Good day and Welcome to today's web
and our annual Connecticut tax update.
We want to begin today with
a few housekeeping items.
At the bottom of your screen you
will notice application widgets.
All of these widgets are
movable in Resizeable.
You may also expand your slide window to
full screen by clicking on the arrow's
on the top right of the slide window bar.
The audio portion of today's program
is listen only an will be provided via
streaming audio from your computer.
Today's presentation is being
recorded annual receive the playback
link within the next business day.
The PowerPoint presentation
for this webinar is available for download
via the event resources, which it.
You are encouraged to submit questions by
typing your question in the ask a question,
which it our speakers will
address questions as time permits.
And attendance verification prompt in
course code will be provided during today's
presentation to receive Philly credit.
You must confirm your attendance by
clicking the checkbox at the verification
prompts in entering the course code
in the post event survey certificates
of attendance will be E mailed
within 30 days of the presentation.
At this time,
I will turn the call over to Shipman and
Goodwin Attorney Lucia please go ahead.
Thank you Emma and thank you.
Everyone for spending
your lunch hour with us.
We have a lot of information to
cover as Emma said. I am blue shots.
I'm a partner here at the tax Department
shipping a good win an with me my colleagues.
David bigger and Robert De.
We're going to be reviewing with you.
The Connecticut tax changes made by the
General Assembly in the recent budget
package that was just signed by the governor,
a couple weeks ago.
The slide 3,
which we're at right now sets forth.
The highlights of the program.
And so it makes sense to go through
these bullet by bullet because I
think they're very informative.
1st is this as you are aware is the
first year for our new governor.
He came into office in January,
facing a 3.7 billion dollar
deficit that had to be closed.
He did that with the assistance of the
democratically controlled House and Senate.
This is what we refer to as
single party budget legislation.
Unlike in past years when the
Republican minority prepared
proposed budget for consideration
that did not occur this year.
The budget that the governor
proposed back in February.
Contained a number of new services
that would be subject to sales tax,
including professional services and
whole host host of other services.
Many of those services,
that were proposed to be separated.
The sales tax were ultimately
illuminated from the final act
that was adopted by the General
Assembly and signed by the governor.
But there still are a number of new
services that Robert is going to review
when we get to the sales tax situation.
Major change this year had to do with
a pass through entity tax credit.
And it really relates to a
change in the policy on how the
pet tax should be approached.
When the pet taxes adopted last year.
It was assumed to be a tax neutral provision.
It was a provision that was adopted as
a work around to the federal state local
tax deduction limitation and in fact,
it was very well received by
practitioners and taxpayers.
This year,
the policy.
That is related to the pet tax credit
was changed from that of being taxed
neutral to that of being a revenue raiser.
It's not a significant revenue raiser on.
Taxpayer by taxpayer basis,
but the fact that the policy has shifted
is certainly certainly of concern to many.
At the end of the session this
payroll tax commission was.
Add it to the legislation and this
doesn't affect this year's tax but
it is a harbinger of things to come.
The General Assembly has asked the
Department of Revenue Services.
To review and study weather affective
in 2021.
Connecticut should adopt A new
payroll tax payable by employers,
which if adopted,
would probably result in a significant
reduction in the income tax so again.
The story here remains to be played out,
but we're going to be keeping
a close eye on
that. As part of a way to raise revenue.
The conveyance tax on houses valued at
over 2 1/2 million dollars was increased.
But in connection with the imposition
of his new mansion tax on high
network high value properties.
There is new property tax credit.
That was imposed or that is available
for sellers of these homes who
maintain their Connecticut residents
were going to get into that.
There was a proposed capital gains
surcharge that received a lot of
discussion in February and March.
This would have been a 2% tax on capital
gain on high income individuals.
It actually made its way through
part of the legislative process,
but was not in the final bill
signed by the governor.
In fact,
there were no income tax rates
adopt know Heights to the income
tax rates or adopted in the final
package that was adopted.
The gift tax repeal was part of
the governor's initial proposal.
It made it partially through
the legislative process,
but it was ultimately dropped at the end,
Connecticut remains.
I believe the only state that subject
that has a gift tax and it still does
following this legislative session.
The business entity tax David is
going to discuss the repeal of the
business end of the taxes to sort
of a nuisance taxed pale table.
Every other year or $250 by
all pass through entities and
a lot of politicians have?
In favor of repealing that tax in it now is
going to be repealed effective next year,
I believe.
Still, a lot of unfinished business.
We read daily about the potential imposition
of tolls on Connecticut Highway System.
There's some talk that the adoption
of the tools may result result in
some sort of reduction in our income
tax rates so that's something we're
going to be closely monitoring.
