Connecticut Enacts Budget Bill Extending Business Tax Surcharge, Delaying Capital Base Tax Phaseout, and Creating a Tax Amnesty Program

Blank Rome LLP

Blank Rome LLP

On June 23, 2021, Connecticut Governor Ned Lamont signed into law two budget bills comprising the state budget for the fiscal year 2022-2023 (the “Budget Bill”). H.B. 6689, S.B. 1202. The Budget Bill contained several noteworthy tax provisions, including extending the corporation business tax surcharge for an additional two years, delaying the phase-out of the capital base tax on corporations, and creating a tax amnesty program. These provisions are discussed below.

Extension of Business Corporation Tax Surcharge

The Budget Bill extends the existing 10 percent corporate business tax surcharge, which was due to expire in 2020 through 2022. The business corporation tax surcharge imposes a tax surcharge of 10 percent on corporations that have more than $250 in Connecticut corporate tax liability and are either taxable members of a combined group that files a combined unitary return or have at least $100 million in annual gross income.

Delay of Phase-Out of Capital Base Tax on Corporations

The Budget Bill also delays the planned four-year phase-out of capital base tax on corporations. The tax rate, which was currently $0.0031 per million dollars for 2020, was scheduled to be reduced to $0.0026 in 2021, and then gradually reduced annually until it was totally phased out in 2024. The budget bill keeps the $0.0031 per million rate until 2023, and implements a new slower phase-out schedule under which the tax will not be entirely phased out until 2028. Interest on underpayments of estimated taxes due to the change in the rate for the 2021 year are waived.

Creation of Tax Amnesty Program

The Budget Bill also requires the Commissioner of the Department of Revenue Services to create a three-month tax amnesty program to be conducted during the period November 1, 2021 through January 31, 2022. The amnesty program applies to virtually all taxes administered by the Department of Revenue Services, including corporation business tax, personal income tax, and sales and use tax. A person whose application is granted under the amnesty program shall generally be entitled to a waiver of penalties and a 75 percent reduction in interest on the amounts of tax due. However, in no event will an amnesty application result in a refund or credit of any amount of tax, credit, or penalty previously paid. Persons who are parties to closing agreements with the Commissioner, who have made offers of compromise that have been accepted by the Commissioner, or who are parties to managed audit agreements are not eligible to apply for amnesty. Amnesty applications may be made for all taxable periods ending on or before December 30, 2020.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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