Location:
CORPORATIONS; ECONOMIC DEVELOPMENT; TAXATION;
Scope:
Connecticut laws/regulations; Background;

OLR Research Report


January 27, 2011

 

2011-R-0007

BACKGROUNDER: GUIDE TO CONNECTICUT'S BUSINESS-RELATED TAX CREDITS

 

By: John Rappa, Chief Analyst

USING THE GUIDE

Tax credits reduce the amount of taxes a taxpayer otherwise owes. Connecticut offers over 30 credits for actions ranging from donating money to affordable housing programs to investing in fledgling high technology businesses. Some apply to money or assets businesses donate for public or charitable purposes, such as the Neighborhood Assistance Act tax credit. Most credits apply to one or more business taxes; a few apply to the personal income tax.

We grouped the credits by purpose and summarized them in tables for each group. The table of contents is linked to each table and to each credit program

Table of Contents

Capital Investments 4

Machinery and Equipment 4

Electronic Data Processing Equipment 4

Fixed Capital Investments 4

Small Business Guaranty Fee 4

Contributions and Donations 5

Computer Donations to Public and Private Schools 5

Land Donations 5

Neighborhood Assistance Act 5

Energy Conservation and Environmental Protection 6

Traffic Reduction 6

Green Buildings 6

Neighborhood Assistance Act, Energy Conservation 6

Human Capital Investment 7

Apprenticeship Training 7

Human Capital Investment 7

Hiring Incentive for Temporary Family Assistance Program Participants 7

Displaced Workers Hired by Electric Suppliers 7

Hiring Displaced Workers 8

Creating New Jobs 8

Small Businesses Creating New Jobs 8

Vocational Rehabilitation Job Creation 8

Neighborhood Assistance Act, Day Care and Job Training 9

Real Estate Development 10

Business Contributions to Low- and Moderate-Income Housing Programs 10

Historic Homes Rehabilitation 10

Converting Historic Business Property to Residential Uses 10

Rehabilitating Historic Business Property for

Mixed Residential and Commercial Use 11

Urban and Industrial Sites Reinvestment 11

Research and Development 12

Research and Development Grants to Colleges and Universities 12

Incremental Research and Development Expenditures 12

Research and Development Expenditures 12

Targeted Area Development 13

Developing Manufacturing and Specified Service Facilities in Enterprise Zones, Enterprise Corridor Zones, Targeted

Investment Communities, Bradley International Airport Development Zone, and Bioscience Enterprise Corridor Zones

Developing Service Facilities in Targeted Investment

Communities 13

Developing Entertainment Facilities in Municipalities with Entertainment Districts 13

Research and Development by Businesses Located in Enterprise Zones 13

Starting Corporations in Enterprise Zones 14

Targeted Industries Development 15

Financial Institutions 15

Film Production 15

Film Production Infrastructure 16

Digital Animation Production 16

Venture Capital Investment 17

Insurance Reinvestment 17

Angel Investment 17

Table 1: Fixed Capital Investments

Tax Credit Program

Applicable Taxes

Eligibility Criteria

Credit Limits

Machinery and Equipment

(CGS 12-217o)

Corporation

Businesses qualify if the amount spent on machinery and equipment used in Connecticut exceeds the prior year's amount

Credit amount depends on the number of employees:

10% for businesses with 250 or fewer employees

5% for businesses with between 251 and 799 employees

Electronic Data Processing Equipment (CGS 12-217t)

Unrelated Business Income of Nonprofit Corporations

Air Carrier

Railroad Company

Utility Companies

Insurance Companies, Hospitals, and Medical Services Corporations

Businesses paying property taxes on computers, printers, peripheral computer equipment, bundled software, and similar equipment

Credit equals 100% of property tax paid on electronic data processing equipment

Fixed Capital Investments

(CGS 12-217w)

Corporation

Property must:

Have been acquired from an unrelated person to be used by the business

Have four-year class life

Not be leased during first 12 months after acquisition

Be held or used in Connecticut

5% of fixed capital costs incurred during income year

Small Business Guaranty Fee

(CGS 12-217cc)

