Axing A Temporary Tax

With the support of Gov. M. Jodi Rell and Secretary of State Susan Bysiewicz, small business owners are seizing upon the opportunity to influence lawmakers to ax the business entities tax, introduced as a temporary stop-gap solution to the state’s 2002 budget deficit. But like many temporary taxes, it has lingered for six years.

With momentum building in favor of repealing the $250 tax that businesses must pay when registering their business with the secretary of state’s office, small business owners are storming the state Capitol to build their case.

“With a lot of these tax issues, it’s supposed to be temporary and ends up permanent,” said Andrew Markowski, director of the Connecticut chapter of the National Federation of Independent Business.

Markowski is also a lobbyist with Gara & Associates and is listed as a registered lobbyist for the NFIB.

The tax, according to Markowski, disproportionately affects small businesses. “For a small business, that $250 could be an electric bill for a month, advertising or marketing costs or the cost to attend a trade show,” Markowski said. “It’s more about sending a message that politicians are helping small businesses, and this is an easy, quick fix.”

The Connecticut Business & Industry Association believes that small businesses are most affected by the tax despite creating many of the state’s new jobs.

Makes Sense

To Bysiewicz and Rell, repealing the tax makes sense because the state has enjoyed three surpluses in four years.

However, putting an end to the tax isn’t a done deal. Some Democrats are floating the possibility of repealing the tax on a temporary basis.

Opponents point to the roughly $35 million generated annually from the tax that is distributed to a number of worthwhile programs. Shelley Geballe, president of Connecticut Voices for Children, opposes repealing the tax and instead favors reforming it by allowing small businesses to pay a reduced tax based on gross annual income.

One of the reasons cited for the elimination of the tax is that it stunts business growth. In calling for its repeal, Bysiewicz said it would send a message that Connecticut is accommodating for new businesses.

“This tax is an obstacle to small business owners, who are responsible for 80 percent of new jobs in our state and help make our economy grow,” she said. “It is also a deterrent to entrepreneurs considering Connecticut as a place to locate their company.”

The entity tax in Connecticut is not anti-competitive, Geballe countered, because taxes in similar states are actually greater. For example, Rhode Island imposes a $500 annual entity tax.

Geballe’s argument is that repealing the tax on all pass-through entities, such as LLCs, LPs and LLPs, would further shift the tax burden from the business sector to families because the state would have to recoup about $35 million brought in from tax.

But lobbyists representing small businesses disagree and are focusing their persuasive efforts on “common sense arguments,” Markowski said.

The NFIB, representing hundreds of Connecticut small business owners, has the support of trade organizations and chambers of commerce.

“We work with anyone who’s looking to help out with small businesses,” Markowski said. “We’re hoping to get these issues through this session.” However, as of press time, a public hearing had not yet been set.