2022 Connecticut State Tax Developments
2022 Regular Session of the Connecticut General Assembly Summary of legislation impacting the Department of Revenue Services
Note: This summary pertains to the H.B. No. 5506, An Act Adjusting the State Budget For The Biennium Ending June 30, 2023, Concerning Provisions Related to Revenue, School Construction and Other Items to Implement the State Budget and Authorizing and Adjusting Bonds of the State, and H.B. No. 5473, An Act Concerning the Department of Revenue Services’ Recommendations for Tax Administration and Revisions to the Tax and Related Statutes.
H.B. No. 5506, signed by Governor Ned Lamont on May 7, 2022, has been codified as Public Act No. 22‑118.
H.B. No. 5473, signed by Governor Ned Lamont on May 27, 2022, has been codified as Public Act No. 22‑117.
Tax Credit Provisions:
- Tax credit for employers making certain student loan payments: Expands the scope of the tax credit for employers making certain student loan payments. Pursuant to this amendment, the scope of eligible loans has been expanded to include all loans issued by the Connecticut Higher Education Supplemental Loan Authority (CHESLA). Prior to this amendment, the credit was available only in connection with refinanced loans issued by CHESLA. In addition, the amendment allows certain small businesses (defined as those businesses that have gross receipts of $5 million dollars or less in the applicable calendar or income year) that qualify for a credit to elect to have such credit issued in the form of refund. Previously, this credit could only be used to offset taxes owed under either Chapter 207 or Chapter 208 and was not refundable. The amendment is effective for calendar or income years commencing on and after January 1, 2022.
- “Jobs CT” Tax Rebate Program: (NEW) This bill establishes the “Jobs CT” tax rebate program. Under this program, qualified businesses that create jobs in this state may be allowed a tax rebate, which shall be treated as a credit against the tax imposed under Chapter 208 (corporation business) or 228z (pass-through entity tax) or as an offset of the tax imposed under Chapter 207 (insurance premiums) for reaching certain job creation targets. The rebate is based on the number of new full‑time equivalent employees (FTEs) the business creates and maintains, the FTEs’ average wage, and the state income tax that would be paid on this average wage for a single filer. The amount of credits issued in any one fiscal year may not exceed $40 million dollars. This legislation is effective for income years beginning on or after January 1, 2023.
- Apprenticeship Tax Credit: Expands the manufacturing apprenticeship tax credit so that credits earned thereunder can be applied against the tax imposed under Chapter 228z (pass-through entity tax). The legislation also specifies how an affected entity that applies a credit against the tax imposed under Chapter 228z (pass-through entity tax) is to be distributed to the members of said entity. The legislation is effective for taxable years beginning on or after January 1, 2022.
- Property tax credit: Legislation increases the property tax credit from $200 to $300 and expands the scope of persons eligible for such credit. For taxable years 2017–2021, only persons 65 years of age or older and persons who validly claimed dependents on their federal income tax return in a given taxable year were eligible for the credit. These changes are effective upon passage and applicable to taxable years commencing on or after January 1, 2022.
- Subtraction modification for pension and annuity income: Legislation accelerates the phase-in of the subtraction modification for pension and annuity income. Subject to income thresholds, and effective for taxable years commencing on or after January 1, 2022, eligible persons are authorized to subtract from their adjusted gross income 100% of pension and annuity income when calculating their Connecticut income tax liability. Without this amendment, this subtraction modification would not have been fully available until the taxable year commencing on or after January 1, 2025. This change is effective upon passage.
- Subtraction modification for enhanced earned income tax (EITC) payments: (NEW) Under this legislation, any person who received an enhanced EITC payment under the 2020 Earned Income Tax Credit enhancement program and any person who received an enhanced EITC payment under the 2021 Earned Income Tax Credit enhancement program is authorized to subtract such payments from their federal adjusted gross income when calculating their Connecticut income tax liability. This legislation is effective upon passage.
- Credit for the birth of a stillborn child: (NEW) Legislation establishes a credit for the birth of a stillborn child. Eligible taxpayers may claim a credit of $2,500 against their Connecticut income tax liability. This credit is effective for taxable years commencing on or after January 1, 2022.
- Earned income tax credit (EITC): Although H.B. No. 5506 as originally passed by the General Assembly provided for an increase in the EITC from 30.5% to 41.5% of the federal credit, the General Assembly through S.B. No. 9 eliminated this increase. As such the EITC remains unchanged at 30.5%.
