CHAPTER 208
CORPORATION BUSINESS TAX

Table of Contents

Sec. 12-217ii. Jobs creation tax credit program.
Sec. 12-217jj. Film production tax credit. Regulations.
Sec. 12-217kk. Tax credit for infrastructure projects in the entertainment industry. Regulations.
Sec. 12-217ll. Tax credit for digital animation production companies. Regulations.

PART I
IMPOSITION AND PAYMENT OF TAX

      Sec. 12-217ii. Jobs creation tax credit program. (a) As used in this section:

      (1) "Commissioner" means the Commissioner of Economic and Community Development;

      (2) "Income year" means, with respect to entities subject to the insurance premiums tax under chapter 207, the corporation business tax under this chapter or the utilities company tax under chapter 212, the income year as determined under each of said chapters, as the case may be;

      (3) "Taxpayer" means a person subject to tax under chapter 207, this chapter or chapter 212;

      (4) "New job" means a full-time job which (A) did not exist in this state prior to a taxpayer's application to the commissioner for an eligibility certificate under this section for a job creation credit, and (B) is filled by a new employee;

      (5) "New employee" means a person hired by the taxpayer to fill a new full-time job. A new employee does not include a person who was employed in Connecticut by a related person with respect to the taxpayer during the prior twelve months;

      (6) "Full-time job" means a job in which an employee is required to work at least thirty-five or more hours per week. A full-time job does not include a temporary or seasonal job;

      (7) "Related person" means (A) a corporation, limited liability company, partnership, association or trust controlled by the taxpayer, (B) an individual, corporation, limited liability company, partnership, association or trust that is in control of the taxpayer, (C) a corporation, limited liability company, partnership, association or trust controlled by an individual, corporation, limited liability company, partnership, association or trust that is in control of the taxpayer, or (D) a member of the same controlled group as the taxpayer; and

      (8) "Control", with respect to a corporation, means ownership, directly or indirectly, of stock possessing fifty per cent or more of the total combined voting power of all classes of the stock of such corporation entitled to vote. "Control", with respect to a trust, means ownership, directly or indirectly, of fifty per cent or more of the beneficial interest in the principal or income of such trust. The ownership of stock in a corporation, of a capital or profits interest in a partnership, limited liability company or association or of a beneficial interest in a trust shall be determined in accordance with the rules for constructive ownership of stock provided in Section 267(c) of the Internal Revenue Code of 1986, or any subsequent corresponding internal revenue code of the United States, as from time to time amended, other than paragraph (3) of said Section 267(c).

      (b) (1) There is established a jobs creation tax credit program whereby a taxpayer who creates at least ten new jobs in Connecticut may be allowed a credit against the tax imposed under chapter 207, this chapter or chapter 212, in an amount up to sixty per cent of the income tax deducted and withheld from the wages of new employees and paid over to the state pursuant to chapter 229.

      (2) For each new employee, credits may be granted for five successive years.

      (3) The credit shall be claimed in the income year in which it is earned. Any credits not used in a tax year shall expire.

      (c) Any taxpayer planning to claim a credit under the provisions of this section shall apply to the commissioner in accordance with the provisions of this section. The application shall be on a form provided by the commissioner, and shall contain sufficient information concerning the number of new jobs to be created, feasibility studies or business plans for the increased number of jobs, projected state and local revenue that might derive as a result of the job growth and other information necessary to demonstrate that there will be net benefits to the economy of the municipality and the state. The commissioner shall impose a fee for such application as the commissioner deems appropriate.

      (d) The commissioner shall determine whether (1) the taxpayer making the application is eligible for the tax credit, and (2) the proposed job growth (A) is economically viable only with use of the tax credit, (B) would provide a net benefit to economic development and employment opportunities in the state, and (C) conforms to the state plan of conservation and development prepared pursuant to section 16a-24. The commissioner may require the applicant to submit such additional information as may be necessary to evaluate the application.

      (e) (1) The commissioner, upon consideration of the application and any additional information the commissioner requires, may approve the credit application, in whole or in part, if the commissioner concludes that the increase in the number of jobs is economically viable only with the use of the tax credit and that the revenue generated due to economic development and employment opportunities created in the state exceeds the credit and any other credits to be taken. If the commissioner disapproves an application, the commissioner shall specifically identify the defects in the application and specifically explain the reasons for the disapproval. The commissioner shall render a decision on an application not later than ninety days after the date of its receipt by the commissioner.

