Malloy opens door a crack on business tax hike

Gov. Malloy answers questions from reporters outside his Capitol office the morning after the annual legislative session ended.

Gov. Malloy answers questions from reporters outside his Capitol office the morning after the annual legislative session ended.

Gov. Dannel P. Malloy left open the possibility Thursday that he and the legislature could revisit one of the most controversial business tax hikes in the new two-year budget when lawmakers meet in special session later this month.

Also Thursday, the Associated Press reported that the chief executive officer at General Electric Co., Jeffrey Immelt, notified company employees by e-mail, that the company is exploring moving its Fairfield headquarters to another state with a “more pro-business environment.”

Though the governor made no pledges regarding the new unitary reporting requirement added to the corporation tax, he said the matter needed to be clarified – possibly through legislation.

I think that to the extent there may be some misunderstandings about how that (unitary reporting) works in Connecticut versus elsewhere, I think there’s now an opportunity to clarify that,” Malloy said while meeting with Capitol reporters to discuss the regular legislative session, which ended Wednesday.

Would that clarification take the form of more talks with business leaders, or as legislative changes?

“It could be in both. I think it pays to be listening,” the governor said. “I suppose the best way to say it is, ‘It’s not over until it’s over.’”

Malloy and his fellow Democrats in the House and Senate majorities heard from several major corporations in the past few weeks as the legislature crafted a new budget. That budget boosts revenues by $2 billion over the next two years by raising taxes and canceling previously approved tax cuts before they could start.

Besides using the corporation tax, lawmakers and Malloy also raised new revenue from the income, sales, hospital and cigarette taxes.

The increases are offset somewhat by a new plan to send $436 million in sales tax receipts to cities and towns to mitigate property taxes.

“A company like GE pays more in property taxes than they pay in corporate income taxes,” the governor said. “We’re making real progress on that front.”

GE was one of the major corporations that issued statements over the past week warning that the tax hikes could weaken the economy and drive employers from the state.

The unitary reporting provision is one of the most controversial of those increases.

At issue is how companies with operations in multiple states report their corporate income. In Connecticut, companies largely have to report only the earnings of their in-state operations — a requirement that critics charge allows corporations to hide profits among out-of-state affiliates, and thereby minimize their tax bill here.

The unitary method would compel companies to share information on all of their operations — both in Connecticut and outside — and undergo a more detailed assessment of what profits are tied to their presence in this state.

Generally this approach results in more taxes owed, and nonpartisan fiscal analysts estimate this would bring another $62 million into Connecticut’s coffers over the next two fiscal years combined.

Malloy noted Thursday that most states with corporation taxes now employ the unitary approach. “There’s a gigantic movement to unitary,” he said. “That’s the reality.”

Joseph F. Brennan, president and CEO if the Connecticut Business and Industry Association, speaks to reporters after Gov. Malloy's press conference.

Claude Albert / CTMirror.org

Joseph F. Brennan, president and CEO if the Connecticut Business and Industry Association, speaks to reporters after Gov. Malloy’s press conference.

Connecticut Business and Industry President Joseph F. Brennan agrees that the unitary system exists in many states. But he counters that the lack of such an approach here is one of the few tax advantages in Connecticut, which has a reputation as a high-cost state for businesses.

We obviously would like to find any way possible to mitigate the damage that we think is going to occur from the entire tax package,” Brennan told reporters after the governor’s press conference. “I know some of the companies are having conversations directly (with state officials). We’ll certainly be as helpful as we can be.”

But Brennan added that even if unitary reporting is scrapped, state officials should not underestimate how wary business leaders are of the hefty overall tax hike in the new budget.

Given that Connecticut increased taxes a record-setting $1.8 billion in one year alone in 2011, and that the state economy still hasn’t recovered all jobs lost in the last recession, “we just didn’t think it was the right time to be raising taxes.

”It is wise for us to hear their voices and what their concerns are,” the governor said. “The legislature has a lot of work yet to be done. I can assure you I’ll be very much involved in that work.”

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