But to sell to closeout the summary
the highlight the header on this slide
says sending a signal and if you
look at a quote that Governor Lamont.
That's attributable government
when the budget was adopted.
He indicated his goals were
destabilized states finances and
send a signal to residents and
businesses that state is serious
about getting our economy growing again.
So hopefully those goals will be achieved.
So with that as a overview.
Let's go into the more specifics.
I'm going to start with overview
of the income tax changes and.
We'll start with the specifically
the pet tax,
which was adopted last year right
indicated it was intended to be neutral,
the way the pet tax works.
It's a 6.99% tax payable by a pass
through entity to pass through entity.
The Ducks the tax on its federal
information return or S Corporation
return or the Connecticut return so
there's a benefit from the deduction on
the entity return and then that tax.
Is?
Allocated to each of the members of
the pass through entity and then
each of the members get to take as
a credit 93.01% of the amount of
the tax that is allocated to
them. What the new legislation does is that
it affects the amount of the credit that each
individual takes on his or her personal.
Connecticut personal income tax return
rather than 93.01% which was the 2018
provision an was intended to be neutral.
The new legislation reduces the amount
of the credit from 93.01%, down to 8087,
1/2% and that's commencing in 2019.
So I think it's useful to go through an
example to see exactly the impact of
this reduction from 93.01% to 87, 1/2%.
We've got a very simplistic example.
Here we have a partnership that
has $500,000 of net income.
Let's assume that it's all
Connecticut source income.
That's the trigger of the
Connecticut or the base for the
Connecticut pastor monthly taxes.
Connecticut source income,
so this entity with 500,000
Connecticut source income.
In 2018 would pay at pass-through
entity tax of 6.99% of that or 34,950.
It would then complete its federal
and state partnership returns and
a determining its net income it
would deduct the thirty 4950 of
pass through entity.
Connecticut tax from its $500,000 of income.
Resulting in net income of 465 thousand 50.
That 460,465 oh 50 will get allocated
to the members that's the amount of
the base that they will have for
purposes of applying there federal and
Connecticut taxes at the individual level.
So skipping to the Connecticut
consequences a member who has 465
thousand five oh of Connecticut
taxable income would have a tentative
tax of 6.99% of that which is 32,507.
That would be the tax liability of
the individual before application
of the pet tax credit.
In this case,
the pet tax credit is determined by taking.
34,950 of pet tax as you can see in the
first bullet multiplying it by 93.01%,
which is the amount of the credit.
That results in 32,507,
which not coincidentally.
This was the intent is wipes out
Connecticut tax liability of the
individual resulting from the
individuals ownership of the interest
in the pass through entity.
But the individual had 32,507 of
Connecticut tax liability and they
get the 32,507 tax credit from the
tax paid by the pass through entity,
resulting in Connecticut tax due by
the individual after application of
the credit of 0 again exactly how
it was intended to work intended
basically shift the tax liability on
the entities income from the individual
through the pass through entity.
Now take a look at where we are at
as a result of the reduction of the
credit from 93.0. One percent 87, 1/2%.
If you look at the bottom bottom
3 bullets on this slide.
The Connecticut tax liability stays at 6505.
Oh times 6.99% or 32507.
That's the tax liability of the
individual before application of the credit.
However.
The credit now is 8087.5% not 93.0,
one and the credit,
the 87.5 is applied against the
amount of tax paid by the pass
through entity in this case,
the 34950 so if you take 34950,
* 87.5, which is the amount of credit.
You get a credit of 30,501.
What's happened here you can see the tax
liability of the individual is 32507.
The amount of the credit now
after the impact of this new
legislative change is only 30,501.
So there's a shortfall and the
individual now will be subject to
Connecticut tax on the difference.
The 32507 will be reduced
by the 30,501 of credit,
resulting in Connecticut tax
to the individual of 1926.
That's an additional tax that the
individual partner or shareholder did
not have last year and it results solely
from the reduction of the credit from 93.0,
one at 87.5 so.
It's certainly true that
the income tax rates,
were not raised this deer and we've
seen that repeatedly and the media.
But it's also a fact that all of the?
The income tax liability of anybody in
a pass through entity has gone up as a
result in the reduction of the credit.
This reduction is affective for 2019,
so it's not effective as a pathogen
effective January 1st 2019.
There will be relief from estimated
tax payment liability for though,
because we don't really know of
this until the June 15th estimated
tax payment date.
We've gone through the math and
it's interesting to note that the
economic effect of this reduction
in the credit comes out to about
$385 for every $100,000 of income
that's allocated to an individual.
I think the general feeling is
that the $385 increase on your
$100,000 of net income.
