Location:
CORPORATIONS; TAXATION;
Scope:
Connecticut laws/regulations; Program Description;

OLR Research Report


January 24, 2013

 

2013-R-0056

OLR BACKGROUNDER: GUIDE TO CONNECTICUT'S BUSINESS TAX CREDITS

By: John Rappa, Chief Analyst

This report updates OLR Report 2011-R-0007 to include changes made during the 2011 and 2012 regular and special sessions.

USING THE GUIDE

Connecticut offers over 30 tax 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 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 report's table of contents is linked to each table and to each credit program.

Table of Contents

Table 1: Fixed Capital Investments 4

Machinery and Equipment

Electronic Data Processing

Fixed Capital Investments

Small Business Guaranty Fee

Table 2: Contributions and Donations 6

Computer Donations to Public and Private Schools

Land Donations

Land Donations for Educational Uses

Neighborhood Assistance Act

Table 3: Energy Conservation and Environmental Protection 8

Traffic Reduction

Green Buildings

Neighborhood Assistance Act, Energy Conservation

Table 4: Human Capital Investment 9

Apprenticeship Training

Human Capital Investments

Hiring Incentive for Temporary Family Assistance Program Participants

Displaced Workers Hired by Electric Suppliers

Hiring Displaced Workers

Creating New Jobs

Small Businesses New Jobs Creation

Vocational Rehabilitation Job Creation

Job Expansion

Neighborhood Assistance Act, Day Care and Job Training

Table 5: Real Estate Development 12

Contributions to Low- and Moderate-Income Housing Programs

Historic Homes Rehabilitation

Converting Historic Business Property to Residential Uses

Rehabilitating Historic Business Property for Mixed Residential and Commercial Use

Urban and Industrial Sites Reinvestment

Table 6: Research and Development 14

Research and Development Grants to Colleges and Universities

Incremental Research and Development Expenditures

Research and Development Expenditures

Table 7: Targeted Area Development 15

Developing Manufacturing Facilities and Specified Service Facilities in Enterprise Zones, Enterprise Corridor Zones, Targeted Investment Communities, Railroad Depot Zones, Qualified Manufacturing Plants, Airport Development Zones, and Bioscience Enterprise Corridor Zone

Developing Service Facilities in Targeted Investment Communities

Developing Entertainment Facilities in Municipalities with Entertainment Districts

Research and Development by Businesses Located in Enterprise Zones

Starting Corporations in Enterprise Zones

Table 8: Targeted Industries Development 17

Financial Institutions

Film Production

Film Production Infrastructure

Digital Animation Production

Table 9: Venture Capital Investments 19

Insurance Reinvestment

Angel Investments

Table 1: Fixed Capital Investments

Tax Credit Program and Year Enacted

Applicable Taxes

Eligibility Criteria

Credit Limits

Machinery and Equipment

(CGS 12-217o; 1993)

Corporation

Businesses qualify if the expenditure for machinery and equipment used in Connecticut exceeds the prior year's expenditure for machinery and equipment used in Connecticut

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; 1994)

Corporation

Unrelated Business Income

Air Carrier

Railroad Company

Community Antenna and Satellite TV Companies

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;1997)

Corporation

Tangible property must:

be acquired from an unrelated person for use by the business

have a class life of more than four years

not be leased during first 12 months after acquisition

be held or used in Connecticut for at least five years after acquisition

5% of fixed capital costs incurred during income year

Small Business Guaranty Fee

(CGS 12-217cc;1999; sunsets December 31, 2013)

Corporation

Businesses with gross annual revenues under $5 million 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

Table 2: Contributions and Donations

Tax Credit Program and Year Enacted

Applicable Taxes

Eligibility Criteria

Credit Limits

Computer Donations to Public and Private Schools (CGS 12-228b; 2000; sunsets December 31, 2013)

Insurance Companies, Hospitals, and Medical Services Corporations

Corporation

Air Carrier

Railroad Company

Community Antenna and Satellite TV Companies

Utility Companies

Donation of new or less than two-year old computers

Businesses must apply to revenue services commissioners for credits

Total credits available to businesses limited to $1 million annually

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

Credit applies only against taxes owned for the year when computers were donated

Land Donations

(CGS 12-217dd; 1999)

