New Connecticut Budget Brings Significant Business Changes
More than 100 new laws went into effect in Connecticut on July 1, creating significant tax changes for state businesses, including corporations and pass-through entities. The new laws within this legislation passed under the $43.4 billion budget bill signed by Governor Ned Lamont. This legislation includes law that took effect immediately and laws that will take effect later down the road, such as the minimum wage increase scheduled for 2023. The new legislation has caused Connecticut business owners to both applaud and complain. Below are three of the biggest changes that have the potential to affect a variety of businesses in the coming year.
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Business Entity Tax Repealed for LLCs, S Corporations, and Partnerships: Currently, all Connecticut LLCs, S corporations, and LLPs pay a flat $250 business entity tax every other taxable year. This biennial tax has been in existence for several years and is justified as a tax for the privilege of doing business in the state. Effective January 1, 2020, this new legislation will eliminate this tax.
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Annual Report Fees for Pass-Through Entities: Starting July 1, 2020, the fee for foreign and domestic LPs, LLCs, and LLPs for filing an annual report with the Connecticut Secretary of State will increase. Currently, the fee is $20 but will jump up to $80.
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Pass-Through Entity Tax Credit Reduced: Last year, legislators passed a credit for pass-through entities and gave those business owners a 93.01% credit on their personal tax to help make up for the loss of how much they could deduct from federal taxes. Effective for tax years beginning on or after January 1, 2019, this new legislation passing reduces this year-old tax credit to 87%, and the government will use this extra revenue to help close a budget deficit. This increased income tax for these small and medium-business owners is said to be a “rush to finish a budget” and may erode the trust between the government and these businesses, as well as create uncertainty and budget stress for the owners.
While many small and medium-sized businesses in the state are benefiting from the repealed business entity tax of $250 every other year, this savings is overshadowed by the increase in annual report fees and the reduction of the pass-through entity tax credit that was created only a year ago. It is predicted that this tax credit change will cost small and medium-sized businesses more than $50 million annually statewide. Governor Ned Lamont is aware of the work that still needs to be done to get Connecticut on the right track but is still proud of the progress already being made by this new legislation.
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