Letter: Law hurts businesses

0
26

To the editor,

Well, the “friends of small business” AKA the state legislature, AKA our representatives, up in Hartford have once again gotten their creative tax juices flowing. Yes, the legislature along with the bandito-in-chief, Gov. Dannel Malloy, have come up with a new way of separating small businesses from their hard-earned income while simultaneously complicating what had been the fairly simple, straightforward process of paying quarterly estimated state income taxes.

Most small businesses are structured as Limited Liability Corporations (LLCs), “S” Corporations, or Partnerships. Historically, income generated by these businesses was treated as pass-through income to the individuals who own and operate them. Those individuals would pay estimated income taxes to the state on a quarterly basis. Obviously, nobody likes taxes, but at least it was simple.

On May 31, our good governor signed Public Act 18-49. This new law requires that these pass-through entities pay quarterly estimated taxes, instead of having the owners make those payments as individuals. As far as I have observed, the new law received virtually no publicity or attention by either the state or the media.

Among the nuances of the law is that it is retroactive to Jan. 1, 2018. This means that we small businesses are already delinquent in our payments, as the first one was due back on April 15.  Don’t worry, though. Our “friends of business” are advising us to make a “catch up” payment by paying the April 15 obligation in addition to the June 15 obligation. No mention is made of the fact that we have already made the April payment as individuals. I’m guessing that the state will allow a credit for that extra payment at the end of the year. I’m also guessing that they will immediately spend this “windfall” the same way they spent the temporary income tax bump that resulted from the new federal tax law.

The main glaring deficiency of the new law is how to calculate these new payments. Many business owners, myself included, operate more than one pass-through entity. Following the advice of an insurance agent and accountant, we have set up an LLC for our main business, along with additional other LLCs for smaller rental property businesses. While we know what we have to pay as our estimated quarterly tax based upon the overall aggregated income that these businesses generated last year, we have no simple means of reverse engineering that payment into its source components. Additionally, two of these entities were actually set up in this calendar year, and have no history on which to base the payment. And people can bet that the “friends of small business” will be right there to assess penalties on anyone who doesn’t allocate the payment to the correct entity accurately.

I strongly recommend that any business owners who have not yet left the state for greener pastures take the time to read the state’s Special Notice – Guidance on 2018 Estimated Payments for the Newly Enacted Pass-Through Entity Tax, which can be found at www.ct.gov.

Once they have, I also strongly recommend they contact their representative and the governor’s office and let them know what they think of it.

Robert M. Bradley

Beacon Falls

The writer is the owner of the Beacon Falls Pharmacy in Beacon Falls.