Gov. Ned Lamont proposed changes to Connecticut business taxes that would raise hundreds of millions of dollars in revenue over the next two years from large, multistate corporations while limiting a tax credit that has fostered movie and television production in the state.
The tax reforms were part of Lamont’s proposed $55.2 billion two-year budget, presented Wednesday morning at the Capitol.
The governor’s budget chief, Office of Policy and Management Secretary Jeffrey Beckham, said that taken together, the proposals “reform our corporate tax structure by eliminating policies that disincentivize companies to locate and grow in this state, and by eliminating preferential tax treatment for a handful of companies.”
Among the proposed changes is a plan to eliminate a $2.5 million cap on corporate taxes for multistate companies that report their earnings under what is known as the Combined Unitary Reporting. Beckham said the cap is bad policy.
Roughly 20 companies per year take advantage of the current cap, Beckham said. But the state’s budget office projected that eliminating it entirely could bring in an additional $216 million in state tax revenue over the next two years.
A spokesman for the Office of Policy and Management said the state couldn’t release the list of companies that benefit from that tax cap due to confidentiality rules.
Republicans in the legislature expressed concern over the unitary cap reform, suggesting it might incentivize large employers to relocate.
“It’s a big gamble that the governor’s taking,” said House Minority Leader Vincent Candelora, R-North Branford. “We’re going to hear from them [the companies] through the legislative process, and I just hope they don’t leave the state of Connecticut.”
Chris DiPentima, the president and CEO of the Connecticut Business and Industry Alliance, said the removal of the tax cap could potentially increase corporate taxes on a number of businesses that operate across multiple states.
DiPentima and other officials with CBIA said they are closely watching the budget process and the proposed tax changes put forward by Lamont. But he emphasized that lawmakers were at the very beginning of what is likely to be a very long and complicated budget debate.
The governor also proposed reducing a tax credit for film, television and media production companies that has benefitted well-known entertainment companies such as EPSN, WWE and NBC-Universal, as well as a niche of Christmas-themed movie productions that the state has recently sought to promote with its own tourism campaign.
Beckham announced plans for a “modest reform” that would reduce the size of the maximum credit from 30% to 25%, which he said would bring in an addition $26 million in revenue over the next two years.
Opponents, including lawmakers from both parties, have criticized the film tax credits — a $1.5 billion benefit to the industry over the last two decades — as an unfair handout to relatively small slice of the state’s economy. Last year, a proposal to do away with the credit entirely failed in the face of heavy industry opposition.
“It’s probably moving in the right direction,” said House Majority Leader Jason Rojas, D-East Hartford. “Is that the best and highest use of limited resources that we have when it comes to a tax credit, as opposed to something else?”
Supporters, however, say the credits have resulted in thousands of jobs for Connecticut, as well as the publicity that comes from serving as a backdrop to movies such as “Mr. Harrigan’s Phone” and “Mystic Christmas.“
Ed Cohen, a location scout and co-founder of the Connecticut Film and TV Alliance, said the proposal comes at a time when other states, including New York and New Jersey are looking to increase incentives for the industry.
“Any decrease would be a death knell to any filming in Connecticut,” Cohen said. “The producer, his first consideration when he decides where to film is ‘Where am I going to get the best tax credit?’”
Following the morning budget presentation, the governor gave a speech to lawmakers, in which he made little mention of his plans to eliminate existing tax credits and caps on corporate entities. He chose instead to focus on other tax proposals that would benefit the biotech sector and startup businesses.
He also unveiled a new proposal that would dedicate millions of dollars in surplus funding into an endowment to help subsidize child care costs, which can keep some parents out of the workforce.
DiPentima said CBIA members are in support of the governor’s plans to create a fund to help subsidize child care in the state. In the association’s 2024 survey of Connecticut businesses, 60% of employers said child care needed to be expanded in order to attract and retain skilled workers to the state.
The burdens of child care fall particularly hard on women. The CBIA pointed out that there were nearly 10% fewer women participating in Connecticut’s labor market compared to men.
“Businesses need their younger employees with families back to work, and our endowment will complement the trust fund established by the legislature for business contribution to child care,” Beckham said while presenting the governor’s budget.