Corporation

Businesses with gross annual revenues under $5 million that receiving SBA-guaranteed bank loans

100% credit for fee paid to SBA for the loan guarantee (fees vary depending on loan amount)

Up to four-year carry-forward for unused credits

Authorization expires on or after January 1, 2014

Table 2: Contributions and Donations

Tax Credit Program

Applicable Taxes

Eligibility Criteria

Credit Limits

Computer Donations to Public and Private Schools (CGS 10-228b, expires on or after January 1,2014)

Insurance Companies, Hospitals, and Medical Services Corporations

Corporation

Air Carrier

Railroad Company

Community Antenna

Utility Companies

Donation of new or less than two-year old computers

Application to revenue services commissioner required

Total credit available for all businesses limited to $ 1 million annually

50% of the donated equipment's fair market value, up to $75,000 annually

Credit applies only against taxes owed for year when computers were donated

Land Donations

(CGS 12-217dd)

Corporation

Land must be donated to the state, a municipality, water company or nonprofit land conservation organization

Land must be permanently preserved as open space or used as public water supply

50% of:

Donated land's fair market value,

Value of discounted sales price, or

interest in land

Unused credits may be carried forward for up to 25 years

Neighborhood Assistance Act (CGS 12-630aa -12-638)

Insurance Companies, Hospitals, and Medical Services Corporations

Corporation

Air Carrier

Railroad Company

Community Antenna

Utility Companies

Minimum $250 contribution toward municipally-approved community service program

100% credit for energy conservation programs; 60% for all other programs; in both cases, credit amount capped at $75,000 annually

Unused credits may be carried forward for up to five years or assigned to another taxpayer

Total credits for all projects capped at $5 million per year

Table 3: Energy Conservation and Environmental Protection

Tax Credit Program

Applicable Taxes

Eligibility Criteria

Credit Limits

Traffic Reduction (CGS 12-217s)

Corporation

Businesses with over 100 employees participating in traffic reduction program

Total credits capped at $1.5 million

Credit equals 50% of program participation costs, up to $250 per participating employee

Green Buildings (CGS 12-217mm)

Corporation

New or renovated buildings meeting or exceeding specific energy and environmental standards

Credits available beginning January 1, 2012

Total credits capped at $25 million

Credit Amount:

5% to 10.5% of allowable costs based on building type and standards met

Additional 0.5% credit if building meets other specified criteria

Business can claim only 25% of credit per year, but may carry forward unused credits for up to five years

Business may assign or transfer credits

Neighborhood Assistance Act, Energy Conservation (CGS 12-635)

Insurance Companies, Hospitals, and Medical Services Corporations

Corporation

Air Carrier

Railroad Company

Community Antenna

Utility Companies

Minimum $250 contribution toward municipally-approved community service program

100% credit for energy conservation in properties:

Where at least 75% of the occupants earn no more than 150% of the poverty level or

Owned and occupied by changes, foundations, trusts or other entities

Subject to same carry forward, transfer, and cap provisions that apply to other projects

Table 4: Human Capital Investment

Tax Credit Program

Applicable Taxes

Eligibility Criteria

Credit Limits

Apprenticeship Training (CGS 12-217g)

Corporation

Hiring apprentices participating in state-approved manufacturing, plastics, and construction trades apprenticeship training programs

For businesses hiring plastics trade apprentices, the number of apprentices hired must exceed the average number of such apprentices hired during the previous five years

Maximum $4,800 or 50% of wages paid, whichever is less, for manufacturing and plastic trade apprentices

Maximum $4,000 or 50% of wages, whichever is less, for construction trade apprentices

Human Capital Investments (CGS 12-217x)

Corporation

Eligible investments:

Job Training

Work Education

Child Care Subsidies

Day Care Subsidies

Donations to Colleges and Universities for Technology

5% of investment

Unused credits carried forward for up to five years.

Hiring Incentive for Temporary Family Assistance Program Participants

(CGS 12-217y)

Corporation

Business must hire people who work at least 30 hours per week and have been receiving Temporary Family Assistance Program Benefits for at least nine months

$125 per employee for each full month

Unused credits may be carried forward for up to five years

Displaced Workers Hired by Electric Suppliers (CGS 12-217bb)

Corporation

Businesses must hire workers who were displaced because of restructuring in the electrical industry.

