January 27, 2011

 

2011-R-0007

Backgrounder: Guide to Connecticut’s Business-Related TAX CREDITS

 

By: John Rappa, Chief Analyst

 

This report has been updated by OLR Report 2013-R-0056.

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:

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

o    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:

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

o    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

 

JR:tjo