);

4. employees of a local, state, or federal agency while engaged in their official duties;

5. employees of, or assistants to, tax preparers or anyone exempt from the bill's provisions, in the course of their official duties;

6. employees who act as tax preparers exclusively for the business purposes of their employer;

7. anyone who acts as a fiduciary for an estate; and

8. IRS-qualified tax preparers, including those sponsored by the Tax Counseling for the Elderly program or the Volunteer Income Tax Assistance program.

19 — DELINQUENT TAXPAYER LIST

Requires the DRS commissioner to submit a delinquent corporation business taxpayer list to OPM only upon request

The bill (1) requires the DRS commissioner to submit a list of delinquent corporation business taxpayers only if the Office of Policy and Management (OPM) secretary requests it and (2) allows the commissioner to decide whether to include the taxpayers' identification numbers. Under current law, the commissioner must submit the list, arranged sequentially by taxpayer identification number, to the secretary by July 15 annually.

EFFECTIVE DATE: Upon passage

20, 22, 32, 35, 37 & 38 — TAX REGULATIONS

Eliminates provisions requiring or allowing the DRS commissioner to adopt regulations concerning various tax provisions

The bill eliminates requirements that the DRS commissioner adopt regulations concerning:

1. the disclosure of tax returns or return information for administrative purposes ( 20);

2. sales and use tax exemption permits for businesses purchasing goods in Connecticut for business use or consumption outside the state ( 32); and

3. the place for paying income taxes and filing income tax returns, declarations, statements, or documents ( 37).

It eliminates laws authorizing him to adopt regulations concerning informational income tax returns filed by certain payers, including standards for determining which returns must be filed on magnetic media or another machine-readable format (see 38 below). And it allows, rather than requires, him to issue regulations concerning the (1) taxation of personal property used in rendering telecommunications services ( 22) and (2) administration and enforcement of municipal admissions taxes on pari-mutuel or off-track betting facilities ( 35).

EFFECTIVE DATE: Upon passage, except the provision concerning informational income tax returns is effective upon passage and applicable to tax years beginning on or after January 1, 2017.

21 — DRS DATA MATCH PROGRAM

Makes administrative and policy changes to DRS's data match program

Data Match Program Agreements

The bill makes administrative and policy changes to DRS's “data match” program under which it and financial institutions exchange information about delinquent taxpayers. The bill explicitly requires financial institutions to enter into agreements with DRS concerning program administration. But it also allows the commissioner to waive the requirement for any financial institution.

Information Exchange

Existing law requires the DRS commissioner to provide to each financial institution a list of people who owe taxes which are finally due and payable and for which all other administrative or judicial remedies have been exhausted or lapsed. The list must include each taxpayer's address, social security number, or other taxpayer identification number

Under the bill, this list must also include any information that is necessary or convenient to administer the program. The bill also allows the commissioner's designee to provide this list.

By law, financial institutions must provide to DRS specified information on taxpayers who appear on the list. The bill expands this information to include (1) taxpayer account numbers and balances (currently, institutions only need to state whether an account balance exceeds $1,000) and (2) any other information the commissioner requires to administer the program.

Existing law protects the institutions from liability for disclosing information to the commissioner. The bill extends this protection to disclosures to the commissioner's designee.

Institutions' Disclosure to Other Parties

The bill allows the financial institutions to disclose the information they receive through the program to certain service providers and government regulators, but prohibits these parties from disclosing this information to other parties. Under the bill, an institution can disclose the information to a service provider it retains to perform data processing and data receipt and transmission functions to comply with the data match program's requirements. The institution can also disclose the information to a government regulator who needs it to fulfill his or her regulatory duties.

EFFECTIVE DATE: Upon passage

23 — CAPTIVE REAL ESTATE INVESTMENT TRUSTS

Modifies the definition of a captive real estate investment trust (REIT) for corporation income tax purposes

By law, “captive REITs” (real estate investment trusts) are not entitled to a deduction for dividends paid in calculating their net income for Connecticut corporation tax purposes. A “captive REIT” is generally one that, among other things, has more than 50% of its voting power, beneficial interests, or shares directly or constructively owned or controlled by a single-entity corporation. For purposes of determining whether a REIT is a captive REIT, the bill excludes any voting power, beneficial interests, or shares in a REIT held by a life insurance company in a segregated asset account.