May not be significant in and of itself.
But the concern is that now that
the Legislature has gone from 93.01
to 8087.5 to raise revenue is this
a sliding scale and will we see
further reductions in the credit.
In future years,
which will just result in increased.
Connecticut tax liability to the
owners of the pass through entity.
That being said,
we should also note that even
with the reduction in the credit
and the resulting increase in
the Connecticut tax liability.
The individual partners are still
better off with respect to where
they would be had there been no
pet tax because they are getting
a benefit by way of the deduction
by the pass through entity.
Of the pass through entity tax we
calculate that this effectively
results in a 2.6% reduction in the
federal tax rate that is applicable
to the individuals again solely as
as a result of the pet tax regime,
as adjusted so there still is a benefit.
Although just not as much benefit
as we had last year.
There was some other changes to
the pet tax most specifically
if you look at the top of the
slide guaranteed payments are now
brought into the petax regime.
Just give you an example if you
have a LLC comprised of doctors.
Anet earns $500,000 of income and the
entire 500,000 is paid out to the doctors,
as guaranteed payments.
For federal tax purposes that partnership had
0, income 'cause of the deduction
of the guaranteed payments and in
2018 that partnership did not have
to pay a pet tax not because the
pet tax was accounted for after
deduction of the guaranteed payments.
Now, those guaranteed payments will
be added back so it might hypothetical
that partnership will be required
to pay a tax on the 500,000 which
is probably a good thing because
it will mean that recipients of the
guarantee payments will get the
benefit of salt work around that
is available for distributions of
income to an other payments.
There was also adopted going to the
last bullet on that page general
relief for folks last year who may
have underpaid their tax liability
because of the fact that the pet tax
was not adopted until May of 2018.
We now have guidance directive issued to the
DRS basically waive any penalty interest.
In addition, stacks caused by late
payment of the tax liability for
2018 long as the tax payment is
made within 1 year of its due date.
The main question that still outstanding.
With the pet tax is whether the Internal
Revenue Service is going to contest the
deduction taken by the pass through entity.
Of the pass through entity tax on
its federal return that deduction
is what gets the work gets us.
The benefit from the work around
to the salt limitation.
the IRS issued regulations which
were not surprising because they were
issued in proposed form last year.
But last month,
they issued final regulations that
put the Kabosh on the work around
dealing with charitable contributions
and state local tax credits.
Those regulations that were issued
last month.
Did not answer the question of whether the?
Connecticut work around to the pet tax.
How the IRS will treat that work around
there have been comments made by IRS
officials that they are reviewing the
pet tax provision and studying it but
there's no guidance as it yet as to
how the IRS is going to react to it,
so that remains remains to be seen.
Couple other changes on the income tax.
The Angel investor tax credit program.
This is a very popular program
who is set to expire.
It's been extended for 5 years and
the maximum benefit to an investor
has doubled from 250,000 to 500,000.
So you're allowed to get a credit
of 25% of your investment.
The Max of the credit was 250,
meaning if you invested a
million dollars 25% of 1,000,000,
got you at 250,000 credit, which was the Max.
Now, with the Max going to 500,
the credit basically applies to
investments up to 2,000,000 + 25% of two
million will get you to the 500,000.
Property tax limitations,
which were scheduled to expire in
the end of 2018 have been extended
to 2019 and 2020,
so that's the revenue raising provision.
And the mansion surcharge,
which I mentioned at the top.
Is now going to be effective for
sales on or after July 1st 2020?
The mansion tax will apply to real
estate sold for more than 2 1/2
million dollars and it what it
does it increases the incremental
conveyance tax from 1.25% of 2.25%
on the portion of the consideration
above 2.5 million so if you sell a
house for 3.5 million that extra
1,000,000 from 25235 would be taxed
at an additional 1%.
Rather than 1.25 it would be taxed
at 2.25 be interesting.
Side note on this mansion tax is
that In addition to the tax.
The increase in the tax a credit
was put into
play, which allows certain folks
to get a return of the tax.
By way of a credit to
their personal income tax.
The credit would is only
available to resident taxpayers.
So those folks to sell their homes for
2.5 million or more and leave the state.
Will not be entitled to receive the credit.
But if you sell your home for more
than 2.5 and you stay in Connecticut.
Then you'll be allowed to
get a credit equal to.
Mansion tax that you paid and the
way the credit will work is that
you'll get a third of the tax back
in each of 3 successive years,
beginning.
2 years after the year in which you pay,
the tax.
So that that certainly is
something to be aware of if you're
involved in a high net worth sale
of property after July 2020.
Going forward on the income tax
there was a there's going to be a
increase deduction for payments made.