      (2) The total amount of credits granted to all taxpayers shall not exceed ten million dollars in any one fiscal year.

      (3) A credit under this section may be granted to a taxpayer for not more than five successive income years.

      (4) The commissioner may combine approval of a credit application with the exercise of any of the commissioner's other powers, including, but not limited to, the provision of other forms of financial assistance.

      (f) Upon approving a taxpayer's credit application, the commissioner shall issue a credit allocation notice certifying that the credits will be available to be claimed by the taxpayer if the taxpayer otherwise meets the requirements of this section. No later than thirty days after the close of the taxpayer's income year, the taxpayer shall provide information to the commissioner regarding the number of new jobs created for the year and the income tax deducted and withheld from the wages of such new employees and paid over to the state for such year. The commissioner shall issue a certificate of eligibility that includes the taxpayer's name, the number of new jobs created, and the amount of the credit certified for the year. The certificate shall be issued by the commissioner sixty days after the close of the taxpayer's income year or thirty days after the information is provided, whichever comes first.

      (g) The commissioner shall, upon request, provide a copy of the certificate of eligibility issued under subsection (f) of this section to the Commissioner of Revenue Services.

      (h) (1) If (A) the number of new employees on account of which a taxpayer claimed the credit allowed by this section decreases to less than the number for which the commissioner issued an eligibility certificate during any of the four years succeeding the first full income year following the issuance of an eligibility certificate, and (B) those employees are not replaced by other employees who have not been shifted from an existing location of the taxpayer or a related person in this state, the taxpayer shall be required to recapture a percentage of the credit allowed under this section on its tax return, as determined under the provisions of subdivision (2) of this subsection. The commissioner shall provide notice of the required recapture amount to both the taxpayer and the Commissioner of Revenue Services.

      (2) If the taxpayer is required under the provisions of subdivision (1) of this subsection to recapture a portion of the credit during (A) the first of such four years, then ninety per cent of the credit allowed shall be recaptured on the tax return required to be filed for such year, (B) the second of such four years, then sixty-five per cent of the credit allowed for the entire period of eligibility shall be recaptured on the tax return required to be filed for such year, (C) the third of such four years, then fifty per cent of the credit allowed for the entire period of eligibility shall be recaptured on the tax return required to be filed for such year, (D) the fourth of such four years, then thirty per cent of the credit allowed for the entire period of eligibility shall be recaptured on the tax return required to be filed for such year.

      (P.A. 06-186, S. 80; P.A. 07-250, S. 18.)

      History: P.A. 06-186 effective July 1, 2006, and applicable to income years commencing on or after January 1, 2006; P.A. 07-250 removed requirement re credit available only to taxpayers relocating to state, lowered job creation requirement from 50 to 10 new jobs, increased tax credit allowed from up to 25% to up to 60% of taxes deducted, added requirement that job growth conform to state plan of conservation and development and made conforming and technical changes, effective July 1, 2007, and applicable to income years commencing on or after January 1, 2007.

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      Sec. 12-217jj. Film production tax credit. Regulations. (a) As used in this section:

      (1) "Commissioner" means the Commissioner of Revenue Services.

      (2) "Commission" means the Connecticut Commission on Culture and Tourism.

      (3) (A) "Qualified production" means entertainment content created in whole or in part within the state, including motion pictures; documentaries; long-form, specials, mini-series, series, sound recordings, videos and music videos and interstitials television programming; interactive television; interactive games; videogames; commercials; infomercials; any format of digital media, including an interactive web site, created for distribution or exhibition to the general public; and any trailer, pilot, video teaser or demo created primarily to stimulate the sale, marketing, promotion or exploitation of future investment in either a product or a qualified production via any means and media in any digital media format, film or videotape, provided such program meets all the underlying criteria of a qualified production.

      (B) "Qualified production" shall not include any ongoing television program created primarily as news, weather or financial market reports, a production featuring current events, sporting events, an awards show or other gala event, a production whose sole purpose is fundraising, a long-form production that primarily markets a product or service, a production used for corporate training or in-house corporate advertising or other similar productions, or any production for which records are required to be maintained under 18 USC 2257 with respect to sexually explicit content.

      (4) "Eligible production company" means a corporation, partnership, limited liability company, or other business entity engaged in the business of producing qualified productions on a one-time or ongoing basis, and qualified by the Secretary of the State to engage in business in the state.