Eligible workers do not include electric company or generation entity officers or directors

$1,500 per worker available in income year after worker completes first six months of full-time work.

Table 4: Human Capital Investment (cont.)

Tax Credit Program

Applicable Taxes

Eligibility Criteria

Credit Limits

Hiring Displaced Workers (CGS 12-217hh)

Insurance Companies, Hospitals, and Medical Services Corporations

Corporation

Utility Companies

Any business hiring a worker who:

Lost his previous job because of a restructuring resulting in at least 10 layoffs and

Whose wages are at least 75% of his or her prior wages

$1,500 per displaced worker available in income year after worker completes first 12 months of full-time work with business claiming credit

Creating New Jobs (CGS 12-217ii)

Insurance Companies, Hospitals, and Medical Services Corporations

Corporation

Utility Companies

Any business creating at least 10 new jobs

Five-year credit up to 60% of the income tax deducted and withheld from new employee wages

Total credits for these and the small business and vocational rehabilitation job credits capped at $11 million per year

Small Business Creating Jobs (CGS 12-217nn)

Insurance Companies, Hospitals, and Medical Services Corporations

Corporation

Personal Income

Businesses with fewer than 50 employees in Connecticut that create new jobs filled by Connecticut residents

New employees must work at least 35 hours per week for at least 48 weeks per calendar year

Credits available only for jobs created between May 6, 2010 and December 31, 2012

Three-year, $200 per month per new employee

Total credits for these and the job creation and vocational rehabilitation job credits capped at $11 million per year

Vocational Rehabilitation Job Creation Tax Credit (CGS 12-217oo)

Insurance Companies, Hospitals, and Medical Services Corporations

Corporation

Personal Income

Business hiring Connecticut residents with disabilities

New employees must work at least 20 hours per week for at least 48 weeks per calendar year

Credits available only for employees hired after May 6, 2010 for income years beginning on or after January 1, 2010

Three-year, $200 per month per new employee

Total credits for these and the job creation and small business job creation tax credits capped at $11 million per year

Table 4: Human Capital Investment (cont.)

Tax Credit Program

Applicable Taxes

Eligibility Criteria

Credit Limits

Neighborhood Assistance Act, Day Care and Job Training (CGS 12-635)

Insurance Companies, Hospitals, and Medical Services Corporations

Corporation

Air Carrier

Railroad Company

Community Antenna

Utility Companies

Minimum $250 contribution toward municipally-approved community service program

50% credit for

Daycare facility used developing primarily by business' employees

Contributing to specified job training programs

Subject to same carry forward, transfer, and cap provisions that apply to other projects

Table 5: Real Estate Development

Tax Credit Program

Applicable Taxes

Eligibility Criteria

Credit Limits

Business Contributions to Low- and Moderate-Income Housing Programs

(CGS 8-395)

Insurance Companies, Hospitals, Medical Services Corporations

Corporation

Air Carrier

Railroad Company

Community Antenna

Utility Companies

Minimum $250 cash contribution to Connecticut Housing Finance Authority-approved housing programs managed by nonprofit organizations

Total credits capped at $10 million per year

Credit is $75,000 per business

Unused credits may be carried forward or backward for up to five years

Total credit eligible contributions per program capped at $500,000 per year

Historic Homes Rehabilitation (CGS 10-416)

Insurance Companies, Hospitals, and Medical Services Corporations

Corporation

Air Carrier

Railroad Company

Community Antenna

Utility Companies

Qualified rehabilitation expenditure must exceed $25,000

Businesses contributing funds towards the rehabilitation qualify for credits if the individual or nonprofit organization that did the work designated them for the credits

Total credits capped at $3 million per year

30% of eligible construction costs, up to $30,000 per dwelling unit

Unused credits may be carried forward up to five years

Converting Historic Business Property to Residential Uses (CGS 10-416a)

Insurance Companies, Hospitals, and Medical Services Corporations

Corporation

Air Carrier

Railroad Company

Community Antenna

Utility Companies

Historic commercial or industrial property listed on the national or state Register of Historic Places or located in an historic district on the national or state register

Total credits capped at $15 million per year

25% of qualified rehabilitation expenditures, up to $2.7 million

Unused credits may be carried forward for up to five years

Table 5: Real Estate Development (cont.)

