State lawmakers this year approved new laws and changes to existing laws that go into effect on Jan. 1 and impact Connecticut businesses either directly or indirectly.

Most prominent is the paid sick leave mandate which establishes a minimum number of days for paid time off for Connecticut employees and increases labor costs for many. 

Also effective on New Year’s Day will be a 50% reduction in the business entity tax, new job-creation tax credits, more cost-driving healthcare mandates and a new investment account for manufacturers.  

Mandatory paid sick leave

Connecticut becomes the first state in the nation to mandate paid sick leave on certain businesses of 50 or more employees, requiring them to provide a minimum of one hour of paid leave for every 40 hours an employee works, regardless of employers’ financial resources or business demands.

The new mandate applies to all employers of “service workers” as defined by the legislation in a list of more than 60 job titles and functions.

Business entity tax

In the special session this fall, lawmakers essentially cut this annual $250 tax in half by making it payable to the state every other year (HB 6801, Section 23). Under the bill, the tax is payable annually through the 2012 tax year and every other year for subsequent tax years.

The change could also reduce costs and administrative burdens within the state Department of Revenue Services.  

Job Expansion Tax Credits

Three previous state job-creation tax credits are combined into an expanded new one that can be applied against the insurance premium, corporation business, utility company, or personal income tax for businesses that create new jobs and hire certain Connecticut residents to fill them.

Credits are increased to $500 per month per job created, or $900 for hiring individuals who are unemployed, disabled and veterans. The credits were also modified to allow both pass-through entities and C corps to take advantage.

Manufacturers’ Investment Account

This year, state lawmakers created a vehicle to allow some smaller manufacturers to put aside money to grow their operations and workforces in Connecticut. The Jobs Bill expanded the new Manufacturing Reinvestment Account (MRA) program to 100 companies and an annual deposit potential of $100,000.

When manufacturers decide to withdraw funds for the program’s express purposes, money withdrawn will be taxed at a rate of 3.5%, regardless of the companies’ corporate or business structure. 

Health insurance mandates

This year, state lawmakers passed several new or expanded health insurance mandates that will take effect on Jan. 1. Connecticut already has the fifth-highest total of healthcare mandates in the U.S., according to the Council for Affordable Health Insurance (CAHI).

And just one type of mandate alone, says CAHI, adds an estimated 20% to 50% to the cost of health insurance in Connecticut.

Other tax changes:

These changes became effective earlier this year, but are applicable to income years starting on or after Jan. 1, 2012:

• Economic nexus for corporation tax--The state’s current economic nexus provisions are modified to require companies to both have a “substantial economic presence” in the state and derive income from sources in Connecticut.
• Penalty for failing to pay taxes electronically --Sets a cap on penalties for failing to pay taxes electronically when required. For first time offenders, the penalty is capped at 10% or $2,500, whichever is less.
• Corporation tax overpayments --Codifies the current DRS practice of allowing companies that overpay their estimated corporation taxes for a given year the ability to apply the overpayment to the following year’s estimated tax payments.

Film production tax credit

The state’s existing program is expanded to include “relocated television productions” as eligible for the tax credits.

Business entity filings

Several changes regarding business entity filings with the Secretary of the State go into effect on Jan. 1. Among other things, domestic and out-of-state stock and non-stock corporations, limited partnerships, limited liability companies (LLCs), and limited liability partnerships (LLPs), must file annual reports with the secretary electronically unless granted an exemption.