STATE OF CONNECTICUT
DEPARTMENT OF REVENUE SERVICES
2001-02
ANNUAL REPORT
Table of Contents
A Message from the Commissioner
Table of Contents
Directory
Overview of the Department
Division Functions and Activities
Locations
Legislative Summary - 2002 General Assembly Regular and June Special Sessions & November 15, 2001 Special Session
Connecticut Superior Court (Tax Session) Cases
Connecticut’s Taxes
State Revenue Sources
Income Tax
Sales and Use Taxes
Corporation Business Tax and Credits Admissions, Dues & Cabaret Tax
Alcoholic Beverages Tax
Cigarette Tax
Controlled Substances Tax
Controlling Interest Transfer Tax
Dry Cleaning Surcharge
Gift Tax
Insurance Premiums Tax
Motor Carrier Road Tax
Motor Vehicle Fuels Tax
Motor Vehicle Rental Surcharge
Occupational Tax
Petroleum Companies Gross Earnings Tax
Public Service Companies Tax
Real Estate Conveyance Tax
Repealed Taxes
Seed Oyster Tax
Solid Waste Tax
Succession Tax
Tobacco Products Tax
Tourism Account Surcharge
Unrelated Business Taxable Income Tax
Tables, Charts & Graphs
Tourism Districts
Penalty and Interest Receipts
Tax Refunds
Real Estate Conveyance Tax By Town
Comparative Summary of Retail Sales and Tax Receipts by Town
Nationwide Comparison of Tax Rates
A Message from the Commissioner
The Department of Revenue Services (DRS) is instrumental in supporting the economic success of the State of Connecticut by fairly and equitably administering and collecting state taxes. DRS has earned and maintained a reputation as an outstanding tax agency that is committed to the creation of sound tax policy and procedures, and seeks to increase voluntary compliance through improved technology and customer service.
DRS embraced the development of technology to advance all aspects of Connecticut tax administration. The Agency also undertook initiatives to make filing and paying taxes easier while, at the same time, accelerating state revenues. Some of those programs include:
- WebFile. DRS employees created and implemented a free, web-based personal income tax filing program that allows most resident taxpayers to electronically file their own return from home. WebFile continues the DRS mission to provide taxpayers with efficient, user-friendly programs that encourage voluntary compliance while reducing the use of paper.
- ITAS. DRS secured funding for the first phase of the Integrated Tax Administration System (ITAS). When completed, ITAS will combine computer hardware and software to integrate taxpayer information allowing easier access and better case management.
- The 2002 Connecticut Tax Amnesty. DRS conducted the state's most successful tax amnesty program, collecting more than $109 million in overdue tax revenues. The program added many new taxpayers to the rolls and provided DRS with information that can be used to improve educational, enforcement and compliance initiatives.
As always, DRS is committed to maintaining a standard of excellence to meet the changing needs of Connecticut taxpayers. We will continue to provide taxpayers with outstanding customer service in a cost-effective manner.
Sincerely,
Pam Law
Commissioner of Revenue Services
Commissioner
Pam Law
(860) 297-4900
| Deputy Commissioner Richard D. Nicholson (860) 297-5612 |
Executive Assistant Donna Pomeroy (860) 297- 5609 |
| Chief of Staff Tina Lawson (860) 297-5620 |
General Counsel John M. Dunham (860) 297-5720 |
| Administration Division Kevin G. Forsa (860) 297-5660 |
Legal Division Felicia S. Hoeniger (860) 297-5779 |
| Appellate Division Scot R. Anderson (860) 297-4773 |
Operations Division Donald B. Pecor (860) 297-4700 |
| Audit Division Collections & Enforcement Division Hans G. Spalter (860) 541-7501 |
Research Unit Susan B. Sherman (860) 297-5693 |
| Communications Office Sarah Kaufman (860) 297-5610 |
Systems & Internal Control James E. Norton (860) 297-5608 |
| Diversity & Equity Penny Potter (860) 297-5708 |
Taxpayer Advocate Office Clara Crawford (860) 297-5603 |
| Information Services Division Michael Longo (860) 297-5630 |
Taxpayer Services Division Elaine Leon (860) 297-4922 |
Overview of the Department
The Mission of the
Connecticut Department of Revenue Services
is to administer the tax laws of the State of Connecticut
and collect the tax revenues
in the most cost effective manner;
achieve the highest level of voluntary compliance
through accurate, efficient and courteous customer service;
and perform in a manner
which instills public confidence in the
integrity and fairness of the state’s tax programs.
