After big increase last year, Finance panel steers clear of taxes for now

One year after legislators and Gov. Dannel P. Malloy imposed $1.6 billion in new state and municipal taxes, the General Assembly’s Finance panel held the line Tuesday, wrapping up its work for the session without adopting any tax changes.

But while the Senate chairwoman of the Democratic-controlled panel hailed the inaction as a promise honored, minority Republicans said they’ll remain wary of new efforts to raise revenue until the 2012 session ends in five weeks.

The Finance, Revenue and Bonding Committee’s no-new-tax stance also appears to have squelched measures aimed at online hotel brokers and digitally downloaded materials — bills that advocates claimed were more about tax fairness than raising new revenue.

“It was a pledge that we made last year: It was a two-year budget we adopted and we wouldn’t go back on it,” Sen. Eileen Daily, D-Westbrook, veteran co-chairwoman of the Finance panel, said Tuesday.

The biennial budget approved last May closed one of the largest deficits in state history with a controversial mix of big taxes, union concessions and more than $1 billion in cuts to funding levels needed to maintain current services.

Both Malloy and many of his fellow Democrats in the House and Senate majorities said last spring that they would not look to raise taxes again in 2012.

And Daily said Tuesday that she thinks legislators from both parties understood that meant steering a wide path away from anything that looked even remotely like a tax increase.

For Rep. Elissa Wright, D-Groton, that meant her proposal to force Internet brokers who refer business to hotels to pay Connecticut’s 15 percent occupancy tax on all funds they collect would die in committee.

Both Wright and the Department of Revenue Services have argued the bill wouldn’t impose a new levy, simply stop online brokers from dodging existing taxes. Industry officials have countered they offer different services than hotels do, and shouldn’t be taxed as such.

“I understand there may have been concerns it could be seen as reopening the no-tax pledge,” Wright said, adding that the committee’s decision to let it die wasn’t discouraging. “I don’t think it was about the merits of the bill. I expect we’ll bring it back.”

A second measure that the committee didn’t consider at its deadline meeting would have imposed the full 6.35 percent sales tax rate on all electronic downloads, including digitally encoded e-books, songs and movies. A rate of 1 percent for digital downloads was set several years ago, long before consumer purchases of these items was widespread.

But while Democrats said there is plenty of time to reconsider the equity of these tax issues during the 2013 legislative session, Republicans said they won’t breathe easier until the current session ends May 9, and taxpayers haven’t been asked to provide more revenue.

“The session’s not over yet,” said Sean Williams of Watertown, ranking House GOP member on the Finance panel. “I think all this really means is we are going to fight the tax fight another day.”

Republicans noted that this fiscal year’s $20.14 billion budget is running more than $40 million in deficit, according to Comptroller Kevin Lembo and nonpartisan legislative analysts.

And the $20.7 billion budget Malloy proposed for 2012-13 is balanced on paper for just one year. The governor’s own numbers have it running $424 million in deficit by 2013-14 — a problem Malloy officials say they will address next year.

“The reality of this governor and this legislature is the only reason they would open the tax package would be to raise more taxes,” added Andrew Roraback of Goshen, the ranking Republican senator on the Finance committee.

Roraback tried unsuccessfully to get committee approval Tuesday for some tax relief for a hospital in his home district.

Roraback said Sharon Hospital, the state’s only for-profit acute care facility, recently laid off 27 employees in response to last year’s new hospital tax. The Goshen lawmaker proposed allowing the hospital to claim its corporate income tax payments as a credit against its hospital tax obligation.

The panel did approve one measure Tuesday that could add funds to the state’s coffers, according to legislative analysts.

The committee unanimously approved a measure outlawing the sale or possession of so-called “zappers” — a term referring to software that falsifies electronic cash register transaction reports to manipulate sales records.

Nonpartisan fiscal analysts say these devices cost the state as much as $16.5 million annually in sales tax fraud.