You wanted to know the legislative history of the Connecticut Development Authority's (CDA) Sales and Use Tax Relief Program, how it works, and how many businesses have benefited from it since it was established in 1997.

The law exempts entities from paying the sales and use tax when they acquire tangible personal property and services from CDA, which is a tax-exempt, quasi–public state agency. The act authorizes the exemption without specifying eligibility requirements or administrative procedures, and the legislative record suggests only that the exemption would help the state attract and retain businesses.

According to CDA guidelines, a company proposing a large-scale development project qualifies for the exemption if it significantly benefits the economy. The exemption amount is based on the number of permanent, full-time equivalent jobs the company will create or retain. The total value of the property subject to the exemption must be at least $5 million. The company must pay an application fee and agree to several terms and conditions, including repaying the full value of the exemption plus interest if the company leaves the state within 10 years after receiving the exemption.

Since 1998, CDA has allocated about $100 million in exemptions for 43 projects. The allocations average about $2.3 million. The largest was $30 million for Pfizer, Inc. in 1998 and the smallest, $300,000, which has gone to 10 different companies during the program's history.

As a quasi-public agency, CDA pays no sales and use taxes when it purchases goods and services. (Nor does it pay most other state taxes or local property taxes.) PA 97-316, which created the exemption, allows CDA to purchase goods and services on behalf of other entities without charging them for sales and use taxes.

But the act does not identify these entities or specify the conditions under which CDA may purchase goods and services on their behalf. Nor does it cap the total value of the exemptions CDA may grant annually or to anyone entity. But CDA has adopted administrative guidelines for awarding exemptions and determining exemption amounts.

A Senate amendment added the provision exempting CDA from charging sales and use taxes when it sells goods and services to eligible businesses. The legislators who introduced it stated that it gave CDA another economic development tool. Representative Schiessl explained that CDA could use the exemption specifically to encourage companies to relocate to or within the state (Senate Transcript, May 30, 1997, pp. 3354-68 and House Transcript, June 4, 1997, pp. 6368-96). Both chambers adopted the amendment on a voice vote without debate.

CDA guidelines limit the amount of exemption available for each project to no more than $10,000 for each new full-time equivalent permanent job created and $2,000 for each full-time equivalent job retained (CDA, Sales & Use Tax Relief Program, August 4, 2000, attached).

Inquiries about the Sales and Use Tax Relief Program usually come from business consultants who already know about the program and how it works, explained Lori Granato, CDA senior manager for business

and program development. Information about the program does not appear to be as readily available to the public as information about CDA's other programs.

For example, CDA's web page gives companies quick access only to information about the authority's different loan programs and how to access them. A company could learn about the program from the web page only if it already knew about it and searched the CDA web site specifically for it.

Companies qualify for the sales and use tax exemption based on the magnitude of the project and its economic impact. The project must significantly contribute to one of the state's eight industry clusters or involve a business considering whether to remain or expand in Connecticut or relocate here (i.e., competitive situation). Industry clusters are groups of related companies that use similar technologies to make products or deliver services.

The total value of the property eligible for the tax relief must be at least $5 million. The business proposing the project must show that it has the financial resources to complete it or substantially invest in it.

A company awarded sales and use tax relief must:

1. remain in the state for at least 10 years or repay the full value of the exemption plus 7.5% interest;

2. keep the sales and use tax-exempted tangible personal property in the state for at least 10 years or the span of its useful life, whichever is less;

3. pay CDA's legal fees in awarding the exemption;

4. execute a CDA-approved affirmative action policy;

5. comply with all state and local laws;

6. provide collateral, if required, in addition to a corporate guarantee; and

7. comply with CDA's procedures when acquiring the tax-exempt property.

The company must pay a one-time $2,500 program fee plus 2% of the exemption's value.

Attachment 1: Companies Awarded CDA Sales and Use Tax Relief: 1998 to October 2006

^{Source: Connecticut Development Authority}

^JR:dw