Connecticut signs into legislation several tax changes:
Connecticut signed into legislation several tax increases. The legislation imposes a corporation tax surcharge for three years, establishes economic nexus as the basis for determining if out-of-state corporations and nonresident partners or members of S corporations subject to the corporate or personal income taxes, establishes a tax settlement initiative program, increases the cigarette and tobacco products tax, reduces the sales tax, increases the thresholds for estate and gift taxes, and increases the personal income tax on higher income taxpayers.

Economic nexus. Applicable to income years beginning on or after January 1, 2010, any corporation deriving income from Connecticut sources or that has substantial economic presence in the state, without regard to physical presence and to the extent allowed by the U.S. Constitution will be liable for corporate income tax. Economic presence is evidenced by the purposeful direction of business toward Connecticut, examined with regard to the frequency, quantity and systematic nature of the company's economic contacts with Connecticut. The Office of Legislative Research's bill summary notes that this change “could, for example, extend tax liability to such out-of-state financial services companies, as credit card companies, mortgage lenders, automobile finance companies and online financial services corporations.” The same economic nexus standard is applied to partnerships and S corporations, which would subject partners and members of such pass-through entities to the personal income tax.

Tax Amnesty: Offers tax amnesty for the period of October 1, 2009 through December 31, 2009. The Commissioner of Revenue Services may send written statements of eligibility to participate in the program to taxpayers who owe any tax (other than motor carrier road tax), interest, or penalties for any period for which the Department of Revenue Services (DRS) imposed interest or penalties for the late payment or under reporting of taxes or the DRS imposed interest or an addition to tax because the taxpayer failed to file a return and the DRS made a return on the taxpayer's behalf. If a taxpayer pays the tax owed in full within 60 days from receipt of the written notification, the Commissioner will waive civil penalties and 50% of the interest due for the taxable period. In exchange, the taxpayer waives all judicial and administrative rights of appeal.

Corporation tax surcharge. For income years beginning on or after January 1, 2009 and prior to January 1, 2012, an additional 10% corporation tax surcharge is imposed. Companies with gross income for the income year of less than $100 million, other than companies filing combined or unitary returns, or whose tax liability does not exceed the $250 minimum tax are not subject to the surcharge.

Federal domestic production activities deduction disallowed. The legislation disallows the federal domestic production deduction for purposes of both the corporation and personal income taxes for income or tax years beginning on or after January 1, 2009.

Tax credits. The carry forward period for the open space credit is extended from 15 to 25 years. The bill makes substantial changes to the film and digital animation production and infrastructure investment tax credits. For income years beginning on or after January 1, 2010, the minimum expenditure required for the film and digital animation credits is increased to $100,000. Companies incurring production expenses or costs of $100,000 to not more than $500,000 are eligible for a 10% credit; those with costs and expenses between $500,000 and $1 million may receive a 15% credit; and those with costs and expenses over $1 million are eligible for a 30% credit. Infomercials are ineligible for the credit. For income years beginning on or after January 1, 2010, the minimum expenditure for the film and digital animation media infrastructure credit is $3 million and the credit is equal to 20% of the investment made. The bill also requires an administration fee covering the cost of analyzing credit applications for all the various film and digital animation credits.

Personal income tax rate increased: For taxable years beginning on or after January 1, 2009, the marginal personal income tax rate increases to 6.5% (currently 5%) applicable to individuals with taxable income over $500,000, heads of household with taxable income over $800,000 and joint filers with income over $1 million. The rate of tax on trusts and estates would also increase to 6.5% from 5%. The bill also delays scheduled income tax reductions for single filers for three years by postponing scheduled increases in adjusted gross income that is exempt from tax and income thresholds for the personal exemptions and credits. The maximum personal exemption will remain at $13,000 through 2011.

Sales and use tax rate reduced: Effective January 1, 2010, the sales and use tax is scheduled to drop to 5.5% from the current rate of 6%. However, the rate reduction will not take place if before January 1, 2010, the state Comptroller's cumulative monthly financial statement indicates that the estimated gross tax revenue to the General Fund at the end of the fiscal year ending June 30, 2010 is at least 1% less than the fiscal year 2010 revenue estimate. In addition, if the rate reduction takes effect in January and any of the Comptroller's monthly statements issued between January 1, 2010 and July 1, 2010 are at least 1% less than the estimated tax revenue, the rate will be increased back to 6%. A use tax rate schedule must also be added to personal income tax forms.

Cigarette and tobacco products rate increased: Applicable to sales occurring on or after October 1, 2009, the cigarette tax increases to 150 mills per cigarette ($3 per pack of 20) from 100 mills per cigarette ($2 per pack of 20). A $1 inventory floor tax will also be imposed on each pack of cigarettes in a dealer's or distributor's inventory as of 11:59 p.m. on September 30, 2009. The floor tax must be reported and paid by November 15, 2009. The tobacco products tax increases from 20% to 27.5% of the wholesale price and the tax on snuff increases to 55¢ per ounce (currently 40¢.

Estate and gift tax: Effective for deaths and gifts occurring on or after January 1, 2010, estate and gift taxes apply to estates or gifts over $3.5 million (currently $2 million) and the tax is then applied to a marginal value over the threshold according to a table of rates.

City Of Columbus, Ohio Tax Increase:
The City Council voted to increase the City of Columbus' income tax rate from 2% to 2.5% on income earned on and after October 1, 2009. The 2.5% tax rate applies to residents and non-residents working in the City of Columbus or having income earned within the City (such as rental or partnership income); net profits earned from business activities conducted within Columbus; and net profits earned by Columbus residents from business activities conducted outside of Columbus. Columbus residents who work in taxing jurisdictions with rates less than 2.5% will owe additional tax equal to the difference between the tax rate where they work and 2.5%, payable to Columbus. Columbus will continue to give full credit to residents for local tax paid or withheld correctly to another tax jurisdiction.

Employers in the City of Columbus or having employees working in Columbus must withhold local tax at a rate of 2.5% on employee wages earned on or after October 1, 2009. The time that compensation is paid is irrelevant. Income earned on or before September 30, 2009 is subject to tax at the rate of 2%. Employers may use a blended tax rate for the straddle payroll period.