From the state teachers retirement
system that the doctor was going
to go from 25% to 50% this year.
That increase in the deduction
has been delayed by 2 years.
And In addition, a stem tax credit.
Was going to come into effect
this year that was interesting
program that would have given?
Folks, who got a degree in a stem
field and worries are located in
Connecticut or move to Connecticut
within 2 years after they graduated.
There was going to be incredible
credit of $500 refundable that credit
will never see the light of day,
it was repealed.
And then finally the payroll tax study,
which I mentioned at the top we've
got 2 pages in the material on this.
This is going to be very interesting
to see how this plays out.
Whether or not the state will move
to a system in which much of its
income tax revenues generated.
By employers paying a payroll tax with a
corresponding reduction in the income tax.
The DRS is charged with reviewing
this and reporting back to.
The Legislature by early 2020,
but Just to note that is part of
their direct if they are charged with
sending out mailings to all employees.
All employees by the middle of August, 9th,
2019 to generate information and those.
So some aliens were going to be
returned by October, 1st 2019.
So I think with that I think I'm going
to move it over to David is going to
summarize the corporate tax changes.
Thank
you will just as a note you may have
noticed that in your presentation materials.
There's a tax alert that provides
more detail with respect to many of
the changes that will be discussing
and also changes that we won't be
discussing on this web and are just
given the amount of time that we have so.
Please review your presentation
materials for that tax alert.
There's a link to that alert
on our website as well.
And that is updated periodically as
as as things change with subsequent
sessions and other other events.
So just wanted to bring that to
your attention with respect to
the Corporation business tax.
About 20 years ago,
or so there was a surcharge that was
added on top of the regular corporate
corporate tax for corporations in
Connecticut that surcharge has
has fluctuated between 20% and
10% over over the years,
the surcharge was set to.
Fall off at the end of this year,
the surcharge was extended through.
Income years that that go through the
end of next year and that is a 10% tax.
10% tax that is equal to the 10%
of the tax that the Corporation.
What would be required to pay under either
the income or capital base of the taxpayer,
so that the corporate business tax
surcharge has been extended yet again.
This is only applicable to
corporations that have 100 million
dollars or more of gross income.
But for those corporations that
surtax lived on and we will
see if it is extended again.
It has been extended numerous
times in the past.
As as And. Last year or may have been 2
years ago, the General Assembly passed
legislation that that set a cap on the
amount of a of the reduction that a
Corporation could take based on the
amount of net income and that cap was
set to be increased to 70% of the amount
of the tax due from the corporate tax payer.
So if if the Corporation had.
Could essentially take a deduction up to
the amount of 70% of its of its of its
income that was reduced it back down to 50%,
so that that creates a limitation on the
amount of credits of the corporate taxpayer
can take in a given year and new legislation.
Keeps that cap is 50% as opposed
to increasing that captain 70% for
income years that begin this year.
Moving forward,
so that is that is a change where there
was initially as of a couple of years ago.
And intend to increase that
Catholic half's been reduced.
Finally,
the capital base tax so corporations
in Connecticut are subject to tax
based on one of one of 3 methods.
It's the minimum of $250,
the amount of corporate rate as applied
to the net income of the business or.
The rate as the capital base tax is applied
to the certain capital assets of the
entity the capital base taxes has been.
A subject of discussion for many years,
there is some argument that this capital
based tax discourages investment in
Connecticut and especially New start
up businesses that accumulate a lot
of capital for R&D and other projects.
And so there.
There has been a lot of push to
eliminate the capital base tax and the
General Assembly responded this year.
And a capital base tax will be
will be phased out that will start.
After 2021.
So through twenty twenty one the
capital base tax will remain at a .31%
of the capital base and going through
the mechanics of the capital base is a
little bit much for this presentation,
but the amount of tax that is
applied will be will be reduced.
And so essentially it falls
off after the end of 2023,
so that that should be good,
especially for small businesses.
Build up a lot of capital base,
so will kick it over to Robert
but before we do that.
Please know that there's a prompt
on your screen for you to confirm
that you're here and awake and
hopefully here in a Lake and you
can click that that confirm and keep
track of the course code as we will
be asked to input that course code
at the end of the presentation.
Several will kick it over
to you. Yeah, I would just
mention that course code is 2559.
Please do write that down
because I change the slide.
You won't have it again.
My tack on comments the capital
base as I moved to sales taxes
as we saw the limitation on.
Credit change it would not shock me
if that phase out perhaps changed,
as we were not in time is the Connecticut
Legislature has been known to
occasionally go back on things like that.
We have to change that slide.
