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February 29, 2016

Mass., CT tax structures come under spotlight

In the wake of General Electric's decision to move to Boston, the tax structures of Connecticut and Massachusetts have come under closer scrutiny, as the neighboring states compete for businesses and jobs.

And while some have nicknamed the Bay State “Taxachussets” for its perceived high tax rates, it holds certain advantages over Connecticut, including a lower income tax for high earners, according to a new report from the state's Office of Legislative Research (OLR), which recently compared various taxes in both states.

Connecticut has a progressive income tax structure, with rates ranging from 3 percent to as high as 6.99 percent, while Massachusetts has a flat 5.15 percent income tax rate.

Massachusetts also lacks gift or business entity taxes, while Connecticut has both. The Nutmeg State also has a slightly higher sales and use tax rate (6.35 percent vs. Massachusetts' 6.25 percent rate).

Connecticut's 7.5 percent corporate income tax rate is lower than Massachusetts' 8 percent rate, but the Nutmeg State has instituted a 20 percent corporate surcharge in recent years, boosting its effective rate to about 9 percent. The surcharge shrinks to 10 percent in 2018.

There was no comparison of property taxes, which is often considered one of the most burdensome levies by Connecticut businesses.

OLR didn't draw or make any conclusions from its research, which aims to provide state lawmakers with data to inform their policy decisions. The comparisons, however, are particularly important this legislative session, as lawmakers grapple with a growing budget deficit that will require tax increases or budget cuts as a remedy.

Key legislative leaders on both sides of the aisle have already said tax increases are not on the table this year, but they face mounting pressure from labor unions, nonprofits and other groups to raise revenues and prevent significant budget cuts.

Connecticut has raised taxes twice since 2011, but lawmakers, including Gov. Dannel P. Malloy, are skittish about boosting rates again as the state tries to remain competitive in maintaining and attracting employers.

Of course, GE's decision to flee its Fairfield headquarters wasn't solely based on tax policy. The industrial conglomerate is trying to reinvent itself as a technology company and is looking to tap into Boston's high-tech talent and ecosystem to raise its profile and prospects.

— Greg Bordonaro

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