Corporation

Open space land:

donated to state, municipality, water company, or nonprofit land conservation organization and

permanently preserved as open space or used as public water supply

Credit equals 50% of:

donated land's fair market value or

value of discounted sales price or interest in land

Unused credits may be carried forward for up to 25 years

Land Donations for Educational Uses (CGS 12-217ff; 2004)

Corporation

Land donated to a municipality or political subdivision for educational uses

Credit equals 50% of:

donated land's fair market value or

value of discounted sales price or interest in land

Unused credits may be carried forward for up to 15 years

Neighborhood Assistance Act (CGS 12-630aa et seq.; 1982)

Insurance Companies, Hospitals, and Medical Services Corporations

Corporation

Air Carrier

Railroad Company

Community Antenna and Satellite TV Companies

Utility Companies

Businesses subject to Business Entity Tax (e.g., S corporations)*

Minimum $250 contribution toward municipally-approved community service program

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

Credit equals100% credit for energy conservation programs; 60% for all other programs; in both cases, credit amount capped at $150,000 annually

Unused credits may be carried backward for up to two years

*PA 11-140 expanded the credits to these businesses but did not make corresponding technical changes to the statutory procedures for claiming the credit.

Table 3: Energy Conservation and Environmental Protection

Tax Credit Program and Year Enacted

Applicable Taxes

Eligibility Criteria

Credit Limits

Traffic Reduction (CGS 12-217s; 1994)

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; 2009)

Corporation

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

Total credits capped at $25 million

Credit amount:

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

additional 0.5% credit if building meets other specified criteria

Businesses can claim only 25% of credit per year

Credits may be assigned or transferred

Unused credits may be carried forward for up to five years

Neighborhood Assistance Act, Energy Conservation (CGS 12-635;1982)

Insurance Companies, Hospitals, and Medical Services Corporations

Corporation

Air Carrier

Railroad Company

Community Antenna and Satellite TV Companies

Utility Companies

Businesses subject to Business Entity Tax (e.g., S corporations)*

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 charitable corporations, foundations, trusts or other entities

Subject to same carry back and cap provisions applicable to other Neighborhood Assistance Act projects

PA 11-140 expanded the credits to these businesses but did not make corresponding technical changes to the statutory procedures for claiming the credit.

Table 4: Human Capital Investment

Tax Credit Program and Year Enacted

Applicable Taxes

Eligibility Criteria

Credit Limits

Apprenticeship Training (CGS 12-217g; 1979)

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

For manufacturing or plastics trade apprenticeship, credit equals maximum $4,800 or 50% of actual wages paid during the first half of a two-year term apprenticeship or first three-quarters of a four-year apprenticeship, whichever is less

For construction trade apprentices, maximum $4,000 or 50% of actual wages paid over first four income years, whichever is less

Human Capital Investments (CGS 12-217x;1997)

Corporation

Eligible investments:

job training

work education

child care subsidies

day care facilities

donations to colleges and universities for technology

contributions to Individual Development Account Reserve funds

Credit equals 5% of investment

Unused credits carried forward for up to five years.

Hiring Incentive for Temporary Family Assistance Program Participants

(CGS 12-217y; 1997)

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

Total $1 million per year cap

Credit equals $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; 1998)

Corporation

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

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

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

Hiring Displaced Workers (CGS 12-217hh; 2006)

Insurance Companies, Hospitals, and Medical Services Corporations

Corporation

Utility Companies

Any business hiring a worker who:

lost his or her previous job because of a restructuring resulting in at least 10 layoffs and

whose new 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; 2006; sunsets December 31, 2011)

Insurance Companies, Hospitals, and Medical Services Corporations

Corporation

Utility Companies

Any business creating at least 10 new jobs, excluding temporary or seasonal jobs, filled by new employees required to work at least 35 hours per week

Total credits for these and the small business, vocational rehabilitation, and job expansion credits capped at $20 million per year

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

Small Business Creating Jobs (CGS 12-217nn; 2010; sunsets December 31, 2012)

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

Total credits for these and the job creation, vocational rehabilitation, job expansion credits capped at $20 million per year

Three-year, $200 per month per new employee credit

Vocational Rehabilitation Job Creation Tax Credit (CGS 12-217oo; 2011; sunsets December 31, 2011)

Insurance Companies, Hospitals, and Medical Services Corporations

Corporation

Personal Income

Business hiring Connecticut residents receiving services from Department of Rehabilitation Services

