CLIENT ALERT

For additional information contact:
Andrea Kriznauski
Marketing Coordinator
akriznauski@untracht.com

July 18, 2005

STATE OF CONNECTICUT CORPORATE & PERSONAL INCOME TAX CHANGES

On June 30, 2005 Connecticut Governor M. Jodi Reil signed a budget bill that amends and enacts several provisions regarding Connecticut corporation and personal income taxes, sales and use taxes, succession, gift, and estate taxes, as well as a nursing home resident user fee. Among these changes are:

• A reduction, as opposed to an elimination, of the corporate tax surcharge
  

  The scheduled elimination of the corporate tax surcharge has been replaced with a reduction to 20% for 2006 and 15% for 2007. Under current law, all entities that pay the Connecticut corporation business tax are charged a 25% corporation tax surcharge over and above the $250 minimum tax. This surcharge is due as part of the entity's total tax for the year.

• A delay in a single filer's personal income tax reductions
  

  The scheduled personal income tax reductions for a single filer have been delayed by two years. The state was to increase a single filer's adjusted gross income exempt from tax and also in such a filer's income tax threshold for purposes of reducing his or her personal exemption, personal credit, and personal income tax credit for property tax paid.

• A delay in the scheduled increase in the maximum income tax credit for property taxes paid
  

  The scheduled increase in the maximum income tax credit for property taxes to $500 has been delayed. The 2004 maximum of $350 credit will continue through 2005 and will increase to $400 for the 2006 tax year and thereafter.

• An elimination of the Connecticut succession tax and gift taxes immediately instead of over several years
  

  Under previous law, the succession tax would have been eliminated for Class B heirs (collateral relatives such as siblings, nieces, and nephews) in 2006 for Class C heirs (more remote relatives and unrelated people) and in 2008.
  
  The bill eliminated the gift tax on January 1, 2005 instead of January 1, 2010.
  
  Both of these taxes have been replaced with a uniform tax of transfers on Connecticut taxable gifts and estates.
  
  The new transfer tax applies to estates of people who die after 2004 if the estate's taxable value exceeds $2,000,000 and the person was either a resident of Connecticut or owned real or personal property in Connecticut. It also applies to gifts above $11,000 (the current federal gif tax threshold) that are made after 2004 that exceed $2,000,000 in the aggregate over the donor's life. The new transfer tax will also apply if the combined value of a person's taxable estate and gifts made after January 1, 2005 exceeds $2,000,000.