Connecticut laws/regulations; Program Description;

OLR Research Report

August 20, 2010




By: Rute Pinho, Associate Legislative Analyst

You asked for a summary of the state's film industry tax credit programs. This report updates our prior 2010 OLR reports (2010-R-0117 and 2010-R-0108) to reflect changes made to the credits during the 2010 legislative session.


The law establishes transferable corporation and insurance premium tax credits for film and digital media production, film infrastructure investment, and digital animation production in Connecticut.

1. The film and digital media production credit is 10% to 30% of qualified production, preproduction, and postproduction expenses incurred in the state that exceed $100,000 (CGS 12-217jj).

2. The film infrastructure investment credit is 20% of eligible expenses for projects costing at least $3 million (CGS 12-217kk). The credit is for investments in basic buildings, facilities, or installations that the film and digital media industry needs to function in Connecticut.

3. The digital animation production credit is 10% to 30% of eligible expenses over $100,000 incurred in the state for developing and producing computer-generated animation content for public distribution and exhibition (CGS 12-217ll).

The Department of Economic and Community Development (DECD) administers the credits.


Credit Amount

The law establishes a corporation and insurance premium tax credit for eligible companies that produce qualified films or other types of television, video, or digital media entertainment content in Connecticut. The credit percentage ranges from 10% to 30%, depending on the production's total Connecticut expenses or costs over $100,000. The credit is 10% for expenses between $100,000 and $500,000, 15% for expenses over $500,000 up to $1 million, and 30% for expenses over $1 million. (Prior to January 1, 2010, the credit was 30% of the eligible production costs over $50,000 that such a company incurred in Connecticut.)

In addition to the minimum expenditure requirements, in order to qualify for the credit the production company must (1) conduct at least 25% of its principal photography days in the state or (2) spend at least 50% of a film's post-production costs or $1 million of those costs in the state.

Companies must claim the credit in the income year in which they incurred the expenses or any of the three following years. They may sell or otherwise transfer the credit, but the transferee may only use it in an income year when the production company could have used it. The credit is not refundable.

Eligible Production Companies

A production company is eligible for the movie and digital media production credit if it is a corporation, partnership, limited liability company, or any other type of business entity in the business of making qualified productions (see below). The company must be authorized by the secretary of the state to do business in Connecticut.

Qualified Productions and State-Certified Qualified Productions

Only qualified productions by certified companies are eligible for a tax credit. A state-certified qualified production is one produced by a company that (1) DECD has approved for a production tax credit, (2) complies with DECD program regulations, and (3) is authorized to do business in Connecticut.

With specified exceptions, qualified productions can be any type of entertainment production or content, including:

1. movies;

2. documentaries;

3. long-form specials, mini-series, series, certain sound recordings, videos and music videos, or “interstitials” television programming;

4. interactive television or games;

5. videogames;

6. commercials; or

7. any digital media format, including interactive websites, created primarily for public viewing or distribution.

(The law does not define “interstitials,” but they are typically brief programs that appear during longer ones or that serve as bridges between two longer programs.)

Trailers, pilots, video teasers, and demos for a product or qualified production are also eligible if they are created primarily to stimulate a production's sale, marketing, or promotion, or to exploit future investment in it. The trailers, pilots, video teasers, and demos can use any means and be in any digital media format or on film or videotape, as long they meet all the underlying criteria for a qualified production.

Sound Recordings. Eligible sound recordings are music, poetry, and spoken-word performance recordings. These are not eligible if recorded as part of a movie, video, theatrical production, TV news coverage, or athletic event.

Interactive Websites. Eligible interactive websites are (1) those with production costs in excess of $500,000 per year and (2) primarily (a) interactive games or end-user applications or (b) animation, simulation, sound, graphics, story lines, or video created or converted from another format (“repurposed”) for Internet distribution. Websites used primarily for institutional, private, industrial, retail, wholesale marketing, or promotional purposes, or that contain obscene content are not eligible.