Administration Division
The Administrative Services staff prepares and administers the Agency budget, controls and monitors expenses, and assists top management in strategic planning. It oversees all procurement, printing, budgetary, accounting, and facilities management for the Department. The Education Unit establishes, implements and evaluates personnel training and educational programs in support of management effectiveness, technical expertise and personal development of DRS employees. The Human Resource and Payroll Units administer the rules, regulations, contracts and directives of state employment and recruit staff for the Department.
Appellate Division
The Appellate Division receives, acknowledges and reviews all taxpayer appeals. The Division's tax appellate officers and specialists conduct informal hearings, render final determinations, and negotiate settlement of tax controversies. Appellate Division personnel also provide litigation support to the Office of the Attorney General on cases appealed from the Department to Superior Court.
During Fiscal Year 2001-2002, the Appellate Division resolved 1,143 cases with settled account values of $52.5 million. Additionally, another 48 determinations were issued by the Appellate Division from which taxpayers took appeals to the Superior Court. This equates to an appeal ratio of 4 percent.
Audit Division
The Audit Division ensures that tax returns filed with DRS are reported accurately and are in compliance with Connecticut tax laws and regulations. Using various audit selection review tools, suspected noncompliant tax returns are selected for examination. Audit Division staff perform field and office audit examinations of selected tax returns to determine the extent of inaccuracies, assess underreported amounts, verify the extent of credits or refunds, and educate those taxpayers about improvements in their levels of voluntary compliance.
During this fiscal year, the Audit Division conducted 92,495 field and office audits and generated $429.8 million in assessments, a 22 percent increase from the prior year. Though not typical, the increase in dollars assessed can be attributed, in part, to our continuing quality improvement endeavors such as the adoption of the Malcolm Baldrige Quality Management Principles to maintain and continuously improve customer service excellence throughout the Division.
To enhance voluntary compliance, DRS’s Audit Division continues its work with the Department of Labor and national vendors to develop software capable of allowing small, medium, and large employers the ability to file wage and tax information from their desktop computer with a single keystroke.
The Audit Division was instrumental in Connecticut hosting the annual conference of the North Eastern State Tax Officials Association (NESTOA); in attendance were tax officials from the northeastern states, representatives of private industry and tax practitioners. Current tax policies and procedures were exchanged with counterparts from other states and the private sector.
Collections & Enforcement
The Collection & Enforcement (C&E) Division is responsible for collecting overdue taxes and enforcing state tax statutes and regulations for those who fail to voluntarily comply. Through innovative collection, compliance, and enforcement processes, C&E Division employees resolve and secure payment of taxes from taxpayers who unintentionally fail to file or pay, and those who refuse to voluntarily comply.
For Fiscal Year 2001-2002, C&E collected $141,295,924 in overdue tax revenue. This represents a 13.5% increase over the prior year. The division also increased the number of cases closed to 113,973, an improvement of nearly 7%. The turnover rate for Accounts Receivable assigned to Collections was 64 percent.
Achievements throughout the year included several improvements in the use of telephone technology. We created and deployed a Customer Service Survey, increased use of our predictive dialer system, and added improved information to the Interactive Voice Response System.
The C & E Hearings Unit continued to work with the Department of Mental Health and Addiction Services assessing civil penalties against cigarette retailers who sell cigarettes to minors. These efforts have reduced the "buy rate" from the original 80% when the program was first established, to a new low of only 10%.
Employees from the C & E Division were also instrumental in implementing the increase in the Connecticut cigarette tax. Operating on a very short schedule, they were able to design, procure, and distribute more than 15.5 million floor tax stamps. They then inspected nearly 3,000 cigarette vendors and distributors for compliance, completing more than ten times the number of projected inspections. When finished, the project produced more than $8,000,000 in additional revenue.
An e-mail/fax database was developed for the service of tax warrants. In the closing months of the fiscal year more than 800 tax warrants were electronically served.
Communications Office
The DRS Communications Office supports the Department’s mission to enhance voluntary compliance by supplying timely and accurate information to taxpayers, tax professionals, state agencies, and others. A key responsibility is conveying the Agency’s commitment to excellent customer service and to fairness and equity for all taxpayers.