Tax Credit Program

Tax Credit Program

Tax Credit Program

Tax Credit Program

Rehabilitating Historic Business Property for Mixed Residential and Commercial Use (CGS 10-416b)

Insurance Companies, Hospitals, and Medical Services Corporations

Corporation

Air Carrier

Railroad Company

Community Antenna

Utility Companies

Historic commercial or industrial property listed on the national or state Register of Historic Places or located in an historic district on the national or state register

Total credits capped at $50 million per three-year cycle, beginning with FY 09-12

25% of qualified rehabilitation expenditures; 30% if project includes units affordable to low- and moderate-income people

No project can receive more than 10% of credits available for the three-year cycle

Unused credits may be carried forward up to five years

Urban and Industrial Sites Reinvestment (CGS 32-9t)

Insurance Companies, Hospitals, and Medical Services Corporations

Corporation

Air Carrier

Railroad Company

Community Antenna

Utility Companies

Other specified business taxes

Businesses investing in projects developing or redeveloping property, including brownfields, that meet statutory criteria, including generating new tax revenue and other economic benefits

Businesses may invest funds directly in a project or through a fund manager

100% credit up to $100 million, spread out over 10 years: 0% in first three years after investment was made, 10% per year in the next four years, and 20% in the remaining three years

Unused credits may be carried forward up to five years or assigned to other taxpayers

Total credits available for all projects capped at $500 million

Table 6: Research and Development

Tax Credit Program

Applicable Taxes

Eligibility Criteria

Credit Limits

Research and Development Grants to Colleges and Universities (CGS 12-217l)

Corporation

Grants to colleges and universities for technology-related R&D

Grant amount must exceed the three-year average of prior R&D grants

25% of the amount exceeding the three-year average for technology-related R&D grants to colleges and universities

Incremental Research and Development Expenditures (CGS 12-217j)

Corporation

Business must spend more on R&D than it did in prior year

20% of the amount spent on R&D over and above the amount spent during prior year

Research and Development Expenditures (CGS 12-217n)

Corporation

Credit available to any business spending on R&D

Credit determined according to statutory formula:

Amounts range from 1% for expenditures under $50 million to 6% for expenditures over $200 million

Only one-third of credit can be taken per year

Unused credits may be carried forward until fully used

Table 7: Targeted Area Development

Tax Credit Program

Applicable Taxes

Eligibility Criteria

Credit Limits

Developing Manufacturing and Specified Service Facilities in Enterprise Zones, Enterprise Corridor Zones, Targeted Investment Communities, Bradley International Airport Development Zone, and Bioscience Enterprise Corridor Zones

(CGS 12-217e(a))

Corporation

Credit available to businesses in designated zones that develop facilities or create jobs

Facility must be:

Newly acquired, constructed, or improved

Used for manufacturing or specified financial services

House new jobs

10-year credit against tax allocable to facility:

25% credit or

50% if at least 150 of the new jobs or at least 30% of them go to zone or municipal residents who qualify for federal job training assistance

Developing Service Facilities in Targeted Investment Communities

(CGS 12-217e(b))

Corporation

Improving, expanding, or constructing facilities and creating jobs in municipalities with enterprise zones, but outside them.

Facilities must house specified service firms, including business, financial, and health services; warehousing and motor freight; and fishing, hunting, and trapping.