EFFECTIVE DATE: Upon passage

24 & 25 — CORPORATION TAX FILING DEADLINES

Extends the deadlines for filing corporation business tax returns

The bill extends the deadline for filing corporation business tax returns, which varies depending on whether a corporation must file a corresponding federal return, and makes a conforming change.

For those corporations that must file a federal return, the bill extends the filing deadline to the 15th day, rather than the 1st day, of the month following the month in which their federal return for the income year is due. For corporations that do not have to file a federal return, the bill extends the deadline from the 1st day of the fourth month succeeding the end of the income year to the 15th day of the fifth month of that income year.

EFFECTIVE DATE: Upon passage and applicable to income years beginning on or after January 1, 2017.

26 — DRY CLEANING DROP STORES

Exempts dry cleaning “drop stores” from the dry cleaning surcharge

The bill exempts from the 1% dry cleaning surcharge businesses that accept clothing or other fabrics to be dry cleaned by another establishment (i.e., “drop stores”).

EFFECTIVE DATE: October 1, 2017, and applicable to calendar quarters beginning on or after that date.

27 — UTILITY COMPANIES TAX

Aligns the determination of utility companies' gross earnings with the way income is classified in PURA's uniform system of accounts

The bill makes a number of minor and technical changes to generally align the determination of utility companies' gross earnings (i.e., taxable income) with the way income is classified in the Public Utilities Regulatory Authority's (PURA) uniform system of accounts, except with respect to electric transmission services income. Under current law, income is classified as electric transmission services income according to the uniform system of accounts. Under the bill, the DRS commissioner, in consultation with PURA, must determine which income is classified as such.

EFFECTIVE DATE: October 1, 2017

28 — SUCCESSOR LIABILITY FOR DEALER CIGARETTE SALES TAXES

Makes people who buy a cigarette dealer's business or product stock liable for back taxes

The bill makes anyone who buys a cigarette dealer's business or the stock of cigarettes liable for unpaid taxes under the same provisions that already apply to people who purchase a cigarette distributor's business or product stock.

In general, those provisions require the buyer to withhold enough money from the purchase price to pay the unpaid taxes until the seller provides either a DRS (1) receipt showing that he or she paid all the outstanding taxes or (2) certificate stating that no taxes are owed. The buyer is personally liable for the tax if he or she fails to withhold the appropriate amount from the purchase price. The liability equals the amount of the unpaid tax, up to the purchase price of the business or stock.

EFFECTIVE DATE: July 1, 2017

29 — CIGARETTE SALES TAX EXEMPTION FOR SALES TO U.S. VETERANS' HOSPITALS AND ARMED FORCES MEMBERS

Exempts cigarette sales to Veterans' Hospitals and Armed Forces members on military bases from the cigarette tax

The bill extends the cigarette sales tax exemption to cigarettes sold to U.S. Veterans' Hospitals and members of the U.S. Armed Forces. Cigarettes sold to armed forces members are exempt if they are sold on a military base by an agency permitted by federal regulation to operate there. The exemption applies to circumstances in which federal law allows states to tax cigarettes sold to federal veterans' hospitals and U.S. Armed Forces members on military bases.

The law already exempts cigarettes sold to state institutions for patients or inmates, except correctional facilities.

EFFECTIVE DATE: Upon passage

30 — SUCCESSOR LIABILITY FOR TOBACCO PRODUCTS SALES TAXES

Makes people who buy a tobacco products distributor's or importer's business or product stock liable for back taxes

The bill makes anyone who buys the business or entire stock of tobacco products of a distributor or unclassified tobacco products (e.g., cigars, chewing tobacco) importer liable for the seller's unpaid taxes under the same provisions that already apply to people who buy a cigarette distributor's (and, under the bill, a cigarette dealer's) business or product stock (see 28). “Tobacco products” includes most forms of tobacco prepared for chewing or smoking. It does not include cigarettes or liquid nicotine containers used in e-cigarettes.

