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April 29, 2019 Bioscience

Bills take aim at ‘kick in the teeth’ bioscience tax

Photo | HBJ File Sean Cassidy, CFO of Arvinas, a New Haven-based drug developer that raised $120 million last year in an IPO, says Connecticut's capital base tax is unfair to bioscience firms.
By Matt Pilon
Matt Pilon

Think of it as the corporate income tax for corporations with no income.

The “capital base tax,” sometimes referred to as the capital stock tax, is a levy on a business's net worth or capital holdings.

It's a particular annoyance to bioscience companies, which tend to raise and spend capital for years before bringing in any revenue — that is, if they ever make it that far.

Eliminating the capital base tax was a key priority of a bioscience industry working group that issued a legislature-ordered report in December outlining ways to boost the sector.

Having raised $120 million in an IPO last year, New Haven-based Arvinas, which is developing therapeutics for cancer and other diseases, has paid $600,000 in capital base taxes since 2013, despite never selling a product.

That's frustrating to Arvinas' Chief Financial Officer Sean Cassidy.

“I commonly refer to this tax as a 'kick in the teeth' for biotechnology companies,” Cassidy wrote in testimony on House Bill 5261, which would phase out the tax over three years.

“This disincentivizes companies to locate such personnel and offices within the state and creates a negative perspective of Connecticut as a tax-friendly place to do business,” he added.

That bill, introduced in the Finance, Revenue and Bonding Committee by Rep. Christopher Davis (R-Ellington), hasn't made it out of committee, but there are several other similar proposals that appear to have bipartisan support.

In March, Senate Bill 1026 unanimously passed the Commerce Committee.

The biggest challenge going forward is whether or not lawmakers can cede revenue from the tax when they are trying to also tackle a two-year, $3 billion-plus deficit.

Earlier this month, the Office of Fiscal Analysis estimated phasing out the capital base tax over three years would cost $11.4 million next year; $29.2 million in fiscal year 2021; $46.2 million in 2022; and $53 million from 2023 onward.

About 16 states impose a capital base tax, OFA said.

Connecticut's 0.31 percent rate is the highest among the 16, but the state also caps the tax at $1 million.

New York had a $5 million cap, but is in the process of phasing out its capital base tax by 2022. Meanwhile, Massachusetts has a 0.26 percent rate with no cap.

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