Ineligible Productions

The following types of productions are ineligible for credits:

1. ongoing television programs created primarily as news, weather, or financial market reports;

2. current or sporting events;

3. award shows and other gala events;

4. productions whose sole purpose is fundraising;

5. long-form productions that primarily market a product or service;

6. productions used for corporate training, in-house corporate advertising, or similar productions; and

7. productions containing obscene material or performances on which, by federal law, producers must keep certain records.

Eligible Production Expenses

Eligible costs are all expenditures clearly and demonstrably incurred in Connecticut for pre-production, production, and post-production work.

Compensation or Purchases. Eligible costs include expenditures incurred in Connecticut, whether for compensation or purchases, for:

1. production and post-production work, equipment, and software;

2. production equipment ineligible for the infrastructure tax credit;

3. set design and construction;

4. props, lighting, wardrobe, makeup, and makeup accessories;

5. special, visual, and audio effects;

6. film processing;

7. music, sound mixing, and editing;

8. location fees;

9. soundstages; and

10. all other costs or services directly incurred in connection with a state-certified qualified production.

Credit-eligible compensation includes only base salary and wages. It does not include bonus pay, stock options, restricted stock units, or similar arrangements as part of those expenses.

Distribution Costs. Eligible distribution costs include production or pre- or post-production costs for creating trailers, marketing videos, commercials, point-of-purchase videos, and any other distribution-related content on film or digital media. Distribution expenses also include costs for (1) duplicating films, videos, DVDs, CDs, or any other digital files for mass consumption and (2) a Connecticut company's purchase of equipment related to duplication or mass market distribution of content created or produced in Connecticut by any digital media format.

Ineligible Production Costs

No expenditures for goods or services incurred outside Connecticut but used within the state on a qualified production qualify for a credit. (From January 1, 2009 to January 1, 2010, 50% of such eligible costs qualified for the credit).

The following costs are also ineligible for a credit:

1. compensation over $20 million, subject to Connecticut income tax, paid for all star talent featured in the production;

2. costs for media buys, promotional events, gifts, or public relations associated with promoting or marketing a production;

3. deferred, leveraged, or profit participation costs for people associated with a production, such as producer, director, talent, and writer fees;

4. the cost of transferring the tax credits;

5. amounts paid to people or businesses because of their profit participation in the production; and

6. costs related to an independent audit of film or digital media production project costs and expenses that DECD requires before credit certification.

Credit Application and Approval Procedure

Eligible production companies seeking credits must annually apply to DECD within 90 days of incurring their first production expenses or costs on the qualified production and provide any information DECD requires to determine eligibility. Expenses must only be listed once and cannot be included in more than one claim for a production credit or for an infrastructure or digital animation production credit.

Within 90 days of the end of its annual period or of incurring its last production expenses or costs, the company must apply to DECD for a credit voucher and provide whatever information or audit DECD requires about the production costs. (The production company must choose an audit professional from a list DECD compiles.) DECD charges a reasonable administrative fee sufficient to cover its costs to analyze tax credit applications.

If DECD determines the company is eligible for a credit, it must enter the expense and credit amounts on the voucher. DECD must provide a copy of the voucher to the Department of Revenue Services (DRS) commissioner on request.

Credit Transfers

Companies may sell or otherwise transfer their credits, but the law limits them to three transfers. If a production company sells, assigns, or otherwise transfers a credit to another taxpayer, both must jointly notify DECD in writing within 30 days after the transfer. The notice must include the credit voucher number, transfer date, credit amount transferred, credit balance before and after the transfer, transferor's and transferee's tax identification numbers, and any other information DECD requires. The tax credit is disallowed until the parties fully comply with the notice requirement. DECD must give the DRS commissioner a copy of the transfer notice if he requests it.

Financial Penalties and Limits on Post-Certification Remedies

The law imposes a financial penalty equal to the credit amount on any qualified production company that deliberately submits false or fraudulent information to DECD for purposes of the credit.

Once a credit voucher is transferred, the law limits DECD's and DRS' power to recover, decertify, or reduce the amount of the credit or further audit or examine the production expenses on which the credits is based unless there is the possibility of material misrepresentation or fraud. DECD and the DRS commissioner can only recover the amount of the credit from any entity that committed the fraud or misrepresentation.