      (5) "Production expenses or costs" means all expenditures clearly and demonstrably incurred in the state in the development, preproduction, production or postproduction costs of a qualified production, including:

      (A) Expenditures incurred in the state in the form of either compensation or purchases including production work, production equipment not eligible for the infrastructure tax credit provided in section 12-217kk, production software, postproduction work, postproduction equipment, postproduction software, set design, set construction, props, lighting, wardrobe, makeup, makeup accessories, special effects, visual effects, audio effects, film processing, music, sound mixing, editing, location fees, soundstages and any and all other costs or services directly incurred in connection with a state-certified qualified production;

      (B) Expenditures for distribution, including preproduction, production or postproduction costs relating to the creation of trailers, marketing videos, commercials, point-of-purchase videos and any and all content created on film or digital media, including the duplication of films, videos, CDs, DVDs and any and all digital files now in existence and those yet to be created for mass consumer consumption; the purchase, by a company in the state, of any and all equipment relating to the duplication or mass market distribution of any content created or produced in the state by any digital media format which is now in use and those formats yet to be created for mass consumer consumption; and

      (C) "Production expenses or costs" does not include the following: (i) On and after January 1, 2008, compensation in excess of fifteen million dollars paid to any individual or entity representing an individual, for services provided in the production of a qualified production; (ii) media buys, promotional events or gifts or public relations associated with the promotion or marketing of any qualified production; (iii) deferred, leveraged or profit participation costs relating to any and all personnel associated with any and all aspects of the production, including, but not limited to, producer fees, director fees, talent fees and writer fees; (iv) costs relating to the transfer of the production tax credits; and (v) any amounts paid to persons or businesses as a result of their participation in profits from the exploitation of the qualified production.

      (6) "Sound recording" means a recording of music, poetry or spoken-word performance, but does not include the audio portions of dialogue or words spoken and recorded as part of a motion picture, video, theatrical production, television news coverage or athletic event.

      (7) "State-certified qualified production" means a qualified production produced by an eligible production company that (A) is in compliance with regulations adopted pursuant to subsection (g) of this section, (B) is authorized to conduct business in this state, and (C) has been approved by the commission as qualifying for a production tax credit under this section.

      (8) "Interactive web site" means a web site, the production costs of which (A) exceed five hundred thousand dollars per income year, and (B) is primarily (i) interactive games or end user applications, or (ii) animation, simulation, sound, graphics, story lines or video created or repurposed for distribution over the Internet. An interactive web site does not include a web site primarily used for institutional, private, industrial, retail or wholesale marketing or promotional purposes, or which contains obscene content.

      (9) "Post-certification remedy" means the recapture, disallowance, recovery, reduction, repayment, forfeiture, decertification or any other remedy that would have the effect of reducing or otherwise limiting the use of a tax credit provided by this section.

      (b) (1) The Connecticut Commission on Culture and Tourism shall administer a system of tax credit vouchers within the resources, requirements and purposes of this section for eligible production companies producing a state-certified qualified production in the state. For income years commencing on or after January 1, 2007, any eligible production company incurring production expenses or costs in excess of fifty thousand dollars shall be eligible for a credit against the tax imposed under chapter 207 or this chapter equal to thirty per cent of such production expenses or costs, provided (A) on and after January 1, 2009, fifty per cent of such expenses or costs shall be counted toward such credit when incurred outside the state and used within the state, and one hundred per cent of such expenses or costs shall be counted toward such credit when incurred within the state and used within the state, and (B) on and after January 1, 2012, no expenses or costs incurred outside the state and used within the state shall be eligible for a credit, and one hundred per cent of such expenses or costs shall be counted toward such credit when incurred within the state and used within the state.

      (2) Any credit allowed pursuant to this subsection may be sold, assigned or otherwise transferred, in whole or in part, to one or more taxpayers, provided no credit, after issuance, may be sold, assigned or otherwise transferred, in whole or in part, more than three times.

      (3) Any such credit allowed under this subsection shall be claimed against the tax imposed under chapter 207 or this chapter for the income year in which the production expenses or costs were incurred, and may be carried forward for the three immediately succeeding income years. Any production tax credit allowed under this subsection shall be nonrefundable.

