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Connecticut Governor Signs Two-Year Budget Bill



On June 30, 2015, Connecticut Governor Dannel P. Malloy signed an implementer bill, modifying portions of the biennium budget passed earlier in June. The revisions eliminate $178 million of the $1.5 billion of tax increases included in the original two-year budget.


Governor Malloy signed a controversial budget bill, H7061, into law. The initial budget package, passed by the Connecticut legislature earlier in June, was harshly criticized by the business community. During a special session of the Connecticut General Assembly, a budget implementation bill was passed and also signed by the Governor on June 30, which slightly reduced the significant tax increases included in the initial tax package. Highlights of the final budget deal are set forth below. All provisions are effective January 1, 2015, unless noted otherwise.

Corporation Business Tax

  • For income years starting on or after January 1, 2016, the bill imposes a mandatory unitary combined reporting requirement. The new legislation defines a “unitary business” as a single economic enterprise that is sufficiently interdependent, integrated, or interrelated through its activities so as to provide mutual benefit and produce significant sharing or exchange of value among its separate parts. Initially, the unitary tax was effective January 1, 2015.
  • Extends the 20% corporate income tax surcharge for two additional years and enacts a temporary 10% surcharge for 2018.
  • Limits the amount of the net operating loss carryforward deduction to a maximum of 50% of the current year income.
  • Reduces the amount of tax credits that are available to corporations to offset tax from 70% to 50.01%.

Personal Income Tax

  • Increases the marginal income tax rate from 6.7% to 6.9% ($500,000 for married filing jointly, $400,000 for head of household, and $250,000 for single filers).
  • Creates a new 6.99% tax rate bracket for high income earners ($1 million for married filing jointly, $800,000 for head of household, and $500,000 for single filers).
  • Effective January 1, 2016, reduces the property tax credit from $300 to $200 and increases the phase-out of the credit.
  • Increases the income tax rate for trusts and estates from 6.7% to 6.99%.
  • Fully exempts all federally taxable military retirement pay.

Sales and Use Tax

The controversial increase to the sales tax rate on computer and data processing services (increasing the rate on such services from 1% to 3%) was not part of the final budget (e.g., the tax rate on such services remains at 1%).

The following sales tax changes are effective July 1, 2015, unless noted otherwise:

  • Effective October 1, 2015, the definition of computer and data processing services is expanded to include website creation, development, hosting, and maintenance.
  • Enacts a sales tax on car washing services.
  • Increases the sales tax rate on certain luxury items (motor vehicles, jewelry, clothing, and footwear) from 7% to 7.75%.
  • Repeals the sales tax exemption for clothing and footwear costing less than $50 that was scheduled to take effect July 1, 2015.
  • Expands the 1.5% heavy equipment rental surcharge to all equipment owned by a rental company.
  • Removes the exemption for purchase by water companies.
  • Imposes a tax on motor vehicle parking provided by certain tax-exempt entities.
  • Sales tax return due dates will revert to the end of the month (rather than the 20th) effective for tax periods ending on or after December 31, 2015.

Other Taxes

  • Imposes a new 6% gross receipts tax on certain fees earned by ambulatory surgical service centers.
  • Increases the cigarette tax from $3.40 to $3.65 per pack effective October 1, 2015 and then from $3.65 to $3.90 effective July 1, 2016.
  • Imposes a 50.01% limit on the hospital tax credit.
  • Effective July 1, 2017, amends the cap for the neighborhood assistance act credit.
  • Effective July 1, 2015, amends the caps for the urban reinvestment and industrial site reinvestment credits.
  • Extends the sunset date for the First Five Plus economic development program.

There are a number of other minor changes in addition to the changes noted above, including revising the insurance reinvestment act credit program, extending a temporary cap on insurance premium tax credits, extending the film and digital media production tax credit moratorium and credit carryovers, and a number of changes relating to estate and gift taxes.

What Does CohnReznick Think?

As enacted, the current budget calls for roughly $1.3 billion in tax increases. The tax changes are dramatic and will affect nearly all businesses and individuals living or working in Connecticut. CohnReznick will keep you informed of new developments regarding these provisions as they become available.


For more information, please contact Milo Peck, a CohnReznick manager, at or 959-200-7287, or Matt Nick, a director, at or 860-841-0778, or Patrick Duffany, Partner and State and Local Tax Practice Leader, at or 959-200-7270.

Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

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