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Connecticut Tax Developments 2010

Full Year Legislative, Case Law and Administrative Review

June 16, 2010, Updated December 2010

Authors: Alan E. Lieberman, Louis B. Schatz, Raymond J. Casella

The downgrade of the bond rating of the State of Connecticut by a Wall Street rating agency is reflective, in part, of a legislative session which addressed the projected deficit for the 2011 fiscal year largely through borrowing, and which did little to address the significant projected deficit for the following two budget years or the long-term obligations or expense structure of the state. Once again, the Connecticut General Assembly considered a number of radical changes to the structure of the Connecticut tax system, from the elimination of credits and exemptions to the implementation of a unitary reporting system for the Connecticut corporation business tax, but ultimately did not enact meaningful reform legislation. While this result came as a relief to most Connecticut taxpayers, the unsettling nature of the seemingly annual tax policy review process continues to have a chilling effect on investment in the state. Further, the need early next year for the then newly-elected Governor to address a projected budget deficit of more than three billion dollars for each of the 2012 fiscal year and the 2013 fiscal year means that any relief from significant tax law changes will be temporary. Connecticut taxpayers can only hope that the financial focus of state government will be as much, if not more, on expense reductions than on tax increases.

In this Alert, we highlight the Connecticut tax legislative, case law and administrative developments that occurred in 2010. In the legislative area, the most significant development was the effort to spur investment and job growth in the state through the enactment of new tax credit provisions and the amendment of existing tax credit statutes. We outline the new tax credit for angel investors, the new small business job creation tax credit, the new vocational rehabilitation tax credit and the new insurance reinvestment fund tax credit.

Our State and Local Tax Practice Group has been working with the Connecticut Department of Revenue Services on administrative guidance on such matters as last year’s economic nexus legislation, the taxation of nonresident employees who work in Connecticut, nonresident contractor issues, and the taxation of owners of pass-through entities. We will, of course, continue to keep you advised of developments in these matters as they occur.

Please note that the descriptions contained herein are only summaries: the application of a change in tax law to your business or to you, individually, may be impacted by tax law provisions not included in our summary that are nevertheless applicable to your particular facts and circumstances. We encourage you to contact any member of our State and Local Tax Practice Group if you have any questions.

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