      (c) (1) An eligible production company shall apply to the commission for a tax credit voucher on an annual basis, but not later than ninety days after the first production expenses or costs are incurred in the production of a qualified production, and shall provide with such application such information as the commission may require to determine such company's eligibility to claim a credit under this section. No production expenses or costs may be listed more than once for purposes of the tax credit voucher pursuant to this section, or pursuant to section 12-217kk or 12-217ll, and if a production expense or cost has been included in a claim for a credit, such production expense or cost may not be included in any subsequent claim for a credit.

      (2) Not earlier than three months after the application in subdivision (1) of this subsection, an eligible production company may apply to the commission for a production tax credit voucher, and shall provide with such application such information and independent certification as the commission may require pertaining to the amount of such company's production expenses or costs to date. If the commission determines that such company is eligible to be issued a production tax credit voucher, the commission shall enter on the voucher the amount of production expenses or costs that has been established to the satisfaction of the commission, and the amount of such company's credit under this section. The commission shall provide a copy of such voucher to the commissioner, upon request.

      (3) Not later than ninety days after the end of the annual period, or after the last production expenses or costs are incurred in the production of a qualified production, an eligible production company shall apply to the commission for a production tax credit voucher, and shall provide with such application such information and independent certification as the commission may require pertaining to the amount of such company's production expenses or costs. If the commission determines that such company is eligible to be issued a production tax credit voucher, the commission shall enter on the voucher the amount of production expenses or costs that has been established to the satisfaction of the commission, minus the amount of any credit issued pursuant to subdivision (2) of this subsection, and the amount of such company's credit under this section. The commission shall provide a copy of such voucher to the commissioner, upon request.

      (d) If an eligible production company sells, assigns or otherwise transfers a credit under this section to another taxpayer, the transferor and transferee shall jointly submit written notification of such transfer to the commission not later than thirty days after such transfer. If such transferee sells, assigns or otherwise transfers a credit under this section to a subsequent transferee, such transferee and such subsequent transferee shall jointly submit written notification of such transfer to the commission not later than thirty days after such transfer. The notification after each transfer shall include the credit voucher number, the date of transfer, the amount of such credit transferred, the tax credit balance before and after the transfer, the tax identification numbers for both the transferor and the transferee, and any other information required by the commission. Failure to comply with this subsection will result in a disallowance of the tax credit until there is full compliance on the part of the transferor and the transferee, and for a second or third transfer, on the part of all subsequent transferors and transferees. The commission shall provide a copy of the notification of assignment to the commissioner upon request.

      (e) Any eligible production company that wilfully submits information to the commission that it knows to be fraudulent or false shall, in addition to any other penalties provided by law, be liable for a penalty equal to the amount of such company's credit entered on the production tax credit certificate issued under this section.

      (f) The issuance by the commission of a tax credit voucher with respect to an amount of tax credits stated thereon shall mean that none of such tax credits are subject to a post-certification remedy, and that the commission and the commissioner shall have no right, except in the case of possible material misrepresentation or fraud, to conduct any further or additional review, examination or audit of the expenditures or costs for which such tax credits were issued. If at any time after the issuance of a tax credit voucher the commission or the commissioner determines that there was a material misrepresentation or fraud on the part of an eligible production company in connection with the submission of an expense report and the result of such material misrepresentation or fraud was that (1) a specific amount of tax credits was reflected on the tax credit voucher issued in response to such expense report that would not have otherwise been so reflected, and (2) such tax credits would otherwise be subject to a post-certification remedy, such tax credits shall not be subject to any post-certification remedy and the sole and exclusive remedy of the commission and the commissioner shall be to seek collection of the amount of such tax credits from the eligible production company that committed the fraud or misrepresentation, not from any transferee of such tax credits.

      (g) The commission, in consultation with the commissioner, shall adopt regulations, in accordance with the provisions of chapter 54, as may be necessary for the administration of this section.

      (P.A. 06-83, S. 20; 06-186, S. 83; 06-187, S. 79; P.A. 07-236, S. 1; June Sp. Sess. P.A. 07-4, S. 69, 70; June Sp. Sess. P.A. 07-5, S. 13.)

