Despite last-minute lobbying attempts by opponents of the Internet sales and cosmetic surgery taxes, the state Senate plans on moving forward with a vote on the two year, $40.11 billion budget proposal Monday. The only thing the tax package won’t include is the 3-cent-per-gallon increase on one of the state’s two gasoline taxes.
It was unclear Sunday at a labor rally exactly how the loss of revenue from the gasoline tax, which was expected to raise $45 million in each fiscal year, will be made up. Malloy’s budget director said Friday that it’s unlikely it will be made up with additional revenue from the gross receipts tax, which is increasing, but not enough to cover the gap.
House Speaker Chris Donovan said he doesn’t know the details of that, but expects the budget upon which the Senate will vote on Monday to will make up for the gap created by the elimination of the tax. The House is expected to vote on the budget Tuesday.
“With the recent increases of gas prices it was also important to avoid any increase to the gas tax – and that’s exactly what we did,” Sen. President Donald Williams said Sunday. Republicans are likely to push for a cap of the gross receipts tax, which is 7 percent of the wholesale price of gas.
“The Democrats’ reversal on the gas tax hike due to public pressure is a positive step, but their refusal to cap the gross receipts tax that rises every time the price of gas increases means Connecticut motorists will still pay higher gas prices than motorists in Massachusetts and other neighboring states,” Sen. Minority Leader John McKinney said Sunday.
Donovan said it’s his understanding the Internet sales, also known as the Amazon tax, and the cosmetic surgery tax, are still included in the final package which was still being worked on Sunday afternoon by the “number crunchers.”
Tom Caporaso, of freeshipping.com and the Clarus Marketing Group, said Friday that he’s disappointed the Amazon tax was included as part of the budget deal Malloy struck with legislation leaders April 21.
He said explaining his e-commerce business to lawmakers was tough, but by passing this tax as part of the budget they’re putting a new media technology business which just hired seven new employees in harms way because the retail giant’s like Amazon will end their relationship with the company.
What’s even more disappointing to Caporaso is that the Department of Revenue Services Commissioner Kevin Sullivan said the state is unlikely to realize any revenue from the tax. Sullivan said the same thing about the cosmetic surgery tax in this April 21 letter to Office of Policy and Management Secretary Ben Barnes.
“The Department understand and supports the legislative policy behind this initiative but cautions that the anticipated revenue will be uncollectible,” Sullivan wrote in this letter obtained by CTNewsJunkie.
The letter was written the day after Malloy and the legislature’s Democratic majority announced they struck a budget deal.
Sullivan goes onto say no state that has passed and implemented the tax has started collecting revenue and in all but one state, remote sellers like Amazon have simply ceased doing business with in-state businesses. Caporaso said Friday he hasn’t received a letter from Amazon threatening to stop their business relationship yet, but has received letters in past years when the legislation was simply pending.
Sullivan noted in the letter that the Office of Fiscal Analysis which assumes the tax will bring in about $9.4 million a year never consulted his office when they drafted the fiscal note.
The same is true of the cosmetic tax which OFA assumes will bring in about $4.1 million next year and $4.3 million the year after.
“Other states where this tax has been passed are experiencing significant collection challenges and substantially less revenue than anticipated,” Sullivan wrote. “Audit and enforcement will be especially problematic given HIPAA limitations on medical records and patient identity disclosure.”
But legislative leaders remained optimistic Sunday that a budget including these two taxes will be adopted.
In a press release Donovan, Williams, and Malloy said any gap between the savings and concessions they expect the administration to get from the state employee unions will require future legislative action.
Republicans have cautioned that a budget with that big of a hole is “unconstitutional,” but Democratic leaders say they’ve passed budgets before with such gaps and if Malloy is unsuccessful they will have to return to vote on another budget that reduces spending by that amount.
“The fact that Democrat leaders are still tinkering with their budget bill less than 24 hours before they plan to present it to lawmakers for a vote is further evidence they plan to rush this record-setting tax hike package through the legislative process against all common sense and reason and in violation of our constitutional responsibility to pass a balanced budget,” McKinney said Sunday.
Malloy and legislative leaders disagree.
“The legislature should be commended for moving forward with an up-or-down vote on the budget,” Malloy said in a statement Sunday. “In doing so, they are taking an important step to stabilize our state’s finances and get our fiscal house in order. With an agreement on the final few details, this budget remains within my framework and relies on neither gimmicks nor tricks.”