global Tax Connecticut Tax Law Changes for 2015 Tax Year August 05, 2015 Connecticut has passed a tax reform bill that makes major changes to income taxation of corporations and individuals as well as sales and use tax. State legislators have been busy this summer adopting tax reforms. Broad, sweeping changes have been enacted in Tennessee, Nevada and New York City. Closer to home, Connecticut has passed a tax reform bill that makes major changes to income taxation of corporations and individuals as well as sales and use tax. The most significant corporate income tax change is the adoption of mandatory combined filing for commonly owned taxpayers operating a unitary business. The change was voted by the General Assembly to be effective for tax years beginning on or after January 1, 2015. But in response to pressure from the business community Governor Malloy rolled back the effective date to tax years beginning on or after January 1, 2016 when he signed the bill. Combined filing will result in tax increases for some taxpayers and tax reductions for others. Taxpayers will need to analyze their specific facts to evaluate the impact of the change to combined filing. Perhaps a surprising result was that the new law does not follow the lead of so many other states in adopting market based sourcing for receipts from services. For Connecticut apportionment calculations these receipts will continue to be sourced based on the cost of performance method. For sales and use tax, taxpayers dodged one bullet but took other hits. An increase from 1% to 2% to the sales tax on computer services was deleted from the bill when it was signed. But the definition of computer services was expanded to include the creation, development, hosting or maintenance of a website. You may recall the angry reaction in Massachusetts two years ago to a similar tax on computer services. In that case the devil was in the details and the tax was retroactively repealed when the realities of trying to implement the tax were flushed out. It will be interesting to see if there is any such reaction in Connecticut. Finally, high income tax payers will pay more in taxes due to the law changes. For tax years beginning in 2015 the prior top marginal tax rate was increased from 6.7% to 6.9%. In addition, a new tax bracket of 6.99% was created for income in excess of $1 million on a joint return and $500,000 on a single return. As for sales tax, luxury items that were previously subject to a tax rate of 7% have been increased to 7.75%. The regular sales tax rate in Connecticut is 6.35%. This sales tax surcharge applies to purchases of vehicles in excess of $50,000, jewelry in excess of $5,000 and clothing and accessories in excess of $1,000. We are closely monitoring the tax law changes in Connecticut and throughout the country. Please contact us if you would like to discuss how any of the changes may affect you or your business.