|
|
|
Capital Ideas
Even with a short legislative session, small business can
look to Hartford for at least some relief
|
Business New Haven
4/3/2000
By: George F. Garrity II
|
One of the briefest legislative sessions on record may be short on small-business issues, but a proposal before the General Assembly, aimed primarily at Bristol-based broadcast giant ESPN, that would extend corporate tax breaks to broadcasting companies and manufacturers which do business across state lines, would positively affect the small businessperson as well.
“The bill on single-factor apportionment, the one that is called the 'ESPN bill,' would also help many small businesses,'' explains State Rep. Patrick J. Flaherty (D-8).
In particular, says Flaherty, “It would affect small businesses that have significant sales outside the state of Connecticut. Manufacturers who export to other states or outside the country would benefit.''
Flaherty explains that current state law mandates a three-factor tax apportionment: “Basically you look at a company and decide how much of that business is really Connecticut business that you can apply the Connecticut corporate income tax to. For example, Sears Roebuck does business all over the world, but we can't tax them outside the state. There is, however, a portion that should be apportioned to the state of Connecticut for purposes of corporate income tax.
“Right now we look at three factors, which are: sales in Connecticut, payroll and the third is capital investment structure,” says Flaherty. “Single-factor apportionment says that we only look at sales within Connecticut.
According to Flaherty, “This is a huge benefit to companies which have significant jobs and plant in Connecticut but have significant sales outside of Connecticut. It's a way to promote export business and not taxing the business based on payroll. So the business can hire as many people as it wants and it won't affect corporate income tax.''
Flaherty cites a small manufacturer in his district (he represents Coventry, Columbia, Lebanon and Vernon) which complained that all the tax breaks went to big companies. “I explained to him that the same change in policy that affects ESPN would affect him,” Flaherty recalls. “It's a good tax policy whether it's ESPN - an obviously global company - or a small manufacturer. The fellow in my district currently employs 20 people and is considering expanding to 40 employees.''
In an attempt to further ease the economic burden on small businesses, Flaherty sponsored a bill that would have reduced the fee for small business report filing. The bill died in its infancy.
“I got a call from a constituent who runs a small greenhouse and nursery. They are going to be losing money for at least the next three years. Every year they go to file their corporation papers and they get stuck with this fee, which is ten times as much in Connecticut as it is in other states.''
Flaherty feels that the government should tax profits, but when a business is already losing money the organization should not be further penalized. “Essentially you are making them lose even more money,'' he says.
“Before we put in the income tax, there was a desperate attempt [on the part of state government] to raise revenue by increasing fees like this,” Flaherty explains. “In fact, fees for everything were raised. Of course it didn't work, so we put the income tax in. That worked and it created a surplus.”
Now, the lawmaker says, “The logical thing to do is to go back and look at all these fees and try to lower them. But every time someone comes along with a great idea to lower one of them, it causes what we call the Christmas tree effect. Everyone else wants to jump on board. What was going to be a $2 million revenue loss becomes a $30 or $40 million revenue loss and you can't do the bill because you don't have the money anyplace else in the budget.''
House Bill 588 would simplify and clarify a law that essentially creates a double taxation on businesses that use a third-party payroll service.
“We provide human resource services to small businesses,'' explains Cecilia Renn, vice president of government and regulatory affairs at ADP TotalSource in Tallahassee, Fla. “Currently we assume the responsibility for paying our clients' employees. When we invoice the client, it includes the amount of the payroll and our service fee.
However, explains Renn, “The way the law is written we [ADP] have to pay a sales tax on the entire amount, which we then have to include in our final bill to the client. To make it even more bizarre there is an exclusion clause that says you don't have to pay the tax if more than 75 percent of your employees have been employed for a year or more. A startup company or a company with high turnover gets hit really hard. They are forced to first pay a sales tax on their goods or services and then essentially pay another sales tax for their entire payroll.”
Renn notes that the Connecticut legislature has tried to eliminate the double taxation twice before - without success. “The legislature tried to fix this in 1993, and again in 1997. But nobody has gotten the language quite right, and it just got crazier and crazier.
“What 588 will do, hopefully once and for all, is take care of this problem so that we pay taxes on the service-fee portion only - not a sales tax on the actual amount of the clients payroll.''
Bill 610 calls for equipment used for the provision of high-speed telecommunications data to be exempted from sales and use taxes. Much like the ESPN bill, the measure would have a powerful impact on powerhouse SNET as well as smaller businesses.
“This is good news for us,'' said Chris Anatra, president and founder of three-year-old Cybershore in Madison. “We are in the process of introducing a new microwave Internet connection in Madison and Guilford. The equipment that we will install at the customer location would not be taxed - and that would save each customer about $50.''
Supporters of the bill claim that it would extra incentive to wire the state for digital subscriber line (DSL) service and fiber-optic cable connections.
On the federal level, current legislation will allow home-based small businesses an additional three days to file their Form 1040 with schedule C. The deadline has been pushed from April 15 to April 18.
Another law changes the definition of a home office. The new law enables more businesses to claim home offices as tax write-offs.
The IRS has also stricken the installment method of reporting the sale of a business or some large asset, dropped the deduction for split-dollar charitable life-insurance arrangements, changed the rules about family limited partnerships and made it possible for spouses who are not involved in a business owned by their husband or wife to choose not to be held liable for taxes on that business.
An arbitration ruling in favor of a coalition of unions representing about 90 percent of state employees will force the state to offer employee benefits to same-sex partners. The ruling, which took effect March 9, makes Connecticut the fifth state in the nation to offer benefits to this group.
|
Go FirstGo PreviousGo
NextGo LastGo
to Index
|
|