The comprehensive communications program includes the development, coordination, production and distribution of a wide range of media. Among these are executive communications, media releases, reports, newsletters, brochures, and promotions for the filing season and special programs that occur throughout the year. The office also coordinates seminar presentations, interviews, and public appearances by the commissioner and executive staff, providing audiovisual support and collateral materials.
Diversity & Equity
The mission of the Office of Diversity and Equity is to encourage the full and fair utilization of its human resources by supporting the ongoing improvement of affirmative action, equal employment, diversity, and employee development programs to ensure all employees’ talents and differences are valued.
During Fiscal Year 2001 -2002, DRS reached significant milestones in its diversity and equity goals. Twenty-two of our Upward Mobility candidates were promoted along their career paths. In six occupational categories, 100 percent of affirmative action hiring goal criteria was met. Seventy percent of our promotions met our hiring goal criteria.
Information Services Division
The Information Services Division is responsible for the analysis, design, development, maintenance, and integrity of all DRS tax information systems. The Division provides development support for all applications in response to legislative mandates and other Agency initiatives. The Division also provides technical support for all computer operations and desktop users within DRS.
The Division continues to support the expansion of electronic filing and payment options, including the implementation of Webfile for individual income tax filers during this past year. In addition, the Division has completed the migration of its email capabilities from the state's Internet system to an internal one (Microsoft Exchange) for improved performance and security. A new digital printing system was also been implemented to enhance the efficiency and flexibility of the Department’s high volume printing needs.
The Integrated Tax Administration System project was initiated in May 2002. The Division is working with Accenture and internal business staff on the design phases of the project. The implementation of Phase 1a (Sales and Use, Withholding and Corporation taxes) is targeted for December 2003. In conjunction with the ITAS implementation, the Division is also planning to upgrade the agency to Windows 2000 and Office 2000 during 2003.
Legal Division
The Legal Division provides legal interpretations of Connecticut tax statutes and court rulings to the Commissioner, other divisions within DRS, taxpayers, and practitioners.
Additionally, the Legal Division is responsible for coordinating the litigation of tax cases with the Office of the Attorney General. With respect to contested succession tax matters, the Division’s legal staff represents the Commissioner before the Probate Court and litigates appeals from the Probate Court to the Superior Court and Appellate Court levels.
The Legal Division drafts proposed legislation and regulations for submission to the legislature. It also reviews tax documents generated by DRS to ensure their compliance with relevant tax statutes.
Operations
The Operations Division is responsible for processing all state tax returns and corresponding documents, maintaining the internal accounting system and depositing all state tax revenue collected in a timely manner. In addition, the Operations Division administers programs designed to ensure accuracy and validity of all taxpayer information.
During fiscal year 2001-2002, the Operations Division processed 6 million returns; 600,000 electronic fund transfers and deposited over $9 billion. The Division also played an important role in implementing the Web File Program.
DRS continues to reduce the number of taxpayers filing paper returns by encouraging alternative filing methods like the Electronic Filing Program (ELF), Telefile and Fast-File. Participation in ELF increased by 26.1 percent. In addition, 16,000 taxpayers participated the WebFile program. The use of direct deposit and direct tax payments also increased. Lastly, an increasing number of taxpayers chose to pay their taxes by credit card, resulting in $6.7 million in tax revenues collected by credit card transactions.
Research Unit
The Research Unit analyzes and prepares reports of statistics generated from data DRS collected during taxpayer registration and filing. The Unit prepares and publishes the Annual Report and other special reports resulting from studies of topics pertinent to state tax policies. It also prepares and distributes statistical overviews of income tax and sales tax revenues collected.
The Unit acts as a liaison to the Connecticut General Assembly and is responsible for attaining passage of the Agency’s legislative package, as well as working with various committees of cognizance to facilitate other legislative initiatives. The Unit coordinates disbursement of funds to the Connecticut Tourism districts, oversees the Neighborhood Assistance Act Tax Credit Program, and responds to information requests from other states, as well as Connecticut’s legislative and executive branches of government.
Systems & Internal Control
The Systems and Internal Control Unit provides management with an independent view of operational examinations and serves as the DRS liaison to the state’s Auditors of Public Accounts, the Internal Revenue Service, and other external agencies. Additionally, the Unit helps all Agency levels monitor, evaluate, and improve systems, internal controls, and policies and procedures. This includes recommending standards for maintaining confidentiality and security, and reviewing provisions to safeguard DRS assets.
