Recently some state leaders have called for the elimination or repeal of the Business Entity Tax in Connecticut to help local businesses. This annual $250 tax is imposed on certain corporations and partnerships that are not subject to Connecticut’s corporation business tax. However, if the goal is to aid small businesses during this economic downturn, that reform of the tax — rather than outright repeal — is warranted.
Not all businesses paying the tax are small “mom and pop” businesses. Nearly one-fifth of the state’s 100 largest companies paid the business entity tax, rather than the corporate business tax. In addition, the tax is not anti-competitive. About half of all states impose an entity-level tax and many have higher rates than Connecticut. If Connecticut wants to target help to small businesses, it would be fairer to create graduated tax rates than a total exemption.