Digital Debut

How Connecticut Repealed its ASC Gross Receipts Tax

Six percent tax on surgery centers will end July 1, 2022

BY STEPHEN ABRESCH | MAY 2022

Now that Connecticut has repealed the state’s ASC gross receipts tax, the Connecticut Association of Ambulatory Surgery Centers (CAASC) has a moment to rejoice and look back at the long road it took to get to this point. “Without the leadership and commitment of Senator John Fonfara (D), an improved economic outlook and fresh approach from the Office of Policy and Management, we wouldn’t be in this position today,” says Lisa Winkler, executive director of CAASC. “A terrific team on the ground, and broadly sharing our story while working with allies to amplify that message, was critical to our success.”

Connecticut Governor Ned Lamont (D) signed the two-year state budget implementer bill, HB 5506, into law on May 7. The budget implementer contained policy provisions impacting various state laws, including the one that fully repealed the state’s ASC gross receipts tax.

Background

The General Assembly first enacted the current tax, a gross receipts tax of 6 percent on ASCs, in 2015. Winkler noted that at the time, the state was involved in a dispute with the Connecticut Hospital Association over its tax on hospitals—a dispute which would later make its way to the courts—and part of the General Assembly’s rationale for instituting the tax on ASCs was that it was responding to calls to even the playing field. The tax on ASCs, added late in the budget process, took ASCs by surprise. While the 6 percent tax was the highest—and remains the highest—provider tax imposed on ASCs nationwide, the tax rate itself did not show the full picture of the devastating impact on centers. According to research done by CAASC, since the tax did not allow for deductions for expenses, such as property, sales and use taxes, it resulted in a 30 percent topline tax on centers in the state.

Just as Connecticut was enacting this tax on ASCs in 2015, other states that had similar taxes were repealing them, which was a sign that state legislatures were beginning to recognize the counterproductive nature of such taxes. Rhode Island had recently repealed their taxes on ASCs, Wisconsin would follow suit in 2017 and Florida would do the same three years later, repealing its tax on ASCs during the 2020 legislative session. CAASC immediately went to work pointing out the unfairness of the tax in the hopes that the state legislature would reconsider. CAASC members noted that, unlike hospitals, ASCs already pay taxes that other small businesses pay, like state income, sales and property taxes. While CAASC successfully worked with Fonfara to add language to a special session bill that provided an exemption from the tax for the first $1 million in ASC revenues, the General Assembly refused to consider a total repeal of the burdensome tax.

Despite the General Assembly’s unwillingness to repeal the tax, CAASC kept trying to decrease the tax burden placed on centers, working to introduce legislation eliminating the tax in subsequent legislative sessions. While CAASC worked to reduce taxes on ASCs, others in the state were working to increase the impact of the current tax. The result of a legislatively commissioned study on the subject, the 2017 budget implementer bill contained language that would strip ASCs of the existing exemption from the tax for their first $1 million in revenue. This marked the beginning of an annual exercise that continued all the way up to 2021, as legislators included language to eliminate the $1 million exemption in the budget implementer each year, with CAASC repeatedly returning to the General Assembly to successfully make the case against the language.

During the 2021 regular and special sessions, CAASC partnered with Fonfara again and went on the offensive with a proposal that would transform the tax and deliver significant relief to ASCs. The proposal was intended to find ways to increase the number of Medicaid and state employee insurance cases taken by ASCs by exempting Medicaid and Medicare payments from taxation. While this language did not make it into the final version of the budget implementer bill, CAASC was successful in getting compromise language into the final version of the budget implementer. Under the version of the budget implementer passed during the special session, the 6 percent tax, along with the existing exemption for the first $1 million in revenue, would sunset on July 1, 2023. At that time, the tax would become a 3 percent tax on ASC services—i.e., only those procedures or services included in a facility fee payment—excluding Medicaid and Medicare payments.

In 2022, CAASC made another attempt to change the tax on ASCs, this time aiming to remove it entirely. Building on their success in 2021 and with Fonfara helping to lead the effort, CAASC continued meeting with legislators to make their case for further reductions to the tax. During budget negotiations, CAASC reported that the Office of Policy and Management was very receptive to Fonfara’s goal of reducing the tax, a change from previous years. Additionally, there was bipartisan support for the issue across leadership in the legislature, a result of the extensive advocacy work undertaken by CAASC. These factors led to the successful inclusion of language repealing the tax on ASCs when legislators introduced the budget implementer on May 2.

Success

Following the release of the budget implementer bill, CAASC was cautiously optimistic that they could get the tax repeal across the finish line. After consideration of amendments on the House and Senate floors—where the tax repeal language could have been stripped out of the bill—the measure was transferred to the governor for signing on May 3, still containing the tax repeal language. With the governor’s signature on May 7, the state’s gross receipts tax on ASCs will end on July 1, 2022, a full year ahead of when the tax cuts CAASC secured in 2021 would have taken effect.

Looking back at the long road it took to get to this point, Winkler identifies CAASC’s unified message and consistent strategy, combined with the clear value proposition of surgery centers, in helping CAASC remain focused in its approach with legislators on both sides of the aisle as they advocated for tax relief. She also highlights the importance of their legislative champion, Fonfara, a change of view within the state government and CAASC’s advocacy team as helping deliver such a big win.

Write Stephen Abresch with questions.