Taxpayer Advocate Office
DRS has an established a Taxpayer Advocacy program available to all taxpayers. The Taxpayer Advocate assists those taxpayers not in litigation or under enforcement action who have been unable to resolve their problems with DRS through normal channels.
Taxpayer Services Division
The Taxpayer Services Division delivers Connecticut tax information to taxpayers through educational programs and direct assistance activities.
During the 2001-2002 fiscal year, the Division responded to 201,653 telephone inquiries, provided 2,221 replies to taxpayer letters, 7,710 replies to taxpayer inquiries by e-mail and assisted 21,312 walk-in taxpayers at the Hartford, New Haven, Bridgeport, Waterbury and Norwich regional offices. To meet the needs of a growing number of state taxpayers, Spanish language phone assistance was provided to 1,626 taxpayers during the income tax filing season. A Spanish version of answers to most commonly asked income tax questions was also posted on the DRS Web Site.
DRS expanded its electronic filing services to all five of its walk-in locations. Taxpayers could electronically file both their federal and state tax returns at the walk-in offices at no charge. The program also helps to reduce the cost to the state of processing and storing paper tax returns. 2,368 federal and state returns were prepared at DRS offices electronically in 2002, an increase of 13.7% over 2001.
Tax publications, forms and information are available electronically on the DRS’ web site on the Internet. 572,500 people visited the DRS website in fiscal year 2002, an increase in web traffic of approximately 43% over the prior year. DRS-E-NEWS, our electronic newsletter, delivered timely notification about new tax forms, publications, and Department news to subscribers in Connecticut and throughout the United States.
DRS provides automated tax information 24 hours a day by telephone at 1-800-382-9463 (Toll-free in-state) or 860-297-5962. Services for the hearing impaired are available through the Telecommunications Device for the Deaf at 860-297-4911. TAX FAX at 860-297-5698 allows callers to select any form and have it faxed to them. The DRS Web Site on the internet, http://www.drs.state.ct.us, has up-to-the minute tax information. Forms and instructions can be downloaded, previewed, and printed at no cost.
Tax Products Group
The Tax Products Group (TPG) coordinates the development, production, testing, and distribution of written forms, publication and other informational and technical documents for DRS. TPG seeks to create clear, simple, and accurate tax products that facilitate voluntary compliance. These products include special notices, informational publications, policy statements, announcement, and tax return and instructions.
TPG has developed style standards to maintain consistency of documents, and strives to put tax law into plain language whenever possible. A distribution plan is developed for each tax product to ensure the right information reaches the right audience at the right time, and that the information is concise and easy to understand.
Department of Revenue Services Locations
Main Office
25 Sigourney Street
Hartford, Connecticut 06106
Phone: (860) 297-5962
1-800-382-9463 (In-state only)
TDD/TT (860) 297-4911
www.drs.state.ct.us
Field Offices
| Bridgeport Regional Office 10 Middle Street Bridgeport, CT 06601 Phone: (860) 579-6251 |
New Haven Regional Office 3074 Whitney Avenue, Bldg. #2 Hamden, Connecticut 06517 Phone: (203) 287-8243 |
| Norwich Regional Office 2 Cliff Street Norwich, Connecticut 06360 Phone: (860) 889-2669 |
Waterbury Regional Office 55 West Main Street, Suite 100 Waterbury, Connecticut 06702 Phone: (203) 805-6789 |
LEGISLATIVE SUMMARY - 2002 GENERAL ASSEMBLY
REGULAR AND JUNE SPECIAL SESSIONS & NOVEMBER 15, 2001 SPECIAL SESSION
Cigarette Tax
Public Act 02-1
- Increases the tax on cigarettes from 25 mills 55½ mills for each cigarette. The tax rate for a package of twenty cigarettes increases from 50¢ to $1.11. Effective April 3, 2002.
Public Act 02-7, May 9 Spec. Ses.
- Prohibits cigarette dealers and distributors from stamping and selling cigarettes made by a manufacturer that has not complied with the Master Settlement Agreement. The bill also allows the Department of Revenue Services to make violators’ names public.
Corporation Business Tax
Public Act 02-1, May 9 Spec. Ses.