- Responsible person provision: Legislation amends Conn. Gen. Stat. § 12‑736 to impose a responsible person penalty that includes tax, penalty, and interest as opposed to just tax. Previously, the responsible person penalty assessed in connection with withholding tax was limited to a penalty for the amount of tax exclusive of penalty and interest. This legislation brings Conn. Gen. Stat. § 12‑736 into conformity with Conn. Gen. Stat. § 12‑414a and takes effect upon passage.
- Expansion of credit for taxes paid to other jurisdictions: Corresponding amendments to Conn. Gen. Stat. § 12‑704 and Conn. Gen. Stat. § 12‑732 serve to authorize claims for refund due to changes made by another jurisdiction impacting a taxpayer’s Connecticut income tax liability on or before the ninetieth day after the final determination of said change, even if an original return was not filed. These provisions are effective for taxable years commencing on and after January 1, 2022.
- Credit for real estate conveyance tax paid: Legislation revises the income tax credit for individuals who pay the 2.25% real estate conveyance tax rate on properties in excess of $2.5 million dollars. This change also comports with the adopted fiscal note.
Sales and Use Taxes:
Exemption for menstrual products: Legislation modifies the exemption for feminine hygiene products set forth in Conn. Gen. Stat. § 12‑412(122) to include an exemption for menstrual products. The legislation is effective upon passage.
Modification to exemption for beer manufacturers: Legislation expands Conn. Gen. Stat. § 12‑412m, which provides sales and use tax exemptions for certain beer manufacturers that also make substantial retail sales, to include manufacturers of wine, brandy, cider, and mead. In addition, this legislation also authorizes taxpayers who qualify for the exemptions provided under Conn. Gen. Stat. § 12‑412m to file claims for refund of the taxes they paid on purchases that would have qualified for exemption under the provision of this legislation had said legislation been in effect from July 1, 2018, and June 30, 2023. The legislation is effective July 1, 2023.
Exemption for certain water companies: (NEW) Provides an exemption from the taxes imposed under Chapter 219 for sales of goods and services to a water company, as defined in Conn. Gen. Stat. § 16‑1, for use by said water company to maintain, operate, manage, or control a pond, lake, reservoir, stream, well, distributing plant or system that supplies water to at least 50 customers. The legislation is effective to sales made on and after July 1, 2022.
- Modification to marketplace facilitator statute: This legislation modifies Conn. Gen. Stat. § 12‑408e to exclude the facilitation of the rental of a passenger motor vehicle or rental truck on behalf of a rental company from the scope of this statute. The legislation is effective July 1, 2023.
Sales tax pilot: Legislation authorizes the Department to audit and reaudit taxpayers for purposes of Chapter 219. This concept will allow the Audit Division to do more targeted desk audits and increase its coverage rates. These provisions are effective upon passage.
Motor Vehicle Fuels Tax:
- Extends the “gas tax” holiday: Section 1 of Special Act 22‑2 suspended the application of the motor vehicle fuels tax to gasoline and gasohol between April 1, 2022, and June 30, 2022. This legislation extends the suspension through November 30, 2022.
- Authorizes emergency medical service organizations to seek refunds of motor vehicle fuels tax: This legislation authorizes an emergency medical service organization, as defined in Conn. Gen. Stat. § 19a‑175, to seek a refund of motor vehicle fuels tax it paid on fuel that is used in an ambulance owned by such organization. This legislation is effective July 1, 2022.
- Nonadmitted Insurance Program: This legislation authorizes the cancelation of penalties due and forgiveness of liabilities in connection with Connecticut’s nonadmitted insurance premiums tax under Conn. Gen. Stat. § 38a-277. The nonadmitted insurance premiums tax is a tax on the premiums an insured pays in connection with insurance that is procured, continued or renewed from certain nonadmitted insurers. Under this program, and as is set forth in more detail below, if an insured that was previously subject to the nonadmitted insurance premiums tax establishes a specific type of captive insurance company in Connecticut by June 30, 2023, the taxpayer may be eligible for waiver of penalty for unpaid nonadmitted insurance premiums tax for calendar quarters ending on or after July 1, 2019, but before July 1, 2022, and forgiveness of liabilities for periods prior to July 1, 2019.
