©2012 Revenue Solutions, Inc. ©2014 CT Department of Revenue Services Connecticut NATP Fall Conference November 12, 2015 John Biello Connecticut Department of Revenue Services

2 ©2012 Revenue Solutions, Inc. 2 ©2014 CT Department of Revenue Services Agenda  State of the State  What’s New at DRS  Audit Update  Collection Update  Fraud and Identity Theft  Legislative Changes Affecting Income Tax  Legislative Changes Affecting Sales Tax  Legislative Changes Affecting Corporation Tax

3 ©2012 Revenue Solutions, Inc. 3 ©2014 CT Department of Revenue Services State of the State  Agreement on the amount of the shortfall –$ million (includes previous $103 million cut to hospitals and social services)  Legislature is working on a plan to close the gap through spending cuts –Reduction in state workforce  Reconsidering some of the Corporation tax changes that passed in June

4 ©2012 Revenue Solutions, Inc. 4 ©2014 CT Department of Revenue Services What’s New at DRS  New Tobacco Enforcement Unit –Illegal trafficking of tobacco and cigarettes –Substantial arrest in Meriden –Managed by Pat Bernardo  Enterprise Content Management  IT Modernization  Benchmarking  Agency Move  Operations Division BPR –New Bureau Chief

5 ©2012 Revenue Solutions, Inc. 5 ©2014 CT Department of Revenue Services Audit Update  Income Tax –Manager – Mike Rose –Supervisors – Peter Gacek and Ozhan Mashayeki  Areas of Focus –RAR’s –Matching programs (nonfilers, differences, CP-2000’s, TEI) –Credit for taxes paid to other jurisdictions –Domicile –Modifications to federal adjusted gross income –Part-year / nonresident issues (income sourcing)

6 ©2012 Revenue Solutions, Inc. 6 ©2014 CT Department of Revenue Services Business and Employment Tax Audit Unit (BETA)  Manager – Jeff Wojtusik –Supervisors – Christine Kiely and Andrew Black  Areas of Focus –Sales Tax and Withholding Tax Delinquencies  Permit Renewals –Holistic approach (all tax types) –Field and office audits –Offers of Compromise

7 ©2012 Revenue Solutions, Inc. 7 ©2014 CT Department of Revenue Services Corporation and Passthrough Entity Audit Unit  Supervisors – Katie Lewis and Andrea Taylor  Areas of Focus –Field  Large multistate – multinational corporations –Desk  Corporations  Passthrough Entities –Transfer Pricing, Income Sourcing, Refund claims, Credits etc.

8 ©2012 Revenue Solutions, Inc. 8 ©2014 CT Department of Revenue Services Sales and Use Tax Audit  4 Regional Offices –Hartford – Mike O’Sullivan –Bridgeport – Marcia Schoepfer –Norwich – Lori Hall –Waterbury – Diane Pinho-Monteiro

9 ©2012 Revenue Solutions, Inc. 9 ©2014 CT Department of Revenue Services Collections Update  Manager – William Clato Day  Supervisors – Laura Niski and Ken Corrigan  Collection Initiative –Increased field presence –Cases routed faster –New tools –Cases are scored and prioritized –Credit card payments –Changes to online payment plans –Bank Matching Legislation –Website Improvements

10 ©2012 Revenue Solutions, Inc. 10 ©2014 CT Department of Revenue Services Website Changes  DRS Website:

11 ©2012 Revenue Solutions, Inc. 11 ©2014 CT Department of Revenue Services Fraud and Identity Theft  CT DRS is a leader in fighting tax refund fraud  We were put to the test this past filing season  Chronology of the 2015 Filing Season –February 5 th – Intuit recognizes a large spike in potentially fraudulent returns –February 6 th – 9 th DRS stops refunds to assess the situation –February 11 th – Commissioner Sullivan issues a press release that enhancements to fraud detection may delay refunds –February 17 th – IRS issues an alert to a phishing scam targeting preparers –February 20 th – Commissioner Sullivan issues a press release concerning new refund verification notices

12 ©2012 Revenue Solutions, Inc. 12 ©2014 CT Department of Revenue Services Fraud and Identity Theft  Number 1 priority – DRS is proactive and responsive to the issue  Continuous improvement –Eliminated direct deposit option for first time filers – Paper Check or Debit Card –If direct deposit information changed from previous year the taxpayer receives a check. Before check is issued a refund verification letter is mailed. The taxpayer must:  Visit the DRS website, enter the identifying number and verify they filed a return

13 ©2012 Revenue Solutions, Inc. 13 ©2014 CT Department of Revenue Services Fraud and Identity Theft Stats  Total income tax returns filed 1,836,439  Fraudulent refunds (FYE 6/30/15) –20,488 returns –$38.1 million in fraudulent refund claims stopped  The Challenge –35,000 Refund verification notices mailed. –From 1/1/15 – 4/30/15 DRS received 226,923 phone calls, an increase of 60k

14 ©2012 Revenue Solutions, Inc. 14 ©2014 CT Department of Revenue Services Income Tax and Withholding Changes  New Withholding Tables issued – must have been in use by August 31, 2015 – no catch up withholding provisions  New due date for submission of Form W-2 – January 31st  Changes to income tax rates –Current 6.7% rate increases to 6.9% –New top rate of 6.99%  single and MFS for income amount over $500k  Head of Household on income over $800K  MFJ on income over $1million –Trusts and estates rate is 6.99%

15 ©2012 Revenue Solutions, Inc. 15 ©2014 CT Department of Revenue Services Income Tax and Withholding Changes  Personal Exemption –Exemption increase delayed for single filers –Personal Tax credit increase is delayed for single filers  100% of military retirement pay is exempt for taxable years beginning on or after January 1, 2015  Phase in exemption for teacher pensions beginning January 1, 2015 –10%, 25%, 50%  EITC increase is delayed by 2 years. Rate is 27.5% of federal EITC  Changes to property tax credit. Maximum credit decreases from $300 - $200 beginning in 2016  Innocent Spouse – Can seek equitable relief even if beyond the 2 year time limit.

16 ©2012 Revenue Solutions, Inc. 16 ©2014 CT Department of Revenue Services Changes affecting Sales and Use Tax  Clothing exemption is repealed  Motor vehicle parking services  Car Wash Services  Luxury rate increase –7% to 7.75% for sales occurring after 7/1/15  Exemption for purchases by water companies is repealed  Rental Surcharge  Exemption from admissions tax

17 ©2012 Revenue Solutions, Inc. 17 ©2014 CT Department of Revenue Services Changes affecting Sales and Use Tax  Changes to tax free week  Dry cleaning surcharge  Exemption for sales to and by certain hospitals no longer sunsets  Computer and data processing services  New due dates for filing and paying

18 ©2012 Revenue Solutions, Inc. 18 ©2014 CT Department of Revenue Services Changes affecting Corporation Tax ?