Connecticut pays a high price for tax breaks

Planning to attend a concert? Be prepared to pay the state admissions tax – unless the performance is held at the Connecticut Expo Center in Hartford, Ocean Beach Park in New London, or one of a few other select venues.

Looking to store something? If it’s a boat, you’re in luck–no tax. If it’s furniture, add the state’s 6 percent to the bill.

Commercial parking lots and garages have been subject to sales tax for nearly two decades now, but not valet parking at airports.

newspaper rack 4-5-10

Newspapers benefit from a sales tax examption worth $15 million (Keith Phaneuf)

Connecticut has more than $5.3 billion worth of exemptions, credits and other tax breaks on its books, including more than $3 billion on its sales tax alone, according to a new report from the legislature’s Office of Fiscal Analysis.

But with state government staring at deficits of historic proportions in the next two years, a growing number of legislators are saying it’s time to revisit an ever-growing list of tax policy winners and losers, and keep only the most essential breaks on the books.

“What we have right now is just so unfair to so many people,” said Sen. Tony Guglielmo, R-Stafford, a veteran member of the Finance, Revenue and Bonding Committee, said Thursday. We have no plan. We have some businesses subsidizing others, even their competitors. We make policy based on politics and headlines.”

“What we have a tendency to do is to designate tax winners and losers,” said Rep. J. Brendan Sharkey, D-Hamden, another committee member who, like Guglielmo, is urging support for a bill to overhaul the tax network. “We can’t keep doing that incrementally.”

Guglielmo lawmaker said he believes the legislature could shave 1 to 1.5 percentage points off the 6 percent sales tax rate by canceling many of these breaks while still retaining those core exemptions that are tremendously popular, including groceries, prescription drugs and medical equipment, clothing purchases under $50 and college textbooks.

“We don’t even remember whose ideas many of these exemptions were,” let alone what rationale – if any – was given for their adoption, he said, adding that all tax breaks should have a specific expiration date to hopefully force a review of their effectiveness before they are renewed.

Guglielmo has offered numerous proposals over the past decade to revisit a system that has carved out more than 120 benefits for various businesses and consumer groups. Since 2000, the overall cost of annual tax breaks has grown by almost $1.2 billion, or 28 percent. The sales tax exemptions have more than doubled in value from the $1.3 billion provided 10 years ago.

“We all had a part in creating this monster,” Guglielmo said, conceding he played his own part. Concerned that the Stafford Motor Speedway was at a competitive disadvantage against other entertainment sites exempted from the state’s admissions’ tax, Guglielmo and other legislators secured a similar exemption in 1999 for Stafford, three other race tracks and four other sites.

But Guglielmo also concedes given state government’s current fiscal straits, any revenue created by canceling tax breaks likely would be used to close projected deficits rather than reduce overall tax rates.

According to legislative analysts, next fiscal year’s budget has a built-in shortfall of $725.7 million, and 2011-12 is projected to be $3.88 billion in the red. The latter deficit equals 21 percent of this year’s entire state budget and 60 percent of annual income tax receipts.

“I wish some of the money could go toward lowering taxes, but I’m a realist,” Guglielmo said. “I don’t think that will probably happen next year.”

Both co-chairman of the finance panel, Sen. Eileen M. Daily, D-Westbrook, and Rep. Cameron C. Staples, D-New Haven, said Connecticut’s tax system deserves a thorough overhaul. But they also said legislators cannot repeal too much en masse, or risk doing more harm than good.

One of the key litmus tests, according to several legislators, will be whether or not a tax break encourages business development and job growth in particular.

Anne Duhaime, manager of the Guilford Boat Yards Inc., said the sales tax exemption on winter boat storage is absolutely essential for maintaining jobs at all of the state’s ship yards.

“It is nothing for owners to take their boats and go across the state line where they won’t have to pay the tax,” she said, adding that the economic damage repeal would cause would be far greater than the estimated $300,000 the break costs the state each year.

The 150 boats stored at the Guilford Boat Yards this past winter brought with them significant amounts of repair and other maintenance work that kept five staffers busy until spring, Duhaime said. “If those boats go away, that means a whole host of other business we don’t get,” she said, adding that for some of Connecticut’s larger yards, which store up to 500 vessels, the loss would be enormous.

Connecticut’s newspaper industry, which has been sales-tax exempt for much of its history, warned lawmakers this year that there would be layoffs if towns were freed from their obligation to publish legal notices in papers, a requirement that costs municipalities about $2 million per year.

The sales tax exemption currently spares newspapers from collecting about $15 million each year from their readers.

But Sharkey said tax exemptions can create as many problems as they solve, and many times the “accumulated impact” of a string of tax breaks isn’t considered when the first one is enacted.

Car Wash 1

Facing a tax bite? Lawmakers are expected to re-examine a wide range of sales and other tax exemptions as they try to balance the budget.

For example, coin-operated car washes were exempted from the sales tax in 1991, just two years after all car washes were made subject to the tax. By 1993, the legislature had exempted the rest of the car wash industry from the tax as well, a break that costs Connecticut $4 million in annual revenue.

What happens, Guglielmo asked, when a car detailing business makes the argument that it is being harmed by the tax break on car washes?

“At some point we have to stop playing favorites and just treat everyone the same,” he said.