Hopefully everyone is confirmed
attendance and gotten back
to eating their sandwiches.
So sales tax.
This is we're starting off with kind of
an update to our way fair legislation.
Those of you in the sales tax base
will be very familiar with all of these
Wayfair related laws those of you.
To whom wait for May sound unfamiliar.
I recommend that as soon
as this conference ends.
You you brush up on it, very,
very relevant in the sales tax base.
We have updated our definition
of retailer again.
To include out-of-state businesses
selling into Connecticut.
Where those businesses previously
would have had to sell $250,000 in
goods or services into the state in the
prior year measured from September 30th.
We lowered that 250,000 down to
$100,000 and those retailers have
to have 200 or more transactions,
so in other words,
If you've got one really large transaction
and then you never come back to Connecticut.
You're OK,
you may not have to register as
a retailer in Connecticut.
We've got regular transactions and
they amount to more than $100,000.
Urine and you've got to be prepared
to collect and remit Connecticut
sales tax is going forward.
As you know previously.
We had the concept and we still
do the concept of computer
and data processing services.
Many things were downloaded and tax it a
1% sales tax rate instead of a 6.35% rate.
The governor this year in a bid to
quote Unquote modernize sales tax has.
Suggested the creation of this digital
goods category and the Legislature
took him up on his suggestion
potentially taking things that.
Previously, you'd have to get on via
physical medium tangible personal
property and pay 6.35% rate.
You can now download and he said.
Well, if it's something you used to have
to buy in person. Let's tax at 6.35%.
The definition includes.
Audio works songs.
Visualworks presumably pictures audio
visual works, presumably movies.
Reading materials books and ringtones.
I'm not exactly sure who's still
downloading ringtones and paying for them,
but I guess there's at least
one person out there,
but this is going to impact
your Netflix subscriptions,
presumably your your books that
you download from Amazon etc.
The governing statute.
Also amends the definition of when
something is sold for resale so if you
are fully integrating a digital good
into something you're going to sell on.
Then. You don't have to you can go
sale for resale and not pay the sales
tax on the digital good and collect
the sales tax on the final product.
Think about if you're building
a website for someone and you
want to put a picture on it,
and ultimately you buy that picture
and then it's going to belong to
your client when you give them their
website to work with going forward.
There are strict rules about when
it's sale for resale and I would just
say that if you're going to take.
The sale for resale exemption resale
certificate exemption make sure you
keep proper records follow the statute.
The highlights are covered in a slide here,
but an audit I've seen this.
Be difficult for my clients to prove
so just keep keep good records.
For those of you who like to
go out to eat or go out for A.
Beer spirit or glass of wine be
prepared to pay an additional 1%
sales tax on your hamburgers and
your martinis at restaurants or
your takeout prepared me a little
grocery store also with caterers.
Motor vehicle parking this is actually.
It sounds like a small thing,
but it's a big deal in the industry.
There has for a long time,
but exemptions for metered spaces.
Municipality owned parking lots,
etc those have all then repealed.
And there's really change in on the
sales tax on leased parking lots,
but again pay attention to those think
about the difficulties that we've
now got for people who are charging.
A dollar an hour or something you
know gotta figure out sales tax
on that probably just lower.
The parking rate, and pay out of pocket,
but we'll see how people handle that.
Dry cleaning and laundry services
become taxable January, 1st,
2020 interior design services same date.
I don't know exactly what this
says about what we're thinking.
But safety apparel is now subject to
sales tax is that going to make us have
slightly less safe working environments.
Perhaps I would point out that.
Who's winning manufacturers exemption
for things that you need in the
manufacturing process so it might
be there for a manufacturer and you
need gloves to protect the product
you're making so you don't get human.
In or anything on it,
those gloves could still be exempt,
as part of that process.
But there will no longer be considered
safety products and as of August,
1st.
We will all be paying $0.10 per plastic bag.
We get at the grocery store.
When I give this presentation live
someone asked in the audience.
What happens if my groceries get
bag and I have all all settled.
But I realized that one bag got too
much stuff and then I reach back and I
take another bag and I walk out with it.
You know the answer is unclear,
but I assume that will get it.
Another statute,
making that a felony will see
no but in all seriousness.
I think this will be difficult for
retailers to implement by August 1st.
It would not surprise me if some
people say it's too much of a
hassle to put on to my receipt?
How many bags were taken.
I'm just going to switch to all
paper or here on the next page.
We see the definition of a plastic bag
is a thickness of less than 4 Mills.
Perhaps will be a new industry
with 5 mil plastic bags. I'm not sure.
But I'll be very interested to see
what happens and I do note that
you can still take plastic bags
for same meets at the meat counter.
