CTNJ file photo

Tax proposals in Gov. Dannel Malloy’s proposed budget would negatively affect businesses, hindering economic investment in Connecticut, according to the state’s largest business association.

“It’s not just about the companies. It’s not just about the dollars,” said Joe Brennan, president and CEO of the Connecticut Business & Industry Association. “It’s about the state’s future.”

Several components of the governor’s proposed budget, which Malloy outlined last week, would hurt businesses in the state, he said.

“The biggest concerns are the tax proposals,” Brennan said.

Malloy’s proposal would cut in half certain business tax credits, including those for research and development and those covering the purchase of data processing equipment.

Those credits are important, Brennan said.

“They encourage companies to invest in Connecticut instead of investing somewhere else,” he said. “That investment is what leads to growth, and that growth is what leads to job creation.”

Another proposal would cut in half one of the state’s tax offsets, called the net operating loss carry-forward.

A current tax deduction for a net operating loss allows a business that has suffered losses greater than its taxable income during a given year to carry the excess loss over to one or more other tax years. The business then can deduct that excess loss against its taxable income in other years until the excess loss is fully utilized.

Having that option is vital to companies that are in their early stages and want to stay and grow in Connecticut, Brennan said.

The tax offset also allows companies to take calculated risks in developing products that may take a long time to bring to market, according to CBIA. Companies that use the deduction often are highly-skilled businesses that provide well-paying jobs, CBIA says.

Malloy’s budget, if passed, also would retain a 20 percent corporate tax surcharge that was due to sunset this year.

Courtesy of CBIA

Business tax increases may provide a “short-term Band-Aid” by generating revenue, but Connecticut’s long-term growth will come through economic investment, Brennan said. The state must break the cycle of “deficit followed by tax increase,” he added.

A spokesman for Malloy said the governor understands the importance of supporting business and has worked hard to boost the private sector.

“After investing in Connecticut like never before with Small Business Express and posting the best private-sector job gains since 1998, Governor Malloy is now taking our sales tax rate to the lowest point in four decades,” spokesman Devon Puglia said. “That will make Connecticut more competitive, support companies, and give the middle class some relief.”

The Small Business Express Program he referred to is a state program, run by the Department of Economic and Community Development, which provides loans and grants to small businesses with the intent of spurring job creation.

A recent University of Connecticut report predicted a “staggering” growth rate in the state this year, Puglia said, “and it’s because we’re making smart investments and the right choices today for a brighter state tomorrow.”

CBIA also worries about a measure in the governor’s proposed budget that would increase various fees that business pay to operate in the state, as well as one that would continue a credit reduction for the insurance tax that was scheduled to be eliminated this year.

“We ask the legislature to further scrutinize the proposed budget to find additional cost saving and reject these harmful tax measures,” Brennan said. “Connecticut can be a top destination for business, but we need to encourage rather than discourage investments that lead to job creation.”