      History: P.A. 06-83 effective July 1, 2006, and applicable to income years commencing on or after January 1, 2006; P.A. 06-186 amended Subsec. (a) to redefine "qualified production" by deleting exception and changing reference to obscene material and to redefine "production expenses or costs" by eliminating requirement that they be in cash, requiring intellectual property to be produced primarily in state, requiring expenditures to be incurred within state rather than paid to persons authorized to do business in state, eliminating provision allowing commissioner to determine other production expenses or costs, exempting talent fees and making technical changes, amended Subsec. (b) by replacing former provisions with provisions allowing any eligible production company to receive 30% credit and allowing a three-year carryforward, eliminated former Subsec. (c) re wage tax credit, redesignated existing Subsec. (d) as new Subsec. (c) and made conforming changes therein, eliminated former Subsec. (e) re carryforward period, inserted new Subsec. (d) re procedure upon transfer of credit, and redesignated existing Subsec. (f) as new Subsec. (e) and amended same to require the commission, in consultation with the commissioner, to adopt regulations, effective July 1, 2006, and applicable to income years commencing on or after January 1, 2006; P.A. 06-187 amended Subsec. (f) to require the commission, in consultation with the commissioner, to adopt regulations, effective July 1, 2006 (Revisor's note: In Subsec. (a)(6)(A), a reference to "subsection (f) of this section" was changed editorially by the Revisors to "subsection (e) of this section", for accuracy); P.A. 07-236 amended Subsec. (a) to redefine "qualified production" and "production expenses or costs" and add definitions of "sound recording", "interactive web site" and "post-certification remedy", amended Subsec. (b) to divide existing provisions into Subdivs. (1) to (3) and, in Subdiv. (1), to apply credit to taxes due under chapter 207 and add Subpara. (A) re expenses or costs on and after January 1, 2009, and Subpara. (B) re expenses or costs on and after January 1, 2012, and, in Subdiv. (2), to limit credit transfers to three times, amended Subsec. (c) to add provisions in Subdiv. (1) to prohibit limit on listing expenses or costs on a tax credit voucher more than one once, to add new Subdiv. (2) re requirements for applying for tax credit vouchers, and to redesignate existing Subdiv. (2) as Subdiv. (3), amended Subsec. (d) to add provisions re second or third transfers, added new Subsec (e) re submission of false or fraudulent information and Subsec. (f) re post-certification remedy, redesignated existing Subsec. (e) as Subsec. (g) and made conforming changes throughout, effective July 1, 2007, and applicable to income years commencing on or after January 1, 2007; June Sp. Sess. P.A. 07-4 amended Subsec. (a) by making a technical change in Subdiv. (3)(A) and inserting "in the state" re expenditures incurred in Subdiv. (5), effective July 1, 2007, and applicable to income years commencing on or after January 1, 2007, and amended Subsec. (c) by inserting "and independent certification" in Subdivs. (2) and (3), effective July 1, 2007; June Sp. Sess. P.A. 07-5 amended Subsec. (f) to substitute "commission" for "commissioner" re issuance of tax credit voucher and make technical changes, effective October 6, 2007.

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      Sec. 12-217kk. Tax credit for infrastructure projects in the entertainment industry. Regulations. (a) As used in this section:

      (1) "Commissioner" means the Commissioner of Revenue Services.

      (2) "Commission" means the Connecticut Commission on Culture and Tourism.

      (3) "Infrastructure project" means a capital project to provide basic buildings, facilities or installations needed for the functioning of the digital media and motion picture industry in this state.

      (4) "State-certified project" means an infrastructure project undertaken in this state by an entity that (A) is in compliance with regulations adopted pursuant to subsection (e) of this section, (B) is authorized to conduct business in this state, (C) is not in default on a loan made by the state or a loan guaranteed by the state, nor has ever declared bankruptcy under which an obligation of the entity to pay or repay public funds was discharged as a part of such bankruptcy, and (D) has been approved by the commission as qualifying for an infrastructure tax credit under this section.

      (5) "Post-certification remedy" means the recapture, disallowance, recovery, reduction, repayment, forfeiture, decertification or any other remedy that would have the effect of reducing or otherwise limiting the use of a tax credit provided by this section.

      (b) (1) There shall be allowed a state-certified project credit against the tax imposed under chapter 207 or this chapter to any taxpayer that invests in a state-certified project. Such credit may be in the following amounts: (A) For state-certified projects costing greater than fifteen thousand dollars and less than one hundred fifty thousand dollars, each taxpayer may be allowed a tax credit of ten per cent of the investment made by such taxpayer; (B) for state-certified projects costing one hundred fifty thousand dollars or more, but less than one million dollars, each taxpayer may be allowed a tax credit of fifteen per cent of the investment made by such taxpayer; and (C) for state-certified projects costing one million dollars or more, each taxpayer may be allowed a tax credit of twenty per cent of the investment made by such taxpayer.

