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Connecticut ranks 47th for business tax climate

Connecticut was ranked 47th in the country for its business tax climate by the Tax Foundation in their annual assessment of business taxes across the country.

Connecticut’s low ranking should come as no surprise, however: Connecticut’s score has remained unchanged since 2014, remaining only slightly ahead of New York, New Jersey, and California.

“The evidence shows that states with the best tax systems will be the most competitive at attracting new businesses and most effective at generating economic and employment growth,” study authors Janelle Fritts and Jared Walczak wrote. “It is true that taxes are but one factor in business decision making. Other concerns also matter – such as access to raw materials or infrastructure or a skilled labor pool – but a simple, sensible tax system can positively impact business operations with regard to these resources.”

The consistent culprits for Connecticut’s low ranking are the state’s income and property taxes. Connecticut’s income tax received a ranking of 47 – up from 42 in 2014 — while its property taxes received a ranking of 50, which has remained unchanged.

The study noted that Connecticut has the third highest property tax collections per capita and the sixth highest effective property tax rate in the country, based on U.S. Census Data. However, study authors also noted Connecticut plans to phase out its capital stock tax by 2024. Plans to phase out Connecticut’s corporate surcharge tax have repeatedly been postponed.

The state’s corporate taxes, sales tax and unemployment insurance taxes all scored in the twenties. 

However, unemployment insurance taxes for Connecticut businesses will begin to rise as they will be required to pay back the federal government for loans the state took out during the COVID-19 pandemic to bolster its underfunded unemployment insurance trust fund.

Connecticut paid back more than half of the $888 million loan, but the remaining $400 million will be repaid by businesses over several years through higher unemployment insurance tax rates. 

Republicans in General Assembly and the Connecticut Business and Industry Association (CBIA) called for elected leaders to use federal COVID dollars to pay off the remaining loan arguing the increased cost will hinder hiring and job growth.

According to CBIA’s annual survey of Connecticut businesses, 50 percent saw Connecticut’s business climate as declining and employers reported a shortage of labor, cost of living and high taxes were the top three issues hampering business growth. Connecticut’s cost of living and taxes were also listed as the top concerns for business employees.

Earlier in the year, CNBC issued its annual business rankings for states, with Connecticut sliding from 24th in the country to 39th, with the cost of living, economy, cost of doing business and infrastructure dragging the state down.

Connecticut has consistently been adding jobs since the COVID-19 pandemic, but has consistently lagged the national average. Connecticut saw its gross domestic product shrink in the second quarter of 2022, largely due to declines in the finance and insurance sector as the stock market has seen a particularly rocky year. 

While New York ranked 49 on the Tax Foundation’s list, Connecticut other next-door neighbors, Massachusetts and Rhode Island scored slightly better, taking 34th and 42nd respectively.

“Taxes matter to business, and states do not enact tax changes in a vacuum,” said study author Janelle Fritts, a policy analyst with the Tax Foundation. “A state with lower tax costs will be more attractive to business investment and growth, and every tax law will in some way change a state’s competitive position relative to its immediate neighbors, its region, and even globally.”

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Marc E. Fitch, Senior Investigative Reporter

Marc E. Fitch

Marc worked as an investigative reporter for Yankee Institute and was a 2014 Robert Novak Journalism Fellow. He previously worked in the field of mental health is the author of several books and novels, along with numerous freelance reporting jobs and publications. Marc has a Master of Fine Arts degree from Western Connecticut State University.

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