- Amends Conn. Gen. Stat. §12-217(b) to provide that, for certain assets placed in service after September 10, 20001 and before September 11, 2004, the bonus depreciation allowed under I.R.C. §168(k) is not deductible for corporation business tax purposes;
-
Amends Conn. Gen. Stat. §12-219 by adding a new section that provides that no tax credit allowed against the corporation business tax shall reduce a company’s tax calculated under Conn. Gen. Stat, §12-219 to an amount less than $250. In addition, Conn. Gen. Stat. §12-219(c) was amended to delete the exemption from the tax that was enacted for financial services companies to make the companies subject to a minimum tax of $250 and to provide that financial services companies may not apply any tax credits to reduce the tax below $250;
-
Provides that the amount of credit allowable against the corporation business tax for any income year shall not exceed 70% of the amount of tax due from such taxpayer prior to the application of the tax credits.
Public Act 02-4, May 9 Spec. Ses.
- Amends the Research & Development tax credit to provide that any taxpayer entitled to a credit refund of more than $1 million for the income years 2000 or 2001 that did not received its payment before July 1, 2002, will be entitled to receive a maximum refund of $1 million in any one state fiscal year with the remaining amount paid equally over the next two state fiscal years. Effective July 1, 2002.
Income Tax
Public Act 02-1, May 9 Spec. Ses.
- Amends the definition of "Connecticut adjusted gross income" to create a new addition modification for property placed in service after September 10, 2001, but prior to September 11, 2004, in taxable years ending after September 10, 2001, for any bonus depreciation under IRC §168k; and
- Delays, by two years, the annual increase to the single filer exemption, credit and Connecticut adjusted gross income thresholds used to calculate the reduction in the property tax credit. The exemption in effect for the 2001 taxable year will remain in effect for the through the 2003 taxable year. The increases will resume with the 2004 taxable year.
Public Act 02-126
- Exempts "specified terrorist victims" and their estates from the Connecticut income tax for the 2001 taxable year.
Insurance Premiums Tax
Public Act 02-3
- Repeals the scheduled increase in the HUSKY credit against the health care centers tax from $55.00 to $73.50 per monthly average number of persons that are provided health care coverage by a health center. Effective for calendar years commencing on or after January 1, 2001.
Miscellaneous
Public Act 02-70.
- The act makes the motor vehicle rental surcharge applicable to the rental of any rental truck in addition to the rental of any passenger motor vehicle. Effective July 1, 2002.
Public Act 02-1, May 9 Spec. Ses.
- Authorizes a tax amnesty program from September 1, 2002 through November 30, 2002. The tax amnesty allows both business and non-business taxpayers to apply for amnesty in connection with unreported and underreported tax liabilities or unpaid tax liabilities, and to pay their taxes without the application of a penalty.
Motor Vehicle Fuels Tax
Public Act 02-1, May 9 Spec. Ses.
- Increases the tax rate on diesel fuel, propane, and natural gas sold or used in Connecticut from 18¢ per gallon to 26¢ per gallon. Effective for sales occurring on or after August 1, 2002.
Petroleum Companies Gross Earnings Tax
Public Act 02-4, May 9 Spec. Ses.
- Exempts from the petroleum products tax any first sale of petroleum products to be used as fuel for a fuel cell. Effective July 1, 2002.
Sales and Use Taxes
Public Act 02-1, May 9 Spec. Ses.
This act makes various changes to the sales & use taxes:
- Excludes business analysis, management, management consulting and public relations services rendered in connection with an aircraft leased or owned by a certificated air carrier or in connection with an aircraft, which has a maximum take-off weight of 6,000 pounds or more. Effective for services rendered on or after January 1, 1994;
- Makes the furnishing of space for storage of personal property (self-storage) by a person engaged in the business of furnishing such space applicable to the sales and use taxes. Effective for sales of occurring on or after October 1, 2002; and
- Delays the phase out of the computer and data processing services sales tax exemption. The services remain taxable at the rate of 1% until July 1, 2004.
Public Act 02-4, May 9 Spec. Ses.
- Adds exclusion to community and antenna television services for noncable communications service purchased by a cable network as used in Conn. Gen. Stat §12-218(I). Effective August 15, 2002.
Succession Tax
Public Act 01-1, Nov. 15 Spec. Ses.