Connecticut Governor Ned Lamont (D) is expected to sign House Bill 7424 (H.B. 7424). The legislation includes: (1) a reduction of the allowable income tax credit permitted to be applied against a pass-through entity partner’s Corporation Business Tax or Individual Income Tax; (2) a new ‘Mansion Tax’; and (3) changes to Connecticut’s Corporation Business Tax. The final H.B. 7424 does not include the Capital Gains Surtax originally proposed by the legislature; the surtax would have subjected top earners to an 8.99% income tax on short-term and long-term capital gains.
Connecticut's efforts to close the budget gap may possibly result in unintended consequences. Most notably, the reduction of the PET credit from 93.01% to 87.5% now may require nonresidents to file a separate Connecticut nonresident return, and introduction of the Mansion Tax will disproportionately impact higher-income nonresident individual taxpayers. While the state did not enact the proposed capital gains surtax, the other tax-raising measures may cause wealthier residents to rethink their state of residence in a post- federal tax reform landscape.
Lastly, taxpayers should determine whether changes in the corporate and pass-through entity taxes will have a significant impact on their estimated tax liabilities for the 2019 tax year.