Senate Democrats pitch cutting business registration tax, increase tax on employee bonuses

Senate Democrats Monday proposed a package of measures to help small businesses, funded by a tax on employee bonuses over $1 million paid by companies that received federal bailout money last year.

Among the proposals for small businesses: Eliminate the $250 business entity tax for small businesses, create a small business loan fund and hold a hearing to see how state regulations impact small businesses.

“As the 2010 legislative session begins I urge lawmakers on both sides of the aisle, and Gov. Rell, to join us in our efforts to grow jobs,” said Senate President Donald E. Williams, Jr.

The state collects the $250 tax from more than 100,000 state businesses annually totaling $38 million. The proposed tax cut would only apply for small businesses, as the state cannot afford to repeal the tax for everyone, officials said. There are 75,626 small businesses in Connecticut as of Oct. 2009, but not all are companies who must pay this tax said Derek Slap, Senate Democrat spokesman. Which small businesses qualify has yet to be defined by lawmakers, but Slap said it will either be determined by the number of employees or revenue thresholds.

The $250 tax was created in the state in 2002 to close a deficit that year.

Secretary of the State Susan Bysiewicz called for repeal of the tax in 2008, as did a bi-partisan group of legislators. Their efforts failed.

Cutting revenues in a budget adjustment year, in which state legislators must makeup for a $515 million shortfall, may not sit well with Republican Gov. M. Jodi Rell or other state legislators.

That’s why Senate Democrats said they have a plan to pay for this tax cut that will not affect the state’s revenue stream  – through a temporary, two-year 9 percent tax on employee bonuses over $1 million from companies in the state that received federal bailout money. Democrats argue this rate is still lower than New York’s 12.6 percent top tax rate and New Jersey’s 10.75 percent top tax rate.

The money raised from taxing the bonuses would be put into a revolving loan fund for small businesses.

Democrats said this plan will include employees of Citigroup, Goldman Sachs, JP Morgan Chase and Morgan Stanley – which collectively received $90 billion in bailout money and paid $52.7 billion in bonuses in 2009.

Connecticut’s largest business group says they support the tax reduction for small businesses.

“It’s a small step in the right direction,” said Senior Vice President Joseph Brennan for Connecticut’s Business and Industry Association.

But Brennan said he will not likely support raising taxes on employee bonuses, but is reserving judgment until he has a chance to review the full details and determine how it will affect Connecticut businesses.

“We are not generally supportive of tax increases,” he said.