EFFECTIVE DATE: July 1, 2017

31 — TOBACCO PRODUCTS TAX RECORDS

Tightens requirements for maintaining tobacco products tax records and establishes a civil penalty of $1,000 per day for any distributor or importer who fails to immediately produce or provide electronic access to the records upon the commissioner's or agent's request

The bill requires tobacco products distributors and importers to maintain tobacco products tax records on the premises where the products are possessed, stored, or sold and make them available at all times for the DRS commissioner and his authorized agents to inspect. Current law requires them to keep such records safely preserved to ensure their permanency and accessibility for inspection. As under current law, they must keep the records for three years in a form prescribed by the DRS commissioner.

The bill establishes a civil penalty of $1,000 per day for any distributor or importer who fails to immediately produce or provide electronic access to the records on the commissioner's or agent's request. It authorizes the commissioner to waive all or any part of the penalties if he is satisfied that the failure to provide the records was due to reasonable cause.

EFFECTIVE DATE: October 1, 2017

33 & 34 — USE TAX TRANSFERS TO DEDICATED ACCOUNTS AND FUNDS

Extends to the use tax the required revenue diversion for certain dedicated accounts, according to the same amounts and schedules specified under existing law for the sales tax

The bill extends, to the 6.35% use tax, the requirement that the DRS commissioner direct a portion of the tax revenue to the Municipal Revenue Sharing Account (MRSA) and Special Transportation Fund (STF), according to the same amounts and schedules specified under existing law for the sales tax as indicated in Table 1 (see BACKGROUND). In practice, DRS does not segregate sales tax revenue from use tax revenue.

Table 1: Sales and Use Tax Diversion to MRSA and STF under the Bill

MRSA

STF

Applicable Months

% Diverted

Applicable Months

% Diverted

May and June 2016

4.7%

December 2015 through September 2016*

4.7%

July 2017 and thereafter

7.9%

October 2016 through June 2017

6.3%*

July 2017 and thereafter

7.9%

*For FY 17, the DRS commissioner must reduce each monthly deposit into the STF by $4,166,667 (i.e., $50 million in the aggregate).

The bill similarly extends to the use tax the requirement that the DRS commissioner, for FY 17, cease directing portions of the tax to the Regional Planning Incentive Account (RPIA), thus redirecting these amounts to the General Fund. As is the case with the sales tax diversion under existing law, the bill requires the commissioner to resume the RPIA deposits (6. 7% of the revenue generated by the hotel tax and 10. 7% of the revenue generated by the rental car tax) for calendar quarters ending on or after July 1, 2017.

EFFECTIVE DATE: Upon passage

36 — SOURCING OF INCOME FROM REAL PROPERTY FOR INCOME TAX PURPOSES

Clarifies ownership requirements for the sourcing of income from certain real property

By law, nonresidents must pay Connecticut income tax on gains or losses from the sale or disposition of an interest in an entity (i.e., partnership, limited liability company, or S corporation) that owns certain real property in Connecticut. The bill specifies that the entity may own this property directly or indirectly. As under existing law, the gains or losses are considered taxable in Connecticut if such real property is valued at 50% or more of the fair market value of the entity's total assets in the preceding two years. 

EFFECTIVE DATE: Upon passage

38 — DEADLINES FOR FILING CERTAIN INFORMATIONAL RETURNS

Sets an earlier date of January 31, instead of the last day of February, by which certain employers and payers must file informational returns with DRS for personal income tax purposes

The bill advances, from the last day of February to January 31, the date by which certain employers and payers must annually file informational returns with DRS for personal income tax purposes, thus aligning it to the deadline for employers filing income tax withholding data (i.e., federal W-2 forms) with DRS. By law, the filing requirement applies to individuals and entities (e.g., employers, mortgagors, and fiduciaries) making or crediting payments of $600 or more ($10 or more for interest or dividend payments) to anyone who may be subject to Connecticut personal income tax.

EFFECTIVE DATE: Upon passage, and applicable to tax years beginning on or after January 1, 2017.

