Tax Foundation faults Connecticut’s tax complexity for creating difficult business climate

Connecticut was ranked 43rd in the nation based on its tax structure by the Tax Foundation, an independent tax policy research organization.

The 2017 State Business Tax Climate Index showed different rankings for corporate, property, sales and individual taxes in the state, along with an overall ranking based on those figures. Connecticut’s two lowest scores were property taxes and individual taxes.

During a presentation on their findings, Joe Henchman, one of the three authors of the study, noted that Connecticut’s tax policies have become unnecessarily burdensome. He notes that although Connecticut started off with an income tax with a relatively low rate “the state has piled complexity upon complexity,” into its tax code.

“The state has unfortunately made itself unattractive for businesses to move there,” Henchman said.

The authors of the study were careful to point out that the rankings are not based on tax burden but rather a comparison of tax structures. Last week the accounting analyst group Truth in Accounting labelled Connecticut a “sinkhole state” based on its tax burden.

Henchman compared Connecticut to New York, which ranks lower on the scale but states “New York’s corporate tax structure has become more competitive by simplifying the code.” New York ranked 7th for its corporate tax while Connecticut ranked 32 – a drop of four places since the same study in 2014

As Connecticut lawmakers meet in special session to approve a $220 million tax incentive for Sikorsky to remain in the state, the study criticized such deals. “Lawmakers create these deals under the banner of job creation and economic development, but the truth is that if a state needs to offer such packages, it is most likely covering for an undesirable business tax climate.”

Connecticut also slid four places in the area of the individual income tax from 33rd in 2014 to 37th in this year’s study

The Tax Foundation noted that tax trends in the nation show more states moving away from income and capital taxes and focusing more on sales tax revenue. Since 2008 nineteen states have reduced their income tax and 15 states have reduced capital taxation such as capital stock taxes and personal property taxes.

Henchman says the states cutting taxes are a political mixed bag; “red states are doing it, blue states are doing it, it’s a trend for everyone.”

Connecticut ranked better than New York, New Jersey and Rhode Island but placed far below Massachusetts which ranked 25th. Wyoming took the top spot as the state with the best tax structure for individuals and businesses.

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