Joseph F. Brennan
Joseph F. Brennan, president and CEO of the Connecticut Business and Industry Association Keith M. Phaneuf / CTMirror.org
Joseph F. Brennan
Joseph F. Brennan, president and CEO of the Connecticut Business and Industry Association Keith M. Phaneuf / CTMirror.org

Connecticut business leaders warned Thursday that a controversial corporation tax change under consideration for the next state budget could have a profound and immediate impact on the state’s job market.

Leaders of the Connecticut Business and Industry Association and groups representing the state’s trucking companies and retail merchants also expressed fears that the overall level of spending in the next budget would be too high and force further tax increases year after year.

Though Connecticut has a reputation as a high-tax state, the structure of its corporation tax is one of the few tax advantages it holds over other states, said CBIA President and CEO Joseph F. Brennan.

That could change quickly, though, if Gov. Dannel P. Malloy and leaders of legislature’s Democratic majority embrace what is commonly referred to as “unitary reporting.”

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 legislature’s Finance, Revenue and Bonding Committee recommended shifting to a unitary reporting requirement. This 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.

“Administratively, it’s a nightmare,” Brennan said. “We’re opposed to unitary in every way, shape and form.”

The CBIA leader added that the finance committee recommended more than $2.4 billion in total state tax hikes over the next two years combined. These include increases in income, sales, corporation and hospital taxes. Brennan warned that unitary reporting only exacerbates the fears of some businesses wary of the hefty overall tax hike under consideration.

Mike Riley, president of the Motor Transport Association of Connecticut, said one of his group’s largest members, FedEx, is in talks with Middletown officials to redevelop the former site of Aetna insurance into a new regional distribution center.

Mike Riley, president of the Motor Transport Association of Connecticut
Mike Riley, president of the Motor Transport Association of Connecticut Keith M. Phaneuf / Ctmirror.org

Riley cautioned that even talk of a unitary reporting requirement often “squelches the deal on these types of things…We can’t mess around with this stuff.”

Tim Phelan, who heads the Connecticut Retail Merchants Association, said unitary reporting also can lead to consumers’ paying more.

Many retailers in Connecticut have operations in multiple states, Phelan said.

Unitary reporting “raises the cost of doing business, and that can get passed along” to consumers, he said.

Phelan added that many Connecticut retailers without a major presence online also are struggling because of the growth of e-commerce. “That’s a challenge that we’re already facing every single day,” he said.

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Keith M. PhaneufState Budget Reporter

Keith has spent most of his 31 years as a reporter specializing in state government finances, analyzing such topics as income tax equity, waste in government and the complex funding systems behind Connecticut’s transportation and social services networks. He has been the state finances reporter at CT Mirror since it launched in 2010. Prior to joining CT Mirror Keith was State Capitol bureau chief for The Journal Inquirer of Manchester, a reporter for the Day of New London, and a former contributing writer to The New York Times. Keith is a graduate of and a former journalism instructor at the University of Connecticut.

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