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

Credits available only for employees hired between May 6, 2010 and December 31, 2012

Three-year, $200 per month per new employee

Total credits for these and the job creation, small business job creation, and job expansion tax credits capped at $20 million per year

Job Expansion Tax Credit Program (CGS 12-217pp; 2011; sunsets December 31, 2013)

Insurance Companies, Hospitals, and Medical Services Corporations

Utility Companies

Corporation

Personal Income

Business creating jobs between January 1, 2012 and December 31, 2013

Required number of jobs to be created depends on number of existing employees

Minimum required hours depending on type of employee:

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

Previously unemployed employees and those receiving services from the Departments of Rehabilitation Services or participating in Department of Social Services programs must work at least 20 hours per week for 48 weeks per calendar year (i.e., qualifying employees)

Total credits for these and the job creation, small business job creation, and vocational rehabilitation tax credits capped at $20 million per year

Three-year credit:

$500 per new employee or

$900 per qualifying employee meeting specified criteria

Neighborhood Assistance Act, Day Care and Job Training (CGS 12-634 and 12-635; 1982)

Insurance Companies, Hospitals, and Medical Services Corporations

Corporation

Air Carrier

Railroad Company

Community Antenna and Satellite TV Companies

Utility Companies

Businesses subject to Business Entity Tax *

Minimum $250 contribution toward municipally-approved community service program

Credit equals 60% credit for contributions to:

daycare facilities used primarily by business' employees (capped at $50,000 per year per business) or

specified job training programs

Credits subject to carry back and cap provisions applicable to other Neighborhood Assistance Act projects

PA 11-140 expended the credits to these businesses but did not make corresponding technical changes to the statutory procedures for claiming the credit.

Table 5: Real Estate Development

Tax Credit Program and Year Enacted

Applicable Taxes

Eligibility Criteria

Credit Limits

Contributions to Low- and Moderate-Income Housing Programs

(CGS 8-395; 1987)

Insurance Companies, Hospitals, and Medical Services Corporations

Corporation

Air Carrier

Railroad Company

Community Antenna and Satellite TV Companies

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

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

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

Historic Homes Rehabilitation (CGS 10-416; 1999)

Insurance Companies, Hospitals, and Medical Services Corporations

Corporation

Air Carrier

Railroad Company

Community Antenna and Satellite TV Companies

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

Property:

must be one- to four-unit dwelling

listed on the National or State Registry of Historic places or located in a historic district and contribute to its character

located in a targeted areas

occupied as owner's principal residence for at least five years

Total credits capped at $3 million per year

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

Unused credits may be carried forward up to four years

Converting Historic Business Property to Residential Uses (CGS 10-416a; 2006)

Insurance Companies, Hospitals, and Medical Services Corporations

Corporation

Air Carrier

Railroad Company

Community Antenna and Satellite TV Companies

Utility Companies

Qualified rehabilitation expenditures for converting historic business structures to residential use

The following types of property listed on the national or state Register of Historic Places or located in an historic district on the national or state register:

commercial or industrial

cultural

institutional

government

residential with at least five units

Total credits capped at $15 million per year

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

Unused credits may be carried forward for up to five years

Rehabilitating Historic Business Property for Mixed Residential and Commercial Use (CGS 10-416b; 2007)

Insurance Companies, Hospitals, and Medical Services Corporations

Corporation

Air Carrier

Railroad Company

Community Antenna and Satellite TV Companies

Utility Companies

Rehabilitation of certified historic business property for mixed residential and nonresidential uses or residential uses

The following types of property listed on the national or state Register of Historic Places or located in an historic district on the national or state register:

commercial or industrial

cultural

institutional

government

residential with at least five units

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

Credit equals 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 ($5 million) available for the three-year cycle

Unused credits may be carried forward up to five years

Urban and Industrial Sites Reinvestment (CGS 32-9t; 2000)

Insurance Companies, Hospitals, and Medical Services Corporations

Corporation

Air Carrier

Railroad Company

Community Antenna

Utility Companies and Satellite TV 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

Minimum asset value of each investment depends on whether taxpayers directly invest in a project or indirectly through a fund manager

Total credits available for all projects capped at $650 million

Credit equals 100% of investment 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