      (2) Eligible expenditures pursuant to this section shall include the following: All expenditures for a capital project to provide buildings, facilities or installations, whether leased or purchased, together with necessary equipment for a film, video, television, digital production facility or digital animation production facility; project development, including design, professional consulting fees and transaction costs; development, preproduction, production, post-production and distribution equipment and system access; and fixtures and other equipment.

      (3) Any credit allowed pursuant to this section may be sold, assigned or otherwise transferred, in whole or in part, to one or more taxpayers, and such taxpayers may sell, assign or otherwise transfer, in whole or in part, such credit. Any taxpayer holding such credit may claim such credit only for the income year in which expenditures were made by the taxpayer for the infrastructure project.

      (4) Any credit allowed pursuant to this section shall be claimed against the tax imposed under chapter 207 or this chapter. If the amount of the credit allowable under this section exceeds the sum of any taxes due from a taxpayer, any such excess amount of the credit allowable under this section may be taken in any of the three immediately succeeding income years.

      (5) Any tax credit earned under this section shall be nonrefundable.

      (c) (1) An entity undertaking an infrastructure project shall apply to the commission for an eligibility certificate not later than ninety days after the first expenses or costs are incurred, and shall provide with such application such information as the commission may require to determine such infrastructure project's eligibility as a state-certified project.

      (2) Each application for an eligibility certificate shall include: (A) A detailed description of the infrastructure project; (B) a preliminary budget; (C) estimated completion date; and (D) such other information as the commission may require. The commission may require an independent audit of all project costs and expenditures prior to certification. If the commission determines that such project is eligible to be a state-certified project, the commission shall indicate the amount of costs or expenditures that has been established to the satisfaction of the commission, and issue to such entity a tax credit certification letter for investors indicating the amount of tax credits available under this section. The commission shall provide a copy of such letter to the commissioner, upon request.

      (3) Prior to the issuance of a state-certified project tax credit voucher to a taxpayer based upon the tax credit certification letter issued pursuant to subdivision (2) of this subdivision, the entity undertaking such infrastructure project shall provide the commission with a description of the progress on such project and an estimated completion date. The commission may require an independent audit of all project costs and expenditures prior to issuance of such tax credit voucher to a taxpayer. No such tax credit voucher may be issued prior to such time as such state-certified project is shown to be not less than sixty per cent complete.

      (d) If a taxpayer sells, assigns or otherwise transfers a credit under this section to another taxpayer, the transferor and transferee shall jointly submit written notification of such transfer to the commission not later than thirty days after such transfer. The notification shall include the credit certificate number, the date of transfer, the amount of such credit transferred, the tax credit balance before and after the transfer, the tax identification numbers for both the transferor and the transferee and any other information required by the commissioner. After the initial issuance of a tax credit, such credit may be sold, assigned or otherwise transferred not more than three times. Failure to comply with this subsection will result in a disallowance of the tax credit until there is full compliance on both the part of the transferor and the transferee, and all subsequent transferors and transferees. The commission shall provide a copy of the notification of assignment to the commissioner upon request.

      (e) The issuance by the commission of a tax credit voucher with respect to an amount of tax credits stated thereon shall mean that none of such tax credits are subject to a post-certification remedy, and that the commission and the commissioner shall have no right except in the case of a possible material misrepresentation or fraud, to conduct any further or additional review, examination or audit of the expenditures or costs for which such tax credits were issued. If at any time after the issuance of a tax credit voucher the commission or the commissioner determines that there was a material misrepresentation or fraud on the part of a taxpayer in connection with the submission of an expense report and the result of such material misrepresentation or fraud was that (1) a specific amount of tax credits was reflected on the tax credit voucher issued in response to such expense report that would not have otherwise been so reflected, and (2) such tax credits would otherwise be subject to a post-certification remedy, such tax credits shall not be subject to any post-certification remedy and the sole and exclusive remedy of the commission and the commissioner shall be to seek collection of the amount of such tax credits from the taxpayer that committed the fraud or misrepresentation, not from any transferee of the tax credits.

      (f) The commission, in consultation with the commissioner, shall adopt regulations, in accordance with the provisions of chapter 54, as may be necessary for the administration of this section.

      (P.A. 07-236, S. 2; June Sp. Sess. P.A. 07-5, S. 14.)

