Will “Sunset” Taxes Remain In Gov. Dannel Malloy’s Budget Next Month?

For months, Gov. Dannel P. Malloy has said he has no intention of raising taxes.

But when is a tax increase not a tax increase? The definition of tax increases came up Friday when Malloy talked to reporters about his new state budget that will be unveiled February 6.

One of the questions heading into the budget unveiling is whether tax increases that are scheduled to “sunset’’ will actually remain in effect. Malloy said that he does not consider it a tax increase if those scheduled-to-expire increases actually remain in effect in 2013 and beyond.

Those tax increases represent more than $360 million over two years, and a sunset would turn the tax spigot off.

“What I’ve said is I don’t plan on raising taxes,’’ Malloy told reporters at the state Capitol complex. “It doesn’t mean that every tax that would otherwise expire will expire.’’

Malloy’s comments came on a day when the legislature’s nonpartisan fiscal office said the state is still facing a projected deficit of nearly $139 million in the current fiscal year – despite moves by the legislature before Christmas to close the gap. Part of the problem is a drop in the sales tax projection by $116 million because of “nearly stagnant growth in collections,” according to the fiscal office. Nationally, Christmas sales were up, but not as high as some economists expected.

In addition, the state is seeing a drop of $11.5 million in Indian gaming payments as the sluggish economy and increased gambling competition continues to have an impact at the two casinos in southeastern Connecticut.

The key taxes that are set to “sunset” are the levy on electric generators that expires on June 30, 2013 and a 20 percent surcharge on corporate profits that expires on December 31, 2013. The corporate surcharge is assessed on the full calendar year, rather than the state budget’s fiscal year. Republicans have argued for years that any taxes on businesses, whether a huge nuclear power plant like the Millstone complex or a major corporation like Fairfield-based General Electric, eventually get passed on to consumers.

The corporate surcharge is scheduled to generate a projected $162 million over two years, while the electric generation tax on nuclear, coal, oil and natural gas plants is generating $144 million over two years, according to the legislature’s nonpartisan fiscal office. Another complicated reduction in tax credits for insurance companies is generating a projected $55 million over two years.

The biggest impact of the electricity tax will be on Dominion Resources, which operates the Millstone nuclear power station along Long Island Sound. The company pays about $42 million per year in the electricity tax, which is eventually reflected in the ratepayers’ bills, said Ken Holt, a spokesman for Dominion.

“When the generator tax was created, it was created with a promise to expire in two years,” Holt said Friday. “If the tax doesn’t expire, that’s a broken promise. The people that are going to be most affected by this change are the electricity customers in Connecticut, who already pay the highest rates in the continental U.S. If you cause electricity to cost more, eventually the consumer bears that cost.’’

Malloy gave few details Friday about what actually will be contained in the annual budget, which will be more than $20 billion.

“I don’t have the budget for you today and won’t have the budget for you for a number of days,’’ Malloy said. “The reality is is I was asked a question whether I considered keeping current taxes raising taxes, and the mere fact that current taxes was included in the question means that no, I don’t.’’

“I’m sorry. I’m a little confused now,’’ said veteran Waterbury newspaper reporter Paul Hughes. “What is your position? That if there’s a tax that is scheduled to sunset could very well be extended, and you would not consider that a tax increase?’’

“I would not consider continuing existing taxes as raising taxes,’’ Malloy responded.

“So, you’re considering that possibility?’’ Hughes asked.

“I’m not eliminating that possibility,’’ Malloy responded.

Malloy added, “Listen, we’re not done with [preparing] the budget. When we’re done with the budget, we’ll let you know. … We don’t have a budget yet. … I’m not really being rude or mean. There are still decisions to be made, and so let’s put it this way. We have a spending cap issue, and we effectively have a revenue issue. Those two things will drive the creation of the budget. OK?’’

Joseph Brennan, the senior vice president and chief lobbyist at the Capitol for the 10,000-member Connecticut Business and Industry Association, said that the two-year corporate surcharge is being assessed for the 2012 and 2013 calendar years.

Any tax relief, he said, that the business community could receive would be helpful as Connecticut tries to break free from the sluggish economy. Businesses, he said, need to know in advance about the state’s tax structure in order to plan.

“In this environment now, anything is big,” Brennan said of potential sunsets. ”It’s important for planning. No business plans for one year at a time. They do like some level of certainty when they’re making decisions.”

But Brennan refused to be drawn into the political maelstrom of verbiage at the Capitol that was characterized by the back-and-forth between reporters and Malloy.

“I’m not going to engage in semantics of whether it’s a tax increase or not a tax increase,” Brennan said.

When the state changes its tax structure annually, it causes a whipsaw effect for businesses that are seeking a stable tax environment, officials said.

“It wreaks havoc with that predictability,’’ Brennan said. “The more predictable and stable we can make the environment, the better off we are.’’