Save money for small businesses by restoring the pass-through of the corporate tax credit

Press releases

01/18/2023

Governor Lamont Announces Bill of 2023: Save Money for Small Businesses by Reinstating the Pass-Through of the Corporate Tax Credit

(Hartford, CT) – Governor Ned Lamont held a news conference in Hartford today to outline his first legislative proposal for 2023, which includes restoring Connecticut’s pass-through entity tax credit, a 93.01% income-neutral rate and enabling small businesses. Owners in the state save money by claiming larger credits on their personal returns.

The recommendation will be included as part of the governor’s budget proposal for fiscal years 2024 and 2025, which he will present to the Connecticut General Assembly in February.

“These changes we’re proposing will help small businesses in Connecticut save money, which they can use to invest back into their facilities for continued growth and the creation of new jobs.” Governor Lamont said.. “By making this change, we can give businesses confidence that they can take full advantage of this tax credit.”

Connecticut’s pass-through of the corporate tax credit is a way for business owners to avoid state tax deduction limits imposed on them under former President Donald Trump’s administration. For federal tax purposes, state business taxes are fully deductible, while deductions for state personal income taxes are limited to $10,000. To avoid this limitation, pass-through tax is imposed directly on the business rather than the owner. The business income that “passes through” to the owner is already tax-deductible through the pass-through entity, which the owner can deduct in full on their federal income tax return without limitation. If the pass-through entity tax has already been paid by the pass-through entity and the owner does not have to pay the same income again on the owner’s personal income tax return, the corresponding personal income tax credit will be given to the owner.

Connecticut was the first state in the nation to implement a corporate tax credit, and more than 25 states have since followed. At its inception, it was not intended to be a revenue generator for the state, but rather to help small business owners avoid unfair deduction limits imposed by the federal government.

In addition to increasing the credit, Governor Lamont’s budget proposal would allow businesses to choose whether to pay tax on their income at the business or personal level. By offering this option, business owners can make their own decisions about what is more beneficial for certain situations.

This proposal builds on several tax relief measures approved by the Lamont administration over the past four years, including:

• Abolition of business tax
• Completion of capital base tax in 2028 income year
• Ambulatory surgery center tax repeal
• Abolition of movie theater entrance tax
• Reducing unemployment insurance taxes by 2023
• Restoration of ceiling on R&D credit from 50.01% to 70% of tax liability
• Expanding the employer student loan tax credit.
• Approving the Jobs City Tax Credit

According to Alexandra Dam, Commissioner of the Department of Economic and Community DevelopmentThis proposal, which will directly benefit more than 120,000 companies, is the latest example of Governor Lamont prioritizing small businesses and boosting confidence in our state. Connecticut was the first state to implement a corporate tax solution to benefit small businesses. We will continue to think creatively to ensure this is a great place to do business.

Department of Revenue Commissioner Mark Boughton said.“The purpose of the entity tax was to provide a mechanism for members of pass-through entities to benefit from state and local tax deductions despite federal limitations. Restoring the credit percentage to the original level provides such benefits, saving businesses money and encouraging business owners to make the best tax decisions based on their individual circumstances. It’s a win-win for Connecticut.”

According to Jeffrey Beckham, Secretary of the Office of Policy and Management“We are listening to the concerns raised by the business community as we prepare the governor’s budget proposal. Returning the corporate tax credit to 93.01% will provide relief for businesses to continue to grow and invest in our state.

The Connecticut Chamber of Commerce and Industry (CBA) — the state’s largest advocacy group on behalf of businesses — applauded Governor Lamont’s proposal.

Chris DePentima, CBA President and CEO said“Reinstating the corporate tax credit pass-through will have an immediate and positive impact, allowing small businesses to put tens of millions of dollars into work. It’s one of the most important steps to help Connecticut’s small employers compete and grow.

Governor Lamont’s full legislative proposal for the 2023 regular session, including the biennial budget proposal, will be presented to the Connecticut General Assembly in February.

Twitter: @GovNedLamont

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