by Teresa Callahan
Connecticut Governor Ned Lamont has signed the state budget bill for the fiscal years 2024 and 2025, which includes a personal income tax cut; extends the corporate surcharge; makes the pass-through entity tax optional and reinstates the requirement that entities pay the tax on behalf of any nonresident member for whom the business is the only source of Connecticut income; sets a diesel fuel tax rate for fiscal year 2024; enacts a new aviation fuel tax; amends various tax credits; and creates new tax credits among other changes. (L. 2023, H6941, effective as stated.)
Personal income tax rates.
For taxable years beginning January 1, 2024, the bill lowers the 5.0% personal income tax rate to 4.5% and the 3.0% rate to 2.0%. The benefits will be capped at $150,000 for single filers and $300,000 for joint filers.
Corporate income tax surcharge.
The 10% corporation business tax surcharge is extended for three additional years to the 2023, 2024, and 2025 income years.
Pass-through entity tax revised.
Effective January 1, 2024, the pass-through entity tax is made optional, rather than mandatory. Entities that elect to pay the tax must give the Department of Revenue Services (DRS) commissioner written notice for each tax year that they make the election, no later than the due date for filing the return or the extended due date if they were granted, an extension. The bill also reinstates the requirement that entities pay the tax on behalf of any nonresident member for whom the business is the only source of Connecticut income. In addition, the corporation tax credit for pass-through entity taxes paid, and the option for entities to file a combined return with one or more commonly-owned entities are eliminated. Various definitions are also provided.
Earned income tax credit.
The legislation increases the earned income tax credit to 40% of the federal credit (previously 30.5%) for taxable years beginning on or after January 1, 2023.
Pension exemption.
Beginning with the 2024 tax year, the bill extends eligibility for the exemptions for qualifying pension and annuity income to taxpayers with federal adjusted gross income of at least $75,000 but less than $100,000 for single filers, married people filing separately, and heads of household; and at least $100,000 but less than $150,000 for joint filers. The deductions for these taxpayers are gradually phased out and fully phase out at $100,000 or $150,000 as applicable.
Human capital investment credit.
Effective January 1, 2024, the bill increases the human capital investment credit to 10% from 5% for most eligible investments and to 25% for investments in child care centers and child care worker subsidies, including donations to tax exempt organizations that establish child care centers. In addition, the bill authorizes corporations to use the 25% human capital investment tax credits for the child care-related investments to reduce up to 70% of their corporation business tax liability each year, instead of the usually applicable 50.01% credit cap.
Film and digital media tax credit.
For income years commencing on or after January 1, 2024, but prior to January 1, 2026, the redemption rate for film and digital media tax credits claimed against the sales tax is increased from 78% to 92% of the credits’ face value.
Fixed capital investment credit.
For income years starting on or after July 1, 2025, corporations may earn fixed capital investment tax credits if the corporation is: (1) headquartered in Connecticut; (2) owns, directly or indirectly, at least 80% of an LLC that, for federal tax purposes, is treated as a partnership or disregarded as an entity separate from its owner; and (3) provides telecommunications services.
Angel investor tax credit for cannabis businesses.
Effective July 1, 2023, the 40% angel investor tax credit for eligible investments in approved cannabis businesses is eliminated.
Historic homes rehabilitation tax credit.
For historic homes rehabilitation credits issued on or after January 1, 2024, nonprofit corporations may claim the credits against the unrelated business income tax and all other taxpayers may claim the credits against the personal income tax. Nonprofits may carry forward any unused credit for four years. Any excess credit claimed against the personal income tax is refundable. Prior to January 1, 2024, the credit was claimed against the insurance premiums, corporation business, air carriers, railroad companies, cable and satellite TV companies, and utility companies’ taxes.
New credit for pre- and post-Broadway productions and theatrical tours.
Effective January 1, 2024, a new credit is provided for production companies of eligible pre- and post-Broadway productions and live theatrical tours performed at qualified facilities in Connecticut. The credit equals 30% of the production’s eligible expenditures. Taxpayers may apply it against the personal income tax, the corporation business tax, the insurance tax or the utility companies tax. The bill caps at $2.5 million the total amount of these tax credits allowed per fiscal year.
New credit for contributions to scholarship organizations.
Effective January 1, 2024, a credit is provided against the corporate and personal income taxes for cash contributions made to a non-profit scholarship organization to be used to fund scholarships for eligible, income qualified students attending qualified, non-public elementary and secondary schools. To be eligible, a student’s household income may not exceed 250% of the federal poverty level. The amount of the credit allowed is equal to 50% of the contribution made for an income or taxable year, as applicable, and may not exceed $100,000 for any income year for any taxpayer subject to the corporation business tax or $20,000 for any taxable year for any personal income taxpayer.
Diesel fuel tax rate.
For the fiscal year commencing July 1, 2023, the applicable tax rate per gallon of diesel fuel will be 49.2¢.
Aviation fuel tax.
For each quarterly period commencing on or after July 1, 2025, each company that distributes aviation fuel in the state or imports fuel into the state must pay a 15¢ per gallon tax on the first sale of such fuel in the state. Starting July 1, 2029, and every four years after that, the aviation fuel tax rate will be adjusted according to any change in the consumer price index for all urban consumers for the preceding four calendar years, as published by the Bureau of Labor Statistics. Starting July 1, 2023, sales of aviation fuel are exempt from the petroleum products gross earnings tax.
Highway use tax reports.
For each calendar quarter commencing on or after October 1, 2023, carriers subject to the highway use tax must file returns and submit payments quarterly, rather than monthly.
Sales and use tax exemption for opioid antagonists.
Effective July 1, 2023, and applicable to sales occurring on or after July 1, 2023, a sales and use tax exemption is provided for non-prescription opioid antagonists.
Cannabis business expenses deduction.
For the taxable year commencing January 1, 2023, and each taxable year thereafter, the bill allows personal income and corporation business taxpayers holding medical marijuana or adult-use cannabis licenses to deduct, for state tax purposes, the amount of ordinary and necessary business would expenses that be eligible for a federal tax deduction under federal law but are disallowed because marijuana is a controlled substance under the federal Controlled Substance Act.
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