(Updated 12:20 p.m.) An estimated 66.3 percent of the 42,157 companies filing Connecticut corporation taxes in 2008 owed nothing or just $250 in taxes after all tax credits were applied. That’s according to this report by the Department of Revenue Services.
It’s a theme Gov. Dannel P. Malloy has heard time and again at town hall meetings across the state. People continue to show up at the meetings with signs asking why corporations like Bank of America pay little or no taxes in the state. But the signs and the statistic don’t take into account other tax liabilities that corporations face, such as sales, property, payroll, or unemployment taxes.
On its face, the statistic reported by the Department of Revenue Services is shocking, DRS Commissioner Kevin Sullivan said Tuesday. But upon further analysis, Sullivan said, it is exactly what the state intended,
“It’s not a game they’re playing. It’s policy,” Sullivan said, explaining that none of the corporations are attempting to escape their tax liabilities.
Many companies have given up traditional corporate structures for LLCs or S-Corps, which report their business income along with their personal income, he said. That means there are fewer corporations in the state.
The corporations that do exist have an estimated 32 credits they can use to reduce their tax liability, and many of those credits last 10, 15, or 20 years. This means their tax liability can be spread out over a period of time.
In 2008, those 42,157 companies paid $353.1 million in corporation taxes, according to the DRS report. That amount was reduced by credits from the $489.6 million they would have owed.
“The findings from the DRS report are an indication of a serious problem—that many businesses are not contributing much revenue to the state, despite the benefits they receive in the form of an educated workforce, roads, public safety, and other infrastructure services that are vital to their success,” Joachim Hero, a senior policy fellow at CT Voices for Children said.
Hero said he disagrees slightly with Sullivan’s take on the numbers.
“There are currently billion-dollar companies in Connecticut that avoid paying any corporate income tax to the state because of how they choose to legally structure themselves,” Hero said.
He said that’s why his organization is calling for more transparency in corporate tax subsidies, a move the current administration opposes.
Corporation taxes do not comprise the majority of business taxes paid in Connecticut, Sullivan said.
“The largest tax burden for businesses is the property tax,” Sullivan said.
Joseph Brennan, vice president of government relations for the Connecticut Business and Industry Association, said property taxes and sales taxes are often a bigger concern for many Connecticut businesses.
It’s a sentiment shared by Joakim Andersson, president of Volvo Aero of Connecticut.
Andersson cited property taxes as one of a handful of concerns he has when it comes to doing business here.
A manufacturer of fan covers for jet engines, Volvo Aero has expanded over the past five years with two locations in Newington and one in New Britain. He said the company chose Connecticut to be closer to its customers and the aerospace industry centered around companies like Pratt & Whitney and GE.
Andersson told Malloy on Tuesday that Connecticut “is not the cheapest place in the world.”
Volvo Aero also has manufacturing facilities in Sweden, Norway, and India. It was the third business Malloy visited Tuesday.
Volvo Aero’s tax liability data is not available to the public, but Andersson said that in order to remain competitive it needs to look at lowering its electricity costs and property taxes.
“People wonder why I don’t want to push state costs to local governments,” Malloy said. “And the reason is that it then makes manufacturing less competitive.”
He said his first attempt at the budget was to avoid doing what other states are doing — pushing state costs down to local governments. Municipalities have only the property tax to raise revenue. Malloy said Connecticut is more dependent on property taxes than its neighboring states, so “the reaction of the marketplace to us pushing costs to local governments would be disproportionate.”
“That’s one of the reasons I’m being very careful about it,” Malloy said.
Asked about the report from DRS which shows about two-thirds of Connecticut corporations are paying the minimum $250 corporate tax, Malloy said most companies in the state are “Mom and Pops,” where “most of the tax they’re going to pay is the owners income tax.”
“It’s not a real good statistic to tell you the truth,” Malloy said. “If you’re talking about a one, two, three person business, that’s how they’re paying their taxes — as income taxes and property tax.”
Malloy said the current tax structure is “competitive.”
“Fairness is a different issue,” Malloy said. “At one time states were getting 30 percent of their revenue from corporate taxes. Now it’s about 6 percent. You can argue that equation. But Connecticut can’t stand alone.”
He said a lot of the pressure of corporate taxation has been applied by other governments on the United States.