There's no 10 cent charge for those.
The commission has been charged with
looking into electronics sales tax payments.
He's going to consult with a
streamlined sales tax governing board,
which we are not in a member
of streamlined sales tax.
I don't think that we're going
to go that way because of?
How different are sales taxes
in other states but who knows?
The purpose of this is to get.
Compliance up I think you get a
lot of taxpayers probably smaller.
Taxpayers who are delinquent on
their sales tax payments and the
thinking at the Legislature and
perhaps at the DRS seems to be
that if we could get on to some of
these electronic payment methods.
You get compliance up and
compliance is good for everyone.
As long as it doesn't cost the taxpayers,
too much money to get on board.
Short term rental facilitators,
you know you'll know that I'm not reading.
All of these slides.
I would encourage you to do so,
but essentially this is adding
to the definition of retailer.
Companies like VRBO and air BNB who
would say to this DRS generally.
I'm not renting that apartment.
Robert de is renting his apartment
out and I'm just facilitating
him to find renters.
It's now on the VRBO's in the Airbnb's
of the world to collect that sales tax.
I will know that if you
are participating in VRB,
Oh,
it says that the short term rental operator.
The Robert de my example is not
liable for the collection of
sales tax to the extent the short
term rental facilitator collected
the tax due on the rent,
so in other words,
If you're working with some
company that's smaller kind of
fish in the pond and they're not
complying with this new statute.
You was the renter owner of the
property should still collect from it.
The sales tax or or get
whoever you're working with.
To start doing it,
but don't think that you're off the hook
as the renter because of this statue.
New rule about the application of
sales tax credits essentially if.
You paid in sales tax turned out,
it was uncollectible account
there was one method.
You could take credit for the tax
not paid and then if you didn't
eventually collect the money.
There was one method to then
pay it into the state.
There's a new way that that tax collected
is applied is that the situation.
You're in should definitely review
the statute and make sure you're
properly applying it as you go forward.
Back to kind of our whatever call
R block of Wayfair legislation,
we now have something called
refer a liability. A refer again,
you can go through the definition,
but the point here is that
we're trying to capture.
Companies individuals who aren't.
Directly selling in the state,
but who are working with people to make
sales in the state and there's all sorts
of requirements of a referer such as.
Notifying their customers of Connecticut
sales tax law and then ultimately.
Going to the state and
saying here's the people.
I work with so the state can go after
those people for the sales tax.
Let's do the deadlines for when those
notifications have to be out in that
reporting is going to start have
been moved out essentially 6 months.
And with that I will pass it
back to Lou for state and get X.
Thank you. Robert very interesting
change in the state gift taxes as we
mentioned there was no repeal of the
gift tax so Connecticut still remains.
The only state in the
country with the gift tax.
But on the state tax.
There is a change.
That is intended to broaden the Connecticut
Gross Estate base of non residents.
Up until this statute was adopted
if for example, a nonresident.
Had a vacation home in Connecticut and
contributed defecation home into an
LLC and back the LLC interest in that.
LLC that owned a vacation home,
there was at least the argument
that upon the death of that.
Non resident the value of the house
was not part of the Connecticut
crossed state because the asset
that the non resident owned.
At the time of death was the intangible
membership interest in the LLC.
Well,
that will no longer be the case under
this new change in the definition of
Connecticut Gross Estate basically.
What it provides is that the value of the LLC
interest or pass through entity interest?
Will be includable in the growth of
state in any case in which that entity
either does not carry on business
for the purpose of profiting gain.
Or ownership of the property
by the LLC or S Corp is not for
a valid business purpose.
Or 3 the property was acquired by other than
if I'd sale for adequate consideration.
Each of those,
3 conditions beg for definition.
TLE assistance here.
I think there's going to be a lot of
uncertainty under this new provision
just looking at the first bullet.
What is meant by the fact that the
entity it does not carry on a business
for the purpose of profiting game?
How is the DRS going to determine
whether or not?
There's a business purpose at the
end of the level there's lots of.
Definitions that have been
established over years and years
of common law in this area,
so that's certainly something
that remains to be seen 2nd
and reading the second bullet.
It says the ownership of the property
by the entity was not for a valid
business purpose and somebody.
I guess the question.
I have is if you have a business that
is there for profiting gain but it
owns an asset that is not a business asset.
That does that take the whole business,
or does it just take the asset itself.
That remains to be seen it and then
the 3rd is the entity has to have.
He qualified sale in order to be
carved out under the 3rd bullet.
And so query if you have a rental property.
An you contributed to a Connecticut LLC.
Have you contributed at 2A, Connecticut LLC?
Other than on a bonafide sale for
full and adequate consideration.
