Connecticut businesses were spared from “sweeping” tax increases in the latest state budget, but should expect to see tax hikes at the municipal level, according to tax attorneys.
“We’re facing a new economic reality,” Alan Lieberman, partner in tax law at Hartford-based law firm Shipman & Goodwin, told business leaders at the Connecticut Business & Industry Association’s recent annual tax forum.
Despite raising taxes in the past year, Connecticut lawmakers continue to grapple with a sizeable budget deficit that has resulted in cuts to state programs, aid and staff.
While the most recent budget didn’t include any large tax increases, businesses will feel the impact of reduced state funding going to municipalities, Lieberman said. Cities and towns have to cope with recent cuts in PILOT and other funding, and will need to get money somewhere, he said.
“The very likelihood is you’re going to see increases in municipal taxes,” he said. “So as to whether your tax burden is any better, the likelihood is not. That’s going to kinda trickle out over the course of the year.”
Lieberman and other attorneys from Shipman & Goodwin outlined various tax changes that will affect Connecticut businesses in the coming year. They spoke to an audience of business leaders at the CBIA tax forum June 10 at the Hartford Marriott Farmington.
Lieberman also warned of “serious headwinds” regarding the state’s recently lowered bond rating, which will increase the state’s cost of borrowing – a cost that could eventually manifest in higher taxes. Two of the four credit rating agencies downgraded Connecticut’s bond rating last month.
The state’s business climate, particularly as it pertains to taxes, was spotlighted over the past year as the threat of rising corporate taxes spurred General Electric Co. to move its headquarters from Fairfield to Boston.
Businesses were spared large tax increases in the latest state budget in part because this is an election year, said Bonnie Stewart, CBIA vice president of government affairs and general counsel.
“It’s something that we need to stay on top of, work together on, to make sure that next year you’re not back here learning about every single new tax that was adopted” once Election Day passes, she told forum attendees.
CBIA and business leaders continue to work with lawmakers, she said, to help find ways the state can do more with less money.
“We’re trying to get the legislature to have a better understanding of why we need to cut back on spending in a variety of areas,” Stewart said. The answer, she added, is not a one-time spending
reduction “but something that brings about long-term, sustainable reforms.”
If reforms don’t happen, she said, Connecticut businesses and residents could see increases in corporate taxes, sales tax and the personal income tax.
“We need to bring stability to the state of Connecticut,” she said.
State lawmakers are starting to acknowledge the interconnectedness between their actions and the business climate – something they haven’t always taken into account in the past – said state Department of Revenue Services Commissioner Kevin Sullivan.
“The decisions that the legislature make obviously have an impact on the competitiveness of the state of Connecticut,” he said. “There’s a profound need to look at the reality of the economy as it stands and where we think it can go. Unless you have a sustainable revenue stream and a sustainable budget, you’re always going to be a drag on a sustainable economy.”
The state’s new economic “normal” requires new approaches, Sullivan said.
“The economy has fundamentally changed during the last recession,” he said. “We can’t continue to do what we’ve been doing.”