      History: P.A. 07-236 effective July 1, 2007, and applicable to income years commencing on or after January 1, 2007; June Sp. Sess. P.A. 07-5 amended Subsec. (e) to substitute "commission" for "commissioner" re issuance of tax credit voucher and make technical changes, effective October 6, 2007.

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      Sec. 12-217ll. Tax credit for digital animation production companies. Regulations. (a) As used in this section:

      (1) "Commissioner" means the Commissioner of Revenue Services.

      (2) "Commission" means the Connecticut Commission on Culture and Tourism.

      (3) "Digital animation production company" means a corporation, partnership, limited liability company or other business entity engaged exclusively in digital animation production activity on an ongoing basis, and that is qualified by the Secretary of the State to engage in business in the state.

      (4) "State-certified digital animation production company" means a digital animation production company that (A) maintains studio facilities located within the state at which digital animation production activities are conducted, (B) employs at least two hundred full-time employees within the state, (C) is in compliance with regulations adopted pursuant to subsection (h) of this section, and (D) has been certified by the commission.

      (5) "Digital animation production activity" means the creation, development and production of computer-generated animation content for distribution or exhibition to the general public, but not for the production of any material for which records are required to be maintained under 18 USC 2257 with respect to sexually explicit content.

      (6) "Full-time employee" means an employee required to work at least thirty-five hours or more per week, and who is not a temporary or seasonal employee.

      (7) "Post-certification remedy" means the recapture, disallowance, recovery, reduction, repayment, forfeiture, decertification or any other remedy that would have the effect of reducing or otherwise limiting the use of a tax credit provided by this section.

      (8) "Production expenses or costs" means all expenditures clearly and demonstrably incurred in the state in the development, preproduction, production or postproduction costs of a digital animation production activity, including:

      (A) Expenditures for optioning or purchase of any intellectual property including, but not limited to, books, scripts, music or trademarks relating to the development or purchase of a script, screenplay or format, to the extent that such expenditures are less than thirty-five per cent of the production expenses or costs incurred by a digital animation production company in any income year. Such expenses or costs shall include all expenditures generally associated with the optioning or purchase of intellectual property, including option money, agent fees and attorney fees relating to the transaction, but shall not include any and all deferrals, deferments, profit participation or recourse or nonrecourse loans which the digital animation production company may negotiate in order to obtain the rights to the intellectual property;

      (B) Expenditures incurred in the form of either compensation or purchases including production work, production equipment not eligible for the infrastructure tax credit provided in section 12-217kk, production software, postproduction work, postproduction equipment, postproduction software, set design, set construction, props, lighting, wardrobe, makeup, makeup accessories, special effects, visual effects, audio effects, actors, voice talent, film processing, music, sound mixing, editing, location fees, soundstages, rent, utilities, insurance, administrative support, systems support, all reasonably-related expenses in connection with digital animation production activity, and any and all other costs or services directly incurred in the state in connection with a state-certified digital animation production company;

      (C) Expenditures for distribution, including preproduction, production or postproduction costs relating to the creation of trailers, marketing videos, short films, commercials, point-of-purchase videos and any and all content created on film or digital media, including the duplication of films, videos, CDs, DVDs and any and all digital files now in existence and those yet to be created for mass consumer consumption; the purchase, by a company in the state, of any and all equipment relating to the duplication or mass market distribution of any content created or produced in the state by any digital media format which is now in use and those formats yet to be created for mass consumer consumption; and

      (D) "Production expenses or costs" does not include the following: (i) Compensation in excess of fifteen million dollars paid to any individual or entity representing an individual, for services provided in a digital animation production activity; (ii) media buys, promotional events or gifts or public relations associated with the promotion or marketing of any digital animation production activity; (iii) deferred, leveraged or profit participation costs relating to any and all personnel associated with any and all aspects of the production, including, but not limited to, producer fees, director fees, talent fees and writer fees; (iv) costs relating to the transfer of the digital animation tax credits; and (v) any amounts paid to persons or businesses as a result of their participation in profits from the exploitation of the digital animation production activity.

      (b) (1) The Connecticut Commission on Culture and Tourism shall administer a system of tax credit vouchers within the resources, requirements and purposes of this section for digital animation production companies undertaking digital animation production activity in the state. For income years commencing on or after January 1, 2007, any state-certified digital animation production company incurring production expenses or costs in excess of fifty thousand dollars shall be eligible for a credit against the tax imposed under chapter 207 or this chapter, equal to thirty per cent of such production expenses or costs.

