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Breaking Up With the Business Entity Tax

Along with a new year, a new governor, and a new legislative session comes a new attempt — make that new attempts — to wipe the business entity tax off the books.

The business entity tax is a $250 tax paid by businesses every two years simply because they, well, are in business.

Every company pays it, big or small, and it’s a flat tax, which means Purdue Pharma in Stamford pays the exact same amount as the locally owned-and-operated coffee shop down the street from you.

It’s yet another cost of merely doing business in Connecticut.

“My membership views it as a nuisance tax,” said Eric Gjede, vice president for government affairs with the Connecticut Business and Industry Association. “It’s something they have to pay simply because they have to exist.”

“It’s not a significant amount of revenue,” said Gjede. “It’s nothing compared to the corporate or income taxes.”

For the past ten fiscal years, the tax has brought in an average of a little over $33 million per year, according to the Department of Revenue Services’ annual reports. Revenue varies wildly, ranging from $6.6 million in 2015 to $44 million in 2016.

In contrast, the corporation business tax raised $899.7 million for fiscal year 2017–2018 while the income tax for that same period brought in more than $10.7 billion.

Originally the tax was levied annually but after January 1, 2013 it became payable every other year, which presumably accounts for swings in the amounts collected after the 2012–2013 fiscal year.

“For some businesses, it’s a utility bill,” said Representative Raghib Allie-Brennan, D-Bethel. Of the 12 bills

Rep. Raghib Allie-Brennan

introduced this session to eliminate the business entity tax, Allie-Brennan’s H.B. 5033 is the only one submitted by a Democrat.

“The introduction of this bill is a response to what I heard on the campaign trail, and what I heard is that small businesses are hurting,” said Allie-Brennan. “Small businesses need help, and they feel like they’ve been neglected.”

In addition to the 12 bills to eliminate the tax, a bill has been submitted to make it payable every four years rather than every two, while another seeks to exempt businesses with less than $1 million in income.

Allie-Brennan doesn’t agree with half measures, arguing that if Connecticut is open for business, then eliminating the tax altogether demonstrates that. “I’m not just advocating for mom-and-pop shops,” he said.

Yet a question remains: Why have so many identical bills been introduced this session to eliminate it?

“Honestly, you’d probably see the same number of bills at the beginning of every session,” said Gjede. “They talk about it constantly but at the end when they’re struggling to pass a budget, they need that little bit of money to fund whatever they’re trying to fund.” Thus the tax remains, year after year.

“It’s the most commonly proposed bill that we’ve seen every session,” said Gjede.

This session, though, Allie-Brennan is optimistic one of the bills will pass, largely because there’s a new governor and many fresh faces in the legislature. “I’ve had conversations with the executive branch and we’re hopeful we’ll repeal it,” he said, adding, “It would send a message to the small business community.”

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