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Connecticut Tax Developments 2009

Mid-Year Legislative, Regulatory and Case Law Review

October 23, 2009

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

This year was marked by a contentious political and ideological battle regarding the appropriate response to record projected state budget deficits and a local economy suffering as a result of a global recession. Nine months of legislative wrangling resulted in a hodgepodge of legislation that includes a variety of tax increases and spending cuts, and a host of special, one-time budget balance “fixes,” including a transfer from the state’s rainy day fund, federal economic stimulus monies, state asset sales and special bond financing.

This newsletter summarizes the year’s most significant Connecticut tax law developments, including legislation, administrative pronouncements and case law. Most taxpayers will need to review promptly their current tax and estimated tax payment obligations, as recently-enacted legislation, effective retroactively for income years commencing on or after January 1, 2009, establishes a new 6.5% marginal tax rate for the personal income tax, imposes a 10% surcharge on the corporation business tax, increases the preference tax for combined returns, and eliminates the ability of Connecticut taxpayers to take advantage of certain federal income tax deductions and deferrals when calculating their Connecticut adjusted gross income. Further legislative or DRS guidance will be required to understand the full impact of certain tax legislation, such as the new economic nexus provisions for the corporate and personal income tax, which purport to extend Connecticut taxation to nonresident businesses and individuals who direct substantial economic activity towards Connecticut. Finally, as summarized in the section entitled “Miscellaneous Taxes,” the Connecticut Department of Revenue Services (“DRS”) is conducting two programs of significant interest to taxpayers: a tax settlement incentive program for any taxpayer with an outstanding, billed tax obligation; and an offshore voluntary disclosure program for any taxpayer who may have utilized a foreign account or entity to avoid Connecticut taxes.

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 the State and Local Taxation Practice Group if you have any questions.

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