If you don't come under that
bonafide sale carve out,
then even though the rental property is
clearly being held for rental purpose.
With a bona fide business purpose
question is the membership interest
may not satisfy that third bulletin.
So a nonresident may still be
subject to Connecticut State tax
on the non residents death so.
Understand certainly understand
the legislative intent in
providing for the expansion of the
Connecticut grossed state here.
But there's a lot of questions
that remains to be answered.
I think with that will go right
to the miscellaneous taxes and
we have about 15 minutes left.
David 40 to through the highlights here.
Thank
you. Lou there were again a
number of taxes and changes too.
You know what we would call a tax you know,
we've put a bunch of them together
and group them into section.
You know miscellaneous taxes, but again,
I would refer you to our alert.
That's in your materials.
There were several changes
to property tax statutes and.
And other provisions that that
we won't cover and we will try
to hit kind of the high points of
some of these miscellaneous taxes,
but to the extent that there's something
that is applicable to whatever industry.
You may be and more just for your
general informational purposes that
would again refer you to be alert.
Starting off with respect
to miscellaneous taxes,
as little mentioned at the outset.
There was Connecticut currently still
imposes a business entity tax that has
been viewed as something of a nuisance tax.
It's 250.
Two $150 excuse me and pulls on
pass through entities that is by
annual tax paid every other year
that tax has been repealed.
For a tax for years,
commencing on or after January of next year.
It's worth noting.
However,
that the annual report fee that
due to the Secretary of State from
these pass through entities is being
increased from twenty dollars to $80.00.
Affective July of next year.
Query what the actual differences
for the state with the draft and
one and the increase in the other.
As as an annual expense also
what's it's unclear at this point.
Weather in entity that subjects
to the business entity tax for a
period that that straddles January
1 of 2020 if if that entity remains
subject to half of the tax for the
2019 year or if they're not liable
at all or for the full tax there.
There are a few questions that remain
out there with respect to business
entity tax and it's repeal but look
for more information on that it will be.
At least hopefully more convenient
for businesses once this tax has
been has been removed.
Moving on to the real estate conveyance
tax affective July of this year,
so as of a couple of weeks ago,
real estate conveyance tax is no longer
applicable to deeds the transfer.
A principle residence.
If the residents,
has a crumbling foundation or foundation that
deteriorate deteriorated due to parasites or?
Assuming that that foundation there's
evidence from a licensed professional
at the foundation is defective.
This is obviously been a big
topic in the news.
There's been an insurance that
has been implemented to target
fixing these types of issues with
respect to currently foundations,
which will get into here in a minute,
but the conveyance tax has has
been illuminated assuming that.
The This is the first transfer
evidence of the residence
excuse me after there has been a
written evaluation and that the.
Resident says not order the
homeowner has not taken advantage
of certain financial assistance
that has been targeted toward
residences with crumbling foundation.
So subject to those exemptions.
The transfer of a residence with
the foundation is not subject to
the real estate conveyance tax.
There are several taxes that will
kind of breezed through here.
That deal with cigarettes and
alcoholic beverages will actually skip.
This slide and jump to the next slide,
which is.
I think more interesting you may
you may disagree about there a
little bit more interesting here
and one is that the age for the
acquisition alcohol cigarettes.
Excuse me and tobacco product product
has been increased from 18 to 21,
which is a significant change and
the products that are included.
In both the tax and the age increase
have been expanded as there have been
some different definition of changes
including one with respect to tobacco
products that now includes any product,
regardless of the form of the product
that is made from her otherwise
contains tobacco other than cigarettes
and electronic next delivery devices
and the paper product again the.
The intent here seems to be to
bring in additional items like.
Maybe in devices and make the age for the
purchase of those items a little bit.
Later,
now,
what does this have to do with
taxes is that brought the applicable
taxes or the base for those taxes
that increase is also from $50
to $200 license fee for dealers.
Have.
Not cigarettes and tobacco products
that increases from $400 to $800.
The annual registration fee,
and retains the four hundred
$400 fee for dealers.
So it's it's increasing the the
overall season registrations and
we won't go through all of those
in detail but in the event that
you find yourself and the cigarette
or tobacco business,
or related business then.
That's something that you should
pay a little bit more attention
to and reviewing the alert.
The alcoholic beverage tax.
There were certain products that were
formally exempt from the tax so for example,
a beer that with that sold on
premises subject to manufacturers
permit for off premises consumption
was formally exempt from
the alcoholic beverages tax.
It is now brought into the tax and
there's a rate that set it in half of
the general rate of the tax on beer.
So you have to kind of go
through backwards and forwards
to kind of get to the great each.