39 — PENALTY WAIVER REQUESTS

Imposes a deadline for considering DRS penalty waiver requests

This bill implicitly imposes a one-year deadline for requesting a penalty waiver from the DRS commissioner. For those situations in which the law allows him to waive a penalty, the bill prohibits the commissioner from considering any waiver request he receives more than one year after he notified the taxpayer about the penalty. If the taxpayer reported the penalty on a tax return, the one-year period begins on the return's filing date. The one-year timeframe for the commissioner to consider waiver requests does not extend the deadlines for protesting or appealing a commissioner's decision.

EFFECTIVE DATE: July 1, 2017 and applicable to waiver requests received on or after that date.

40 — ENFORCING THE GROSS EARNINGS TAX THAT FUNDS PEGPETIA

Extends the penalty for willfully failing to pay the tax that funds the “public, educational, and governmental programming and education technology investment account”

The law imposes a 0.25% tax on the gross earnings of cable-TV, satellite-TV, and certified video service providers to fund the “public, educational, and governmental programming and education technology investment account” (PEGPETIA). The bill makes these taxpayers liable for the following penalties:

1. for willfully failing to pay the tax, file returns, keep required records, or supply required information regarding the tax, a fine of up to $1,000, imprisonment for up to one year, or both, in addition to any other penalties the law imposes or

2. for willfully delivering or disclosing to the commissioner or his authorized agent any list, return, account, statement, or other document known to be fraudulent or false, a class D felony, which is punishable by up to five years in prison, a fine of up to $5,000 or both.

The same penalties apply to other taxes under existing law.

EFFECTIVE DATE: Upon passage

41 — RACKETEERING ACTIVITY

Extends the definition of racketeering activity under the Corrupt Organization Racketeering Act (CORA) to include violations of certain tobacco products-related crimes

The bill expands the definition of “racketeering activity” under CORA to include violations of certain tobacco products-related crimes. In doing so, it subjects a person or entity that engages in a pattern of these violations to prosecution under CORA. Specifically, it applies to:

1. transporting for sale, selling, or offering for sale untaxed tobacco products that should be taxed at $2,500 or more;

2. willfully attempting to evade tobacco products taxes or failing to pay tobacco product taxes of $2,500 or more; and

3. willfully delivering or disclosing to the commissioner or his authorized agent any list, report, account, statement, or other document known to be materially fraudulent or false.

CORA subjects violators to (1) one to 20 years in prison, a fine of up to $25,000, or both; (2) forfeiture of property acquired, maintained, or used in violation of CORA, including profits, appreciated value, and sale proceeds; and (3) forfeiture of any interest in, security of, claim against, or property or contractual right of any kind affording a source of influence over any enterprise the violator established, operated, controlled, conducted, or participated in to violate CORA. Violators are also subject to the fines and penalties associated with the underlying crimes.

EFFECTIVE DATE: July 1, 2017

42 & 43 — MENTAL HEALTH COMMUNITY INVESTMENT ACCOUNT

Allows income tax return contributions for mental health programs and services

The bill establishes a mechanism to obtain contributions for improving mental health programs and services designed to support people diagnosed with mental health conditions. Eligible programs and services include residential services, job training and placement services, educational programs, and support groups.

The mechanism generates funds for these programs and services by allowing taxpayers to contribute a portion of their income tax refund to a separate nonlapsing General Fund account established exclusively for this purpose (i.e., “Mental Health Community Investment Account”). The mental health and addiction services commissioner must use funds from the account, in consultation with nonprofit mental health organizations, for the programs and services.

To help taxpayers who want to contribute a portion of their income tax refunds to the account, the DRS commissioner must modify the tax return forms to allow taxpayers to contribute a portion of their refund, if they wish to do so.

EFFECTIVE DATE: July 1, 2017

44 & 45 — SECURITY REQUIREMENT FOR SALES AND USE AND ADMISSIONS AND DUES TAXES

Establishes conditions under which the DRS commissioner may impose the existing security requirement for sales and use and admissions and dues tax

Current law authorizes the DRS commissioner to impose a security requirement, as he deems necessary, to ensure taxpayer compliance with sales and use tax and admissions and dues tax requirements. The bill establishes conditions under which the DRS commissioner may do so. Under the bill, the commissioner may require such a taxpayer to deposit security if he or she (1) owes sales and use or admissions and dues tax that has been finally due and payable for at least 90 days and for which any administrative or judicial remedies (or both) have been exhausted or have lapsed or (2) has failed to file at least three required tax returns. As under existing law, the security amount is capped at six times the taxpayer's estimated tax liability.

