2021 Connecticut State Tax Developments
Summary of legislation enacted during the 2021 Regular Session and June Special Session
The following is an overview of legislation passed during the 2021 Regular Session and June Special Session affecting state taxes:
Admissions Tax: Beginning July 1, 2021, admissions tax applies only to movie theaters. As of that date, the admissions tax is no longer imposed on admissions to all other places of amusement, entertainment, or recreation.
Corporation Business Tax:
- Corporate surtax extended for two additional years. The 10% corporation business tax surtax is extended for two additional years, to the 2021 and 2022 income years.
- Capital base phaseout delayed. Prior to the 2021 legislation, the capital base tax phaseout was scheduled to begin in income year 2021. Now, the phaseout will begin in income year 2024.
- Underpayment of estimated taxes. For corporation's whose income years began on or after January 1, 2021 and on or before June 23, 2021, no interest will be imposed on the underpayment of 2021 estimated taxes to the extent that such underpayment is attributable to the delay of the capital base tax phaseout or the extension of the 10% surtax.
- Research & Development (R&D) Tax Credits.
- Limitation increase. The cap on the amount of R&D tax credits corporations may claim is increased from 50.01% to 70% of their annual tax liability. This increase is phased in over two years. For income year 2022, R&D tax credits may be claimed up to 60% of the corporation's tax liability. For income year 2023 and thereafter, R&D tax credits may be claimed up to 70% of the corporation's tax liability.
- Carryforward period. All R&D tax credits earned in income year 2021 and thereafter may be carried forward for 15 years.
- Film production tax credit. Beginning in income year 2022 and subject to certain restrictions and limitations, the film production tax credit may be claimed against the sales and use tax.
- Mitigation of adverse tax consequences due to the pandemic to employers and employees. Legislation was enacted to address the impact of the pandemic on employees and employers. This legislation is applicable only to taxable year 2020. See Commissioner's Bulletin (March 4, 2021) and Taxpayer Services Special Bulletin TSSB 2021-1.
- Earned income tax credit (EITC) increased. Starting with taxable year 2021, the EITC is increased from 23% to 30.5% of the federal credit.
- Property tax credit limitation extended. The limits on eligibility for the property tax credit against the personal income tax have been extended for two years, to the 2021 and 2022 taxable years. The same limitations applicable to taxable year 2020 will apply to taxable years 2021 and 2022.
- Subtraction modification for income from certain IRAs. New legislation phases out, over four years, the income tax on income from IRAs, other than Roth IRAs, for taxpayers with qualifying incomes. The phaseout begins in taxable year 2023.
- Clarification of interplay between subtraction modification for pension and annuity income and subtraction modification for teachers' pension. The legislation clarifies that, with respect to taxable year 2021 and thereafter, teachers who qualify for the general pension and annuity exemption may take either the teachers' pension exemption or the general pension and annuity exemption, whichever is greater.
Sales and Use Tax:
- Qualified data centers. Effective July 1, 2021, a person who anticipates owning, operating, or being a colocation tenant in a qualified data center may enter an agreement with the Department of Economic and Community Development (DECD) that provides exemptions from sales and use tax for equipment, certain services and electricity used by a qualified data center.
- Exemption for breastfeeding supplies. Effective for sales occurring on or after July 1, 2021, sales of breast pumps and certain related parts, supplies, kits, and repair services are exempt.
- Sales tax retention for restaurants. Restaurants are allowed to keep 100% of the sales taxes they collect on meals during one week during fiscal year 2022. The restaurant may select one of three different weeks: August 1, 2021 to August 7, 2021; December 12, 2021 to December 18, 2021; or May 15, 2022 to May 21, 2022. See Taxpayer Services Special Bulletin TSSB 2021-6.
- Exemption for beer manufacturers. For sales occurring on or after July 1, 2023, establishes a new sales and use tax exemption for certain beer manufacturers that also make substantial retail sales.
- Cannabis for palliative use. Sales of cannabis for palliative use are exempt as nonprescription drugs and medicines.
Other Taxes and Miscellaneous Provisions:
- Bottle Deposit Surcharge. Beginning October 1, 2021, Connecticut will impose a 5¢ surcharge on the sale of 50 milliliter bottles ("nips").
Beginning January 1, 2023, the types of bottled beverages subject to the bottle deposit requirement expands to include additional items such as hard seltzer, hard cider, juice, juice drinks, tea, coffee, kombucha, plant infused drinks, sports drinks and energy drinks.
Beginning January 1, 2024, the bottle deposit increases to 10¢; the surcharge for nips remains at 5¢.
- E-911 Fee. Effective July 1, 2022, marketplace facilitators are required to begin collecting and remitting the E 9-1-1 fee.
- Alcoholic Beverages Tax Rate Reduced on Beer. As of July 1, 2023, the excise tax on beer (other than beer for off-premises consumption sold on the premises covered by a manufacturer's permit) decreases from $7.20 per barrel to $6.00 per barrel.
- Insurance Taxes. The aggregate cap on Invest CT tax credits has been increased by $200 million (from $350 million to $550 million).
- Ambulatory Surgical Centers ("ASC") Tax. The existing tax has been sunset and a new tax has been enacted. The current 6% gross receipts tax on ASCs will be replaced with a 3% net revenue tax on ASC services, subject to certain exclusions. The new tax does not contain an exemption for the first $1 million of ASC gross receipts. It does, however, contain an exemption for Medicaid and Medicare payments. The existing tax will sunset on June 30, 2023 and the new tax is effective July 1, 2023.
- Highway Use Fee. As of January 1, 2023, a highway use fee ("HUF") will be imposed on certain carriers for the privilege of operating, or causing to be operated, certain heavy, multi-unit motor vehicles on any highway (i.e., public road) in Connecticut. The HUF is calculated based on a vehicle's weight and the number of miles driven in the state.
- Cannabis related taxes. As of July 1, 2021, persons age 21 or older are allowed to possess or use cannabis. There is a state cannabis tax based upon the amount of THC per milligram of certain products, and a 3% municipal cannabis tax on the sale of cannabis. Sales of cannabis for palliative use are exempt from each of these taxes.
- Marijuana and Controlled Substances Tax. The tax is repealed effective July 1, 2021.
- Tax Amnesty. A Tax Amnesty Program is established to run from November 1, 2021 through January 31, 2022. Interested taxpayers must complete an application with DRS to participate in the program. After compliance with the program's requirements, these taxpayers will be entitled to the cancellation of penalties and a 75% reduction in interest on the outstanding balances due for eligible periods.