Summary of Connecticut Tax Laws

Summary of Connecticut Tax Laws

We deal with clients from all over the world who have tax issues in all 50 states. That being said, since we are based in, and got our start here in Connecticut, we have a lot of experience in dealing with the CT Department of Revenue Services that we can share with you.

Connecticut enacted an income tax in 1991. The supposed reason was Connecticut was faced with an insurmountable budget deficit of $1 billion that could only be cured by more taxes.

Common CT Tax Issues or Problems

Dealing with IRS Field Collections in Connecticut: Revenue Officers in Connecticut have several different offices throughout the state in New Haven, Rocky Hill, Bridgeport, Hartford, Waterbury, Norwalk, and New London. If you have a Revenue Officer assigned to your case, be aware: you probably have a more serious tax problem than someone who is not assigned to a revenue Officer. Learn more about IRS revenue officers here.

Dealing with IRS Field Examiners, or Auditors: Did you know that most IRS audits are done by mail? If you do find yourself with a local revenue agent or auditor, understand that this, too, is likely a more serious case.

30-day collection notice: A 30-Day notice is important to respond to. Failure to respond can trigger the occurrence of all sorts of nasty things.  Read more about the Connecticut DRS 30-day Notice here.

Sale and Use tax permit revocations: The Connecticut Department of Revenue Services (DRS) likes to suspend Sales and Use permits for those businesses which owe Sales and Use taxes. This creates an issue as the business can only repay the back sales and use taxes if it remains in business.

Sales and Use Audits: A DRS Sales and Use audit is tricky. It must be handled with the utmost of care. People have been criminally charged for taxes they didn't actually owe — simply because they did not take a Sales and Use audit seriously. There are fundamental rules of bureaucracy to understand in order to deal with government agencies effectively.

Getting your DRS case to the right person: It is very difficult to fire an state employee. For the most part, someone who is doing a bad job or is incompetent may actually be the person you have to deal with. The flip side is that in many state agencies there are fantastically competent people who are a pleasure to deal with. Sometimes, trying to get a case in front of the competent person is the most important factor towards a successful resolution. Sometimes the competent employee will grant a Connecticut Offer of Compromise for sales and use taxes that the incompetent person claimed the DRS would never accept.

Demeanor towards a DRS employee and agent: Do not be threatening towards a state DRS employee. Trying to intimidates a DRS employee will likely backfire. Being respectful all the time, even when — especially when — a DRS employee or agent is being unreasonable is key. They may later change their minds. You have to give them the psychological room to change their minds in your favor; you can only get that if you have been professional to them, even when they were not.

The numbers the Connecticut DRS comes up with: We've seen many instances in which DRS auditors conduct Sales and Use audits with inappropriate methodologies. It is important to note when this has occurred, and then provide a better methodology with numbers that they can agree to. You will remove work from their plate — a win-win situation.

Connecticut DRS Special Agents: DRS Special Agents are often ex-detectives or ex-State Troopers who may be looking for a change to a less dangerous assignment in order to pass the remaining years until they are eligible for retirement. While many of these Special Agents may be fantastic at getting information out of street thugs, sometimes their knowledge of accounting and taxes is not at the level necessary to make a proper determination if someone has broken a Connecticut State tax law. The more knowledge you have about your situation, the better. 

Connecticut State Tax crimes: The most common types of criminal charge is failure to pay Connecticut Sales and Use tax. Most of these cases are tried in Hartford. And most of the time, those charged hire a criminal attorney. In the majority of cases, plea negotiations come down to a matter of how much money a defendant can come up with to avoid a jail sentence. Oftentimes, a Connecticut tax attorney can help uncover that the underlying case is full of mistakes and improper procedures.

How CT tax laws relate to Federal tax laws

Common problems in dealing with both the Connecticut DRS and an IRS tax problem:

  • Changes to your Federal Adjusted Gross income may automatically increase your Connecticut income tax liability.
  • Changes to your Sales and Use returns may trigger a tax audit with the IRS.
  • DRS may make a criminal referral to the IRS if they feel the Federal government has better resources to prosecute you.

Connecticut State Tax negotiations are different than IRS Federal tax negotiations: One overlooked aspect is that the IRS has a 10-year statute of limitations on the collection of back tax debts that have been assessed.

The Connecticut DRS does not.

It is importance to understand this when looking for the best solution. Many times it may make sense to make the repayment of a state tax debt a priority, if possible, over an IRS debt. The Federal government can essentially print as much money as it wants. The State of Connecticut has no such printing press. It actually needs to collect revenue.

When making simultaneous negotiations with the IRS and the State of Connecticut: it is essential to make sure that you are getting full allowable expenses for all back taxes being repaid and all current taxes owed. Many times, people forget to include the repayment to the DRS when negotiating with the IRS.