The bill also eliminates obsolete provisions concerning state- or federally-issued bearer bonds. Neither the state nor federal government currently issues such bonds.

EFFECTIVE DATE: Upon passage

46 — PENALTY FOR FAILING TO COMPLY WITH CERTAIN SALES AND USE TAX REQUIREMENTS

Authorizes the DRS commissioner to impose a civil penalty of $500 per violation for failing to comply with certain sales and use tax requirements

Existing law authorizes DRS to (1) examine the books and records of any person selling services or tangible personal property and any person liable for use tax, (2) investigate businesses to verify or determine how much sales and use tax they owe, and (3) require the filing of information reports on taxable goods and services relating to use tax liability. Under the bill, if the DRS commissioner provides written notice to a person specifying a deadline for complying with any of these requirements and the person fails to meet the deadline for doing so, the commissioner may impose a civil penalty of $500 per violation. Each distinct violation, and each day that it continues, is a separate offense. The bill allows DRS to collect the penalty in the same manner as it collects delinquent taxes.

EFFECTIVE DATE: July 1, 2017

47 & 48 — MUNICIPAL REFUNDING BOND MATURITY

Temporarily allows municipalities, by a two-thirds vote of their legislative bodies, to issue refunding bonds with a maturity of up to 30 years

Existing law allows municipalities to issue refunding bonds to pay off all or part of their bonds, notes, or other debt obligations and requires that the refunding bonds mature by the maturity date of the bonds, notes, or obligations which they are used to pay off. (The law limits municipal bond terms to 20 years unless the general statutes or a special act expressly allows another term, such as 30 years for municipal pension deficit funding bonds and school construction projects.)

The bill waives these limitations on refunding bond maturities by allowing municipalities, from July 1, 2017 to July 1, 2022, to issue refunding bonds with a maturity of up to 30 years if their legislative bodies adopt a resolution to do so by a two-thirds vote. Under the bill, the resolution approving the bonds may include a provision securing the refunding bonds by a statutory lien on all of the municipality's tax revenues. The revenues are immediately subject to the lien without any further action or authorization by the municipality. The lien is valid and binding against the municipality, its successors, transferees, creditors, and all other parties asserting rights to such revenues, regardless of whether they received specific notice of the lien, and without physical delivery, recording, or filing of the lien or any further action.

EFFECTIVE DATE: July 1, 2017

49 & 50 — MUNICIPAL DEFICIT FINANCING

Excludes refunding bonds and tax anticipation notes from the municipal deficit financing law

Existing law establishes conditions under which municipalities meeting certain criteria may issue bonds to cover a deficit or projected deficit. For purposes of these bonds, the bill excludes the impact of any refunding bonds (described in 48 & 49 above) in calculating a municipality's deficit or projected fiscal year deficit for any fiscal year ending on or after the bill's passage and by June 30, 2022.

The bill excludes tax anticipation notes from the types of debt obligations included under the municipal deficit financing law. It also excludes from the calculation of a municipality's projected fiscal year deficit (1) estimated revenues from the proceeds of tax anticipation notes and (2) estimated expenditures from the principal payment of such notes. The same exclusion applies under existing law in calculating a municipality's deficit.

The bill also makes technical changes.

EFFECTIVE DATE: Upon passage

BACKGROUND

Related Bills

sSB 787, reported favorably by the Finance, Revenue and Bonding Committee, eliminates the sales tax revenue diversion to MRSA beginning July 1, 2017.

sSB 1047, reported favorably by the Finance, Revenue and Bonding Committee, contains provisions almost identical to those in 15-43 of this bill.

COMMITTEE ACTION

Finance, Revenue and Bonding Committee

Joint Favorable Substitute

Yea

32

Nay

18

(04/27/2017)