Each product, but there were some some
changes here that added some complexity.
The rate of the tax on alcoholic
beverages other than beer is increased
by 10% and there's an additional
tax on certain inventory and
inventory tax on alcoholic beverages.
Odette and beer and inventory held in
Connecticut at the opening of business.
As of October, 1st 2019.
I want jump forward here well
actually skip over the next little
bit on the alcoholic beverages tax.
Last year,
there was a a tax imposed that
clarified whether or not individuals
word who obtained a prearranged quote
Prearrange riding an Uber or left
or or those types of services that
subjective those those rides to a $0.25.
Tax that tax has been increased $0.30
for each prearranged ride there.
Skip that on dyed diesel fuel
the admissions tax.
The statues that govern the
admissions taxware amended such that.
Or events at Dunkin' Donuts Park
in particular, the tax rate,
which is currently 5% and I was
reduced to some currently 10%
was reduced to 5% for sales.
Current owner after July 1 of
this year and then after July.
One of next year of 2020.
There is no admissions tax for
events taking place at Dunkin'
Donuts Park in Hartford.
Now, which is of course,
where the yard goats play.
Then other venues were also subjects
or reduction in the admissions tax.
Go through all of those things but with
their current rate at at 10% for just 7,
1/2% from July 1 enough this year to
July of next year and then down to 5%.
After that,
and that you can see what venues
there are subject to an additional
reduction in the admissions tax.
The tax incidence report so that
several years ago, the commissioner
of the Department of Revenue,
was subjected to a requirement to form
a committee that would prepare a report
on the overall incidence of the income
tax an low Corporation business tax and
property tax to essentially evaluates
who is who is being affected by.
By each tax and how that affect
applies over various.
You know fences tracks and demographics.
The deadline for the preparation of that
report has been extended by 2 years.
I imagine putting that information.
Together is quite difficult and
the General Assembly has provided
additional time for the Department
of Revenue to to do that so.
Fat tax incidence report has been extended.
There, in 2017, so 2 years ago,
the General Assembly established
7 seven program,
which which provided for incentives
to businesses for redeveloping
certain brownfields.
Witcher contaminated property that
have property with environmental
contamination that has been abandoned or
underutilized for 10:00 or more years
and 2019 the General Assembly reveal.
Repealed excuse me that the 7 seven
program that did away with the credits
that were implemented in 2017.
Veterans tax abatements,
they're currently certain abatements
available to public safety
personnel firefighters and police.
And paramedics and the like there.
The Veterans Affairs office has been
charged with conducting a study of
those tax abatements and they will
be providing a recommendation as to
whether those abatements and should
also extend to veterans and if so in
what amounts so more to come on that
and whether the existing appointments
will be extended to veterans.
This is something that fortunately
we have just a couple of minutes to
cover as this is I think when we
presented on this live there were
a lot of questions with respect
to paid family and medical leave,
and this is significant topic that will
have an impact on all employers in the state.
The General Assembly established
the paid family medical leave,
Insurance Authority and this authority
is established to administrate.
New paid family medical leave,
insurance program that will
provide 12 weeks 12.
Excuse me weeks of family medical leave,
compensation for certain covered
employees and all these these terms
have definitions in the statute.
But what happens is that employers
are required to essentially charge
a insurance amount all covered
employees to provide extended.
Family medical leave.
The program is funded by employee
contributions that began in January
of twenty twenty one and the authority
or this family and medical leave,
Insurance Authority,
is currently test with determining annually.
The employee the amount of the
employee contribution,
which can't exceed .5% of wages
and it also has.
Is subject to vigne be existing cap
for Social Security Contributions?
Which is currently at 100 and 32,900 so this?
This could provide an additional change
for employers in the state and if employer.
Employers have the option to provide
similar benefits through a third party
provider as in not using the state
plan about the party provider has to
provide at least the same level of benefits.
As required under under
the statute so with that,
we're actually out of out of time.
There are a few more miscellaneous
taxes that are covered in the slides
and as I mentioned many of these
taxes are all of the ones that
from the slides rather or laid out
in more detail in the tax alert
and some additional taxes as well,
and of course, you can always.
Reach out to us with any questions,
but I'll kick it back over to.
Too little for any closing remarks.
Thank you David and thank you.
Robert and thank you.
Everyone on the phone who listened
in during your lunch hour today.
We hope it was informative certainly
a lot of material to cover.
And as usual,
a lot of very interesting changes
in the Connecticut sales tax law if
you have any questions were always
available by email or phone call
give us a call or send us an email.
We love to talk about.
Uh this stuff and with that I will end
it and enjoy the afternoon take care.