Connecticut ranks 47 for business tax climate again

Connecticut has maintained its long-standing rank at the bottom of the pack when it comes to the state’s business tax climate, according to the latest report by the Tax Foundation , which placed Connecticut 47 ^th in the nation for the tenth year in a row.

Connecticut’s sales, corporate, and unemployment insurance taxes were ranked in the middle of the nation, but the state’s high property taxes – which were ranked dead last in the country – and its individual tax rate lowered the state’s overall performance when compared with other states.

The report, authored by Jared Walczak, Andrey Yushkov, and Katherine Loughead, noted that taxes affect business decisions and that lawmakers do not enact tax policy in a vacuum, as businesses increasingly find themselves competing on a global scale.

“Business taxes affect business decisions, job creation and retention, plant location, competitiveness, the transparency of the tax system, and the long-term health of a state’s economy. Most importantly, taxes diminish profits. If taxes take a larger portion of profits, that cost is passed along to either consumers (through higher prices), employees (through lower wages or fewer jobs), shareholders (through lower dividends or share value), or some combination of the above,” the authors wrote. “Every tax law will in some way change a state’s competitive position relative to its immediate neighbors, its region, and even globally.”

Despite the decade-long ranking as the third worst in the country, Connecticut has made some recent changes to its tax code. In 2023, Gov. Ned Lamont and the legislature passed a reduction to the state’s personal income tax for working- and middle-class families. The report also notes that Connecticut phased out its capital stock tax, which taxes companies based on their net worth, and made the pass-through entity tax for businesses optional.

However, Connecticut also extended – as it has for more than a decade – its corporate tax surcharge, which levies an additional 10 percent tax on companies making over $100 million in gross revenue per year, although that rate was decreased from 20 percent in 2018. In 2021, Connecticut also added the highway use tax on trucks, which has yet to realize the state’s estimated tax revenue.

Connecticut’s property taxes have long remained the biggest drag on its rankings by the Tax Foundation, with the organization noting that Connecticut collects $3,288 per capita in property taxes, and that Connecticut is the only state to levy a gift tax.

“Gift taxes are designed to stop individuals’ attempts to avoid the estate tax by giving their estates away before they die,” the report said. “Gift taxes have a negative impact on a state’s business tax climate because they also heavily impact individuals who have sole proprietorships, S corporations, and LLCs.”

While Connecticut’s ranking remains unchanged, beating out only New York, New Jersey, and California, the same cannot be said for Massachusetts where a recently enacted surtax on income over $1 million through a state referendum and a new payroll tax dropped Massachusetts from 34 to 46, just ahead of Connecticut.

Connecticut has seen increased migration from New York and Massachusetts in recent years, according to Census Bureau information , and helping Connecticut end its long-time net loss of population to other states, which could be a byproduct of the COVID-19 pandemic that saw large numbers of people moving from New York to Connecticut.

According to the last business survey by the Connecticut Business and Industry Association (CBIA) in 2023, 91 percent of surveyed businesses said the cost of doing business in Connecticut was increasing, and indicated that labor costs were the largest factor, at 25 percent, followed by state taxes, at 16 percent.

In 2023, Gov. Ned Lamont launched a new advertising push to draw businesses to Connecticut and reverse poor public perception called the “Make it Here” campaign , in which Lamont touted state tax cuts, business tax credits, workforce investments, the state’s minimum wage, and quality of life.

“We make the most complex machines in the world – submarines, helicopters, and jet engines. We’re home to Fortune 500 companies and game changing start-ups,” Lamont said in a press release. “The quality of life here is unmatched with our public education, health care systems, and public safety consistently ranked among the best in the nation.”

The top four states for business taxes were largely rural areas of the country, including Wyoming, South Dakota, Alaska, and Florida.

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