TAX BENEFITS FOR CERTAIN TYPES OF EQUIPMENT

You asked for a description of the (1) state-mandated property tax exemption for manufacturing machinery and equipment, (2) corporation tax credit for personal property taxes paid on electronic data processing equipment, and (3) sales tax exemptions for machinery and equipment used in printing and typesetting.

State law exempts new and newly acquired machinery and equipment used in manufacturing, biotechnology, or recycling from local property taxes (CGS § 12-81 (72)). The state reimburses towns for the revenue losses from the exemption. Businesses must apply for the exemption.

Machinery and equipment qualifies for the exemption if it meets the Internal Revenue Code's definition of five- or seven-year depreciable property. “Machinery” includes:

1. the basic machine plus all of its component parts and contrivances;

2. computers, data processing equipment, and other devices needed to operate the machine; and

3. all replacement and repair parts, regardless of whether the business purchases them separately or in conjunction with the basic machine.

The machinery and components qualify for the exemption regardless of whether the business or another party assembled them.

“Equipment” includes any device separate from the machine, but needed to run the activities for which the business purchased the machine.

The exemption applies to MME used in biotechnology or installed in a manufacturing facility and used predominantly for or in:

1. manufacturing, processing, or fabricating;

2. manufacturing-related research and development, including experimental or laboratory research and development;

3. manufacturing-related design or engineering;

4. significant servicing, overhauling, or rebuilding of machinery and equipment for industrial use;

5. significant overhauling or rebuilding of other products on a factory basis;

6. measuring, testing, or metal finishing;

7. producing movies or video or sound recordings; or

8. recycling, if the equipment is acquired on or after July 1, 2006.

“Manufacturing” means converting or conditioning tangible personal property by changing its form, composition, character, or quality for sale at retail or use in manufacturing a product that will be sold at retail. Changing the quality of a property includes substantially overhauling a property in a way that significantly increases its service life beyond what it would have been without the overhaul. It also includes significantly increasing the ways in which the property can be used.

“Fabricating” includes making components or other tangible personal property work in new or different ways or building, creating, producing, or assembling them in those ways. The statutory definition expressly excludes equipment used for presorting, sorting, coding, folding, stuffing, or delivery of direct or indirect mail distribution services.

“Processing” includes physically applying materials and labor to modify or change the make-up of tangible personal property.

“Measuring and testing” includes nondestructive and destructive measuring or testing methods. It also includes aligning and calibrating machines, equipment, and tools to support manufacturing, processing, or fabricating tangible personal property.

“Biotechnology” includes various technologies using living organisms to produce or modify products, improve plants and animals, develop microorganisms for specific uses, identify targets for small molecule pharmaceutical development, or transform biological systems into useful processes or products. The technologies include recombinant DNA techniques, biochemistry, molecular and cellular biology, genetics and genetic engineering, biological cell fusion techniques, and new bioprocesses.

The business must install the machinery and equipment in a plant, building, or other structure housing any of the uses described above.

State law provides a credit against the state corporation business tax equal to 100% of the property taxes paid on electronic data processing equipment. The credit covers computers; printers; peripheral computer equipment; bundled software; any computer-based equipment acting as a computer, as defined in the Internal Revenue Code; and any other equipment reported as a Code 20 on the Office of Policy and Management's prescribed Personal Property Declaration. If the equipment is leased, the lessee is entitled to claim the credit if the lease agreement assesses the lessee for the personal property taxes on the equipment. A corporation can carry over unused credits for five income years (CGS § 12-217t).

The law exempts from Connecticut's 6% sales and use tax the sale, storage, and use of machinery and equipment predominately used by commercial printers and publishers for producing printed material. “Production of printed material” includes all processes needed to convert manuscripts into printed material, including layout, color separation, and typesetting. The law also exempts machinery, equipment, tools, materials, and supplies predominately used to produce typesetting, color separation, finished copy with type proofs and artwork, or similar content that is mounted for photomechanical reproduction, or any similar products sold for use in producing printed material (CGS § 12-412 (71) & (72)).


December 17, 2007		2007-R-0727
TAX BENEFITS FOR CERTAIN TYPES OF EQUIPMENT

By: Judith Lohman, Chief Analyst