To be eligible for this program, eligible insureds must establish a branch captive insurance company in this state or transfer the domicile of its alien captive insurance company or foreign captive insurance company to this state and pay all taxes and interest due and outstanding under Conn. Gen. Stat. § 38a-277 in connection with their nonadmitted insurance premiums tax liability for calendar quarters ending on or after July 1, 2019, but before July 1, 2022. If such requirements are met by June 30, 2023, the Commissioner is authorized to cancel any and all penalties that would otherwise be due in connection with the insured’s nonadmitted insurance premiums tax liability for any calendar quarter beginning on or after July 1, 2019, and ending prior to July 1, 2022. In addition, any insured that meets such requirements shall not be liable for any taxes, interest and penalties that would otherwise be due under Conn. Gen. Stat. § 38a-277 for any taxable period ending prior to July 1, 2019.
To take advantage of this program, after complying with all applicable registration requirements for establishing the captive insurance company with the Connecticut Insurance Department, the insured should fill out Form 115 NIN, Nonadmitted Insurance Premium Tax Return, for each calendar quarter beginning on or after July 1, 2019, and ending prior to July 1, 2022, in which the insured had a nonadmitted insurance premiums tax liability and submit said forms with full payment of all tax and interest to:
Department of Revenue Services
Pass-Through Audit Unit – PSS
450 Columbus Blvd, Ste 1
Hartford, CT 06103
Submission of these returns and full payment must be completed by
June 30, 2023, or the insured will not be eligible for cancelation of any penalties or forgiveness of liabilities for periods prior to July 1, 2019.
- Codification of ten year statute of limitations on collections: Legislation imposes a ten year statute of limitations on all collections actions. Prior to its passage, Connecticut had no statute of limitations for collecting on a liability. It is important to note that this provision does not apply to any taxes for which the Commissioner has entered into an agreement under Conn. Gen. Stat. §§ 12‑2d or 12‑2e or to any taxes that have been secured by a lien. This provision is effective upon passage.
- Study regarding the selling of tax debt: (NEW) This legislation requires the Commissioner to study the feasibility of selling outstanding tax liabilities that are owed to the state. The study must identify the current balance of outstanding state tax liabilities, a breakdown of said outstanding tax liabilities by tax type, and an analysis or projection of the amount of revenue the State could anticipate generating if it were to sell said outstanding tax liabilities. If the Commissioner concludes that the State should sell outstanding tax liabilities, the Commissioner must also identify any legislative changes that would be required to effectuate the sale of said outstanding tax liabilities. The study must be submitted to the Finance, Revenue, and Bonding Committee by January 1, 2023. This provision is effective upon passage.
- Joint Study with the Office of the Attorney General: (NEW) This legislation requires the Commissioner and the Attorney General to submit a joint report detailing the enforcement efforts undertaken by the Attorney General under Conn. Gen. Stat. § 12‑35c during the period January 1, 2021, through December 31, 2022. The report must include the number of suits the Attorney General instituted during said period, the states in which such suits were instituted, and the amount of taxes that were recovered as a result of said suits. Not later than February 15, 2023, the Attorney General and the Commissioner of Revenue Services shall jointly submit a report. This provision is effective upon passage.
- Expansion of the grounds on which the Commissioner may withhold or not renew a permit or license: This legislation allows the Commissioner to withhold or not renew a permit or license to any business if the owner of said business owes a tax debt. Prior to this legislation, the Commissioner was only authorized to withhold or not renew a permit or license to a business if the business itself had an outstanding tax debt. This provision is effective upon passage.
- Eliminates the admissions tax on admission charges to movie theaters: This legislation eliminates the admissions tax on any admission charge of more than five dollars to any motion picture show effective January 1, 2023.
Ambulatory Surgical Centers Tax:
- Sunset of the ambulatory surgical centers tax: This legislation sunsets the ambulatory surgical centers tax effective July 1, 2022.
Utility Companies Tax:
- Certain municipal power companies excluded from the scope of the utility companies tax: This legislation amends Conn. Gen. Stat. § 12‑264 by excluding any municipality, or department or agency thereof, or district that manufactures, sells, or distributes gas to be used for light, heat or power from the scope of the utility companies tax. The legislation is effective July 1, 2022.