10-year credit based on the number of jobs created:

15%, 300-599 jobs

20%, 600-899 jobs

25%, 900-1,189 jobs

30%, 1,200-1,499 jobs

40%, 1,500-1,999 jobs

50%, 2,000 or more jobs

Developing Entertainment Facilities in Municipalities with Entertainment Districts (CGS 12-217e(a))

Corporation

Municipality must have designated an entertainment district (Option limited to municipalities with enterprise zones)

Facility must be used for producing entertainment products or as part of airing, displaying, or providing live entertainment for stage or broadcast

Same as enterprise zone credits for manufacturers, but entertainment facility qualifies for credits regardless of whether it is located in the entertainment district

Research and Development by Businesses Located in Enterprise Zones (CGS 12-127n(c))

Corporation

Limited to businesses:

Headquartered in an enterprise zone,

Employing over 2,500 people, and

Annual revenues over $3 billion

Greater of 3.5% of total R&D expenditure or the amount derived from the statutory two-step formula used by big businesses located outside enterprise zones

Table 7: Targeted Area Development (cont.)

Tax Credit Program

Tax Credit Program

Tax Credit Program

Tax Credit Program

Starting Corporations in Enterprise Zones (CGS 12-217v)

Corporation

Corporation must be created in an enterprise zone and meet one of the following hiring goals:

Hire at least 375 people, at least 40% of whom reside in the zone and qualify for federal job training assistance

Hire at least 375 people, at least 150 of whom reside in the zone or qualify for federal job training assistance

10-year credit:

100% for the first three years

50% of the next seven years

Table 8: Targeted Industries Development

Tax Credit Program

Applicable Taxes

Eligibility Criteria

Credit Limits

Financial Institutions (CGS 12-217u)

Corporation

Banks and financial institutions constructing minimum 900,000 square foot facilities

Two-stage Credits;

Maximum $120 million over 1st 10 years:

30% for each year business maintains at least 1,200 new jobs or

40% for each year business maintains at least 1,600 new jobs

Maximum $145 million over next five years: 25% for each year business maintains at least 3,000 new jobs

Credit expires on December 31, 2013 (PA 10-75)

Film Production (CGS 12-217j)

Insurance Companies, Hospitals, and Medical Services Corporations

Corporation

Business must incur specified production expenses and costs, including production equipment and trailers, in Connecticut

Film company must:

conduct at least 25% of principal photograph days in Connecticut or

incur 50% or $1 million of post production costs here

Three-tiered credits:

10% for expenditures between $100,000-$500,000

15% for expenditures between $500,000 and $1 million

30% for expenditures over $1 million

Table 8: Targeted Industries Development (cont.)

Tax Credit Program

Applicable Taxes

Eligibility Criteria

Credit Limits

Film Production Infrastructure (CGS 12-217kk)

Insurance Companies, Hospitals, and Medical Services Corporations

Corporation

Business must spend at least $3 million developing building, facilities, and installations needed to produce films

Flat 20% credit

Project must be 100% completed before credit can be claimed

Digital Animation Production (CGS 12-217ll)

Insurance Companies, Hospitals, and Medical Services Corporations

Corporation

Business must incur eligible production expenses and costs in Connecticut

Eligible costs and expenses include intellectual property, production equipment, and trailers

Three-tiered credit:

10% for expenditures between $100,000-$500,000

15% for expenditures between $500,000 and $1 million

30% for expenditures over $1 million

Credits are not refundable, but (1) may be carried forward for up to three years and (2) sold, transferred, or assigned up to three times

To annual credits capped at $15 million

Table 9: Venture Capital Investments

Tax Credit Program

Applicable Taxes

Eligibility Criteria

Credit Limits

Insurance Reinvestment (CGS 38a-88a)

Insurance Companies, Hospitals, and Medical Services Corporations

Insurance companies investing cash in state-certified “insurance reinvestment funds”

Funds must invest the cash only in eligible Connecticut-based businesses and meet other investment requirements

100% of cash investment claimed over 10 years, beginning in the fourth year after investment was made:

10% per year in years four through seven

20% per year in last eight through 10

Unused credits may be carried forward up to five years

Angel Investment (CGS 12-704d)

Personal Income Tax

Minimum $100,000 investments in start-up technology-based businesses operating in Connecticut

25% of cash investment up to $250,000

Total annual credits capped at $6 million per year in FY 11-13 and $3 million in FY 14

No new credits may be allocated after June 30, 2014

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