Credits may be assigned to other taxpayers

Unused credits may be carried forward up to five years

Table 6: Research and Development

Tax Credit Program and Year Enacted

Applicable Taxes

Eligibility Criteria

Credit Limits

Research and Development Grants to Colleges and Universities (CGS 12-217l; 1992)

Corporation

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

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

Credit equals 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; 1992)*

Corporation

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

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

Unused credits may be carried forward for up to 15 years

Research and Development Expenditures (CGS 12-217n; 1993)*

Corporation

Credit available to any business spending on R&D

Federally deductible R&D and basic research expenditures incurred in Connecticut

Credit determined according to statutory formula:

Amounts range from 1% for expenditures $50 million or less 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

* Small businesses with R&D credits they cannot claim may apply to the state for a refund equal to 65% of their value (CGS 12-217ee).

Table 7: Targeted Area Development

Tax Credit Program and Year Enacted

Applicable Taxes

Eligibility Criteria

Credit Limits

Developing Manufacturing and Specified Service Facilities in Enterprise Zones (1981 and 1986, respectively), Enterprise Corridor Zones (1994), Targeted Investment Communities (1990), Railroad Depot Zones (1996), Qualified Manufacturing Plants (1996) Airport Development Zones (2010 and 2011), and Bioscience Enterprise Corridor Zones (2010) (CGS 12-217e(a))

Corporation

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

Facility must be:

newly acquired, constructed, substantially renovated, or expanded

used for manufacturing or specified financial services

house new jobs

10-year credit against tax allocable to facility:

25% 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), 1996)

Corporation

Credit available to businesses that develop or acquire facilities and create jobs in municipalities with enterprise zones, but outside the zones.

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),1993)

Corporation

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

Credit available to businesses that develop or acquire facilities and create jobs in or outside entertainment districts

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 12-217n(c), 1999)

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

Starting Corporations in Enterprise Zones (CGS 12-217v, 1996)

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 municipality with the zone and that qualify for federal job training assistance

hire at least 375 people, at least 150 of whom reside in the municipality with the zone or that 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 and Year Enacted

Applicable Taxes

Eligibility Criteria

Credit Limits

Financial Institutions (CGS 12-217u and CGS 32-236(b), 1994, sunsets December 31, 2013)

Corporation

Banks and financial institutions constructing minimum 900,000 square foot facilities and creating an average of 1,200 to 2,000 jobs in Connecticut over a maximum 15-year period

Maximum $145 million credit claimed over 15 years based on annual job levels

For first 10 years maximum $120 million credit subject to the following limits:

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

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

50% for each year business maintains at least 2,000 qualified jobs

For next five years, 25% for each year business maintains at least 3,000 qualified jobs, but the total credit for the 15-year period cannot exceed $145 million

Film Production (CGS 12-217jj, 2006)

Insurance Companies, Hospitals, and Medical Services Corporations

Corporation

Production companies producing a qualified production must incur specified production expenses and costs in Connecticut and

conduct at least 50% of principal photograph days in Connecticut or

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

Qualified production includes “relocated television productions”:

filming in qualified production facility

investing at least $25 million

creating at least 200 jobs

Three-tiered credits:

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

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

30% for eligible expenditures over $1 million

Credit certification for relocated television production companies is good for 10 years

Credits are not refundable, but may be sold, transferred, or assigned up to three times

Unused credits may be carried forward for up to three years

Film Production Infrastructure (CGS 12-217kk, 2007)

Insurance Companies, Hospitals, and Medical Services Corporations

Corporation

Business must spend at least $3 million developing building, facilities, and installations needed for film and digital media production

20% credit

Infrastructure must be 100% completed before credit can be claimed

Credits are not refundable, but may be sold, transferred, or assigned up to three times

Unused credits may be carried forward for up to three years

Digital Animation Production (CGS 12-217ll, 2007)

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

Total annual credits capped at $15 million

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 may be sold, transferred, or assigned up to three times

Unused credits may be carried forward for up to three years

Table 9: Venture Capital Investments

Tax Credit Program and Year Enacted

Applicable Taxes

Eligibility Criteria

Credit Limits

Insurance Reinvestment (CGS 38a-88a, 1994)

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, 2010; no new credits may be allocated after June 30, 2014)

Personal Income Tax

Minimum $25,000 investments in start-up technology-based businesses operating in Connecticut

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

Credit equals 25% of cash investment up to $250,000