Connecticut Gov. Ned Lamont (D) has signed a tax bill that will revise the state’s recently enacted passthrough entity tax and delay sales and use tax notice and reporting requirements for referrers.
H.B. 7373 was signed into law July 8 as Public Act 19-186. The measure includes the Department of Revenue Services’ recommendations for tax administration and makes a variety of administrative and technical changes. The measure was introduced by the Joint Finance, Revenue, and Bonding Committee and was cosponsored by Sens. Heather Somers (R) and Paul Formica (R) and Rep. Joseph Serra (D).
The bill's cosponsors could not be reached for comment by press time.
The bill includes a provision to revise the state’s passthrough entity tax, a 6.99 percent income tax on the net receipts of partnerships, S corporations, and limited liability companies that are partnerships for federal purposes. The tax, enacted in 2018, is offset by an individual income tax credit for the entity’s members and is meant as a workaround to the $10,000 federal limit on state and local tax deductions under the Tax Cuts and Jobs Act.
H.B. 7373 addresses some concerns that were raised regarding the passthrough tax. It stipulates that taxpayers subject to the tax are required to include guaranteed payments — payments made to compensate partners for services rendered or for use of capital unrelated to partnership income — when calculating income subject to the tax, according to an analysis of the bill. It also requires passthrough entities to exclude income treated as an itemized deduction for federal income tax purposes. The changes apply to both the standard and alternative base methods for calculating the tax.
The bill exempts entities with less than $1,000 in annual passthrough entity tax liability from making quarterly tax payments. It also includes minor and technical changes to the tax. The passthrough entity provisions are effective as of July 1 and apply to tax years beginning on or after January 1, 2019.
Another notable provision of the bill — added as part of an amendment — delays by six months the date by which referrers must begin providing quarterly notice to sellers of their sales and use tax collection obligation. The date will be pushed back from July 1, 2019, to January 1, 2020. The measure also pushed back the date by which referrers must begin sending an annual report to the Department of Revenue Services about the quarterly notice from January 31, 2020, to January 31, 2021.
The notice and reporting requirements for referrers were enacted last year under S.B. 417, signed into law as Public Act 18-152.