Child Tax Rebate:
- Child Tax Rebate: (NEW) This legislation establishes a child tax rebate. Under this legislation, Connecticut residents who claimed at least one child as a dependent on their 2021 federal income tax return who was 18 years of age or younger may be eligible for a one‑time tax rebate of up to $750. In order to receive a rebate, taxpayers must meet certain income limitations and make application to the Commissioner between June 1, 2022, and July 31, 2022. The legislation is effective upon passage.
Pass‑Through Entity Tax:
- Codification of composite return: This legislation codifies that a pass‑through entity may file a composite income tax return on behalf of its nonresident members or partners. The applicable provisions are effective upon passage.
Unified Estate and Gift Tax:
- Technical changes: Adds the definition of “federal basic exclusion amount” to both the Estate Tax (Chapter 217) and the Gift Tax (Chapter 228c). These changes conform the Estate and Gift Tax provisions with the thresholds in 2018 Conn. Pub. Acts 81. These provisions are effective October 1, 2022.
- Cap on interest paid on refunds: (NEW) This legislation places a cap on the payment of refund interest in all cases so that it does not exceed five million dollars. Prior to the passage of this legislation, there was no cap on refund interest and the Court had the ability to authorize the issuance of refund interest even in circumstances where the Department has no administrative ability to grant refund interest. Given that taxpayers have the ability to stop the running of interest on assessments through the filing of cash bonds, this legislation was intended to place the Department on equal footing with taxpayers. This legislation is effective on passage.
- Tax incidence: The legislation makes several modifications to Conn. Gen. Stat. § 12‑7c. Specifically, the legislation moves the due date of the next incidence analysis from February 15, 2024, to December 15, 2023. The legislation also expands the scope of all future incidence reports so as to require the Commissioner to report on the overall incidence of the income tax, sales and excise taxes, the corporation business tax and property tax for each of the most recent ten tax years for which complete data are available. The legislation further requires the Commissioner to include incidence projections for each such tax and specifically report on the tax incidence of the top five per cent of all income taxpayers and the top one per cent of all income taxpayers.
- Limitation of refund claims for closed periods: (NEW) This legislation prohibits the filing of claims for refund during an open statute of limitations period for issues for which the Department has already addressed through an audit or other investigation. Without this legislation, taxpayers had the ability to require the Commissioner to review the same issue twice, first when under audit and then again by the filing of a claim for refund after the results of the audit had become final. This legislation eliminates the ability to file a claim for refund for an issue for which the taxpayer has already received the due process rights associated with the audit. This legislation is effective upon passage.
- Study regarding the provisions of Chapter 229: (NEW) This legislation requires the Commissioner to study alternative approaches for the imposition of the tax under Chapter 229 with respect to the residency of individuals subject to such tax. The Commissioner is required to identify any legislative changes that may be made to improve the collection of such tax or to implement an alternative approach for the imposition of such tax. The study must be submitted to the Finance, Revenue, and Bonding Committee by January 1, 2023. This legislation is effective upon passage.
- Study of the costs associated with administration of state taxes: (NEW) This legislation requires the Commissioner to study each tax and fee that the commissioner is statutorily responsible for administering to determine the overall effectiveness of each tax and fee and identify any legislative changes that may be made to improve the administration of each said tax and fee. The study must include information as to the amount of revenue generated by each such tax and fee for the most recent year for which the commissioner has complete records and the costs incurred by the commissioner in his administration of each such tax and fee for said year. The study must be submitted to the Finance, Revenue, and Bonding Committee by January 1, 2023. This legislation is effective upon passage.
- Joint Study with the Department of Economic and Community Development: (NEW) This legislation requires the Commissioner and the Commissioner of Economic and Community Development to conduct a study regarding whether to extend research and development tax credits to pass-through entities. The study must be submitted to the Commerce Committee by January 1, 2023.
- Authorizes special policeman at the Department to share tax return information in the course of their duties: This legislation amends Conn. Gen. Stat § 29‑18b to clarify that special policeman at the Department are authorized to disclose tax return information in the course of their duties. This provision is effective from passage.
- Authorizes the Commissioner to share tax return information with local police departments: (NEW) This legislation provides the Commissioner with the discretionary authority to share tax return information with a local police department. This provision is effective from passage.
- Special policeman at the Department included within the definition of peace officer: This legislation includes special policeman at the department within the definition of “peace officer” set forth in Conn. Gen. Stat. § 53a‑3. The applicable provisions are effective from passage.