      (2) Any credit allowed pursuant to this section may be sold, assigned or otherwise transferred, in whole or in part, to one or more taxpayers, provided no credit, after issuance, may be sold, assigned or otherwise transferred, in whole or in part, more than three times.

      (3) Any credit allowed pursuant to this section shall be claimed against the tax imposed under chapter 207 or this chapter, for the income year in which the production expenses or costs were incurred, and may be carried forward for the three immediately succeeding income years. Any digital animation tax credit allowed under this section shall be nonrefundable.

      (4) Any digital animation production company receiving a digital animation tax credit pursuant to this section shall not be eligible to apply for or receive a tax credit pursuant to section 12-217jj.

      (c) Not more frequently than twice during the income year of a state-certified digital animation production company, such company may apply to the commission for a digital animation tax credit voucher, and shall provide with such application such information and independent certification as the commission may require pertaining to the amount of such company's production expenses or costs incurred during the period for which such application is made. If the commission determines that the company is eligible to be issued a tax credit voucher, the commission shall enter on the voucher the amount of production expenses and costs incurred during the period for which the voucher is issued and the amount of tax credits issued pursuant to such voucher. The commission shall provide a copy of such voucher to the commissioner upon request.

      (d) If a state-certified digital animation production company sells, assigns or otherwise transfers a credit under this section to another taxpayer, the transferor and transferee shall jointly submit written notification of such transfer to the commission not later than thirty days after such transfer. If such transferee sells, assigns or otherwise transfers a credit under this section to a subsequent transferee, such transferee and such subsequent transferee shall jointly submit written notification of such transfer to the commission not later than thirty days after such transfer. The notification after each transfer shall include the credit voucher number, the date of transfer, the amount of such credit transferred, the tax credit balance before and after the transfer, the tax identification numbers for both the transferor and the transferee, and any other information required by the commission. Failure to comply with this subsection will result in a disallowance of the tax credit until there is full compliance on the part of the transferor and the transferee, and for a second or third transfer, on the part of all subsequent transferors and transferees. The commission shall provide a copy of the notification of assignment to the commissioner upon request.

      (e) Any state-certified digital animation production company that wilfully submits information to the commission that it knows to be fraudulent or false shall, in addition to any other penalties provided by law, be liable for a penalty equal to the amount of such company's credit entered on the digital animation tax credit certificate issued under this section.

      (f) The issuance by the commission of a digital animation tax credit voucher with respect to an amount of tax credits stated thereon shall mean that none of such tax credits are subject to a post-certification remedy, and that the commission and the commissioner shall have no right, except in the case of possible material misrepresentation or fraud, to conduct any further or additional review, examination or audit of the expenditures or costs for which such tax credits were issued. If at any time after the issuance of a tax credit voucher the commission or the commissioner determines that there was a material misrepresentation or fraud on the part of a state-certified digital animation production company in connection with the submission of an expense report and the result of such material misrepresentation or fraud was that (1) a specific amount of tax credits was reflected on the tax credit voucher issued in response to such expense report that would not have otherwise been so reflected, and (2) such tax credits would otherwise be subject to a post-certification remedy, such tax credits shall not be subject to any post-certification remedy and the sole and exclusive remedy of the commission and the commissioner shall be to seek collection of the amount of such tax credits from the digital animation production company that committed the fraud or misrepresentation, not from any transferee of the tax credits.

      (g) The aggregate amount of all tax credits which may be reserved by the commission pursuant to this section shall not exceed fifteen million dollars in any one fiscal year.

      (h) The commission, in consultation with the commissioner, shall adopt regulations, in accordance with the provisions of chapter 54, as may be necessary for the administration of this section.

      (P.A. 07-236, S. 3; June Sp. Sess. P.A. 07-4, S. 71; June Sp. Sess. P.A. 07-5, S. 15.)

      History: P.A. 07-236 effective July 1, 2007, and applicable to income years commencing on or after January 1, 2007; June Sp. Sess. P.A. 07-4 amended Subsec. (c) by inserting "and independent certification", effective July 1, 2007; June Sp. Sess. P.A. 07-5 amended Subsec. (f) to substitute "commission" for "commissioner" re issuance of tax credit voucher and make technical changes, effective October 6, 2007.

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