Connecticut governor urges legislature to increase sales tax
- Dec 23, 2017 | Gail Cole
Action is needed if the state of Connecticut wants to avoid a deficit of more than $207 million for Fiscal Year 2018, according to Comptroller Kevin Lembo. In a Dec. 1 letter to Gov. Dannel P. Malloy, Lembo highlighted the underperformance of the sales and use tax and lower-than-expected estimated income tax payments.
In response, and as required by law, Gov. Malloy submitted a number of deficit mitigation proposals to the legislature before the end of 2017. His “menu of choices” includes several sales tax hikes. This isn’t surprising, since he suggested increasing sales tax during the initial budget negotiations.
The below proposals and revenue projections are based on a March 1, 2018, effective date.
- Increase the sales and use tax rate from the current 6.35 percent to either:
- 5 percent, bringing in $33.4 million in FY 2018 and $98.2 million in FY 2019.
- 9 percent, bringing in $81.1 million in FY 2018 and $237.2 million in FY 2019.
- Increase the restaurant tax from 6.5 to 7 percent, bringing in $9.9 million in FY 2018 and $30.7 million in FY 2019.
- Increase the hotel tax from 15 to 17 percent, bringing in $5.6 million in FY 2018 and $16.4 million in FY 2019.
- Eliminate the sales tax exemption for nonprescription drugs, bringing in $5.8 million in FY 2018 and $17 million in FY 2019.
Cigarette tax hikes are also proposed:
- Increase the cigarette tax by 25 cents per pack, bringing in $6.6 million in FY 2018 and $20 million in FY 2019, plus additional sales tax revenue.
- Increase the cigarette tax on cigars by $1, bringing in $1 million in FY 2018 and $2.9 million in FY 2019, plus additional sales tax revenue.
- Impose a 75 percent excise tax on e-cigarettes, bringing in $2.8 million in FY 2018 and $8.4 million in FY 2019, plus additional sales tax revenue.
“Like you,” the governor told legislators, “I would prefer not to rely on any tax increases at all.” He acknowledged that “these options will be almost universally objectionable, and that there is little appetite among you or your members for making such adjustments to your budget.”
Yet he emphasizes: “Agency budgets have already been cut drastically, and cannot be significantly reduced further without deteriorating customer service levels, or abandoning programs and services that you and your family members hold dear.”
Companies that do business in Connecticut should keep close watch on the state in coming months, and prepare to respond swiftly to any sales tax changes that may be instituted. Tax automation software can help. Learn how it works.