The law establishes a transferable credit against the corporation and insurance premium taxes for investments in capital projects for basic buildings, facilities, or installations that the film and digital media industry needs to function in Connecticut. Projects must be DECD-certified. The entity that undertakes the project must (1) comply with DECD regulations; (2) be authorized to do business in Connecticut; (3) not have (a) defaulted on any Connecticut state loan or loan guarantee or (b) had any obligation to repay public funds discharged because of bankruptcy; and (4) be approved for an infrastructure credit by DECD.

Tax Credits

The credit is 20% of eligible expenses for projects costing at least $3 million. (Prior to January 1, 2010, the credit was 10% for projects costing at least $15,000, 15% for projects costing at least $150,000, and 20% for projects costing at least $1 million.)

The law allows companies that receive tax credits to sell or transfer them and allows those who buy them to sell them to other eligible companies. The maximum number of such transfers is three. Taxpayers holding credits can claim them only for the income year in which the infrastructure expenditures were made. Credits are not refundable. Excess credits can be carried forward for three income years.

Infrastructure credit buyers and sellers must jointly notify DECD of a transfer and supply the same information as for a film production credit transfer.

Eligible Expenses

All money spent on a capital project for buildings, facilities, installations, and necessary equipment, whether leased under a capital lease or purchased, is eligible for an infrastructure credit. The project or equipment must be for film, video, television, digital production, or digital animation production facilities. Eligible expenses include those necessary for (1) development, production, pre- and post-production, and distribution equipment and system access; (2) project development, such as design and professional consulting fees and transaction costs; and (3) fixtures and other equipment.

Credit Application Procedure

The process for applying for infrastructure credits is similar to the film production credit application and issuance process. The entity that undertakes the project must apply to DECD within 90 days after incurring its first expenses for the project. It must give DECD the information it requires to determine if the project is eligible for a credit, including, at least, a detailed project description, preliminary budget, and estimated completion date. DECD charges a reasonable administrative fee sufficient to cover its costs to analyze tax credit applications.

DECD can require an independent audit of project costs and expenses before it certifies a project. If it determines a project is eligible, it must indicate the project costs and issue a tax credit certification letter for investors showing the available credits. DECD must give the DRS commissioner a copy of the letter upon request.

The law bars DECD from issuing a tax credit voucher based on the certification letter until the project is 100% complete. Before it issues the voucher, DECD must receive a progress report from the entity building the project and an estimated completion date. It can also require an independent audit of the project costs and spending before issuing a voucher.

Once DECD issues a voucher for an infrastructure credit, the law imposes the same restrictions on the state's audit and tax credit recapture authority as it imposes for the production and digital animation credits.


The law also establishes a separate transferable tax credit for digital animation production activity, which it defines as creating, developing, and producing computer-generated animation content for public distribution and exhibition. As with the film production tax credit, the digital animation credit percentage ranges from 10% to 30%, depending on the total Connecticut expenses or costs over $100,000. The credit is 10% for expenses between $100,000 and $500,000, 15% for expenses over $500,000 up to $1 million, and 30% for expenses over $1 million.

(Prior to January 1, 2010, the credit was 30% of eligible costs over $50,000 that a digital animation company incurred in Connecticut.) It applies against the corporation and insurance premium taxes.

To qualify for a credit, a company must (1) be exclusively engaged in the production activity, (2) maintain a studio in Connecticut, (3) employ at least 200 full-time employees (permanent, non-seasonal employees who work at least 35 hours a week), and (4) be certified by DECD and comply with its regulations. The law sets a $15 million per year limit on the total credits DECD may award. A company that receives a digital animation credit is not eligible to apply for or receive a film production credit.

The digital animation credit has the same application, transfer, post-certification remedy, and other requirements as the overall film and digital media production credit, with the following exceptions.

1. Intellectual property purchase expenses are eligible for a credit, if they are less than 35% of the digital animation production company's expenses or costs in any income year.

2. Expenses for the following additional types of costs are explicitly eligible: actors, voice talent, rent, utilities, insurance, administrative and systems support, and short film production and distribution.

3. A digital animation company can apply for credit vouchers only twice during the company's income year.