File No. 314

Senate, April 3, 2014

The Committee on Commerce reported through SEN. LEBEAU of the 3rd Dist., Chairperson of the Committee on the part of the Senate, that the substitute bill ought to pass.

AN ACT INCREASING THE CAP ON THE NEIGHBORHOOD ASSISTANCE ACT TAX CREDIT PROGRAM AND EXTENDING THE PROGRAM TO PASS-THROUGH ENTITIES.

Be it enacted by the Senate and House of Representatives in General Assembly convened:

Section 1. Subsection (i) of section 12-632 of the general statutes is repealed and the following is substituted in lieu thereof (Effective July 1, 2014):

(i) In no event shall the total amount of all tax credits allowed to all business firms pursuant to the provisions of this chapter exceed [five] ten million dollars in any one fiscal year. Three million dollars of the total amount of tax credits allowed shall be granted to business firms eligible for tax credits pursuant to section 12-635, as amended by this act.

Sec. 2. Section 12-632 of the general statutes is amended by adding subsection (k) as follows (Effective July 1, 2014, and applicable to income and taxable years commencing on or after January 1, 2014):

(NEW) (k) If any business firm granted a tax credit under this chapter is an S corporation or an entity treated as a partnership for federal income tax purposes, the shareholders or partners of such business firm may claim the credit. If the business firm is a single-member limited liability company that is disregarded as an entity separate from its owner, the limited liability company's owner may claim the credit.

Sec. 3. Section 12-633 of the general statutes is repealed and the following is substituted in lieu thereof (Effective July 1, 2014, and applicable to income and taxable years commencing on or after January 1, 2014):

The Commissioner of Revenue Services shall grant a credit against any tax due under the provisions of chapter 207, 208, 209, 210, 211, [or] 212 or 229, other than the liability imposed by section 12-707, in an amount not to exceed sixty per cent of the total cash amount invested during the income or taxable year by the business firm in programs operated or created pursuant to proposals approved pursuant to section 12-632, as amended by this act, provided a tax credit not to exceed one hundred per cent of the total cash amount invested during [the taxable] such year by the business firm may be allowed for investment in certain energy conservation projects as provided in subdivisions (1) and (2) of section 12-635, as amended by this act.

Sec. 4. Section 12-634 of the general statutes is repealed and the following is substituted in lieu thereof (Effective July 1, 2014, and applicable to income and taxable years commencing on or after January 1, 2014):

The Commissioner of Revenue Services shall grant a credit against any tax due under the provisions of chapter 207, 208, 209, 210, 211, [or] 212 or 229, other than the liability imposed by section 12-707, in an amount not to exceed sixty per cent of the total cash amount invested during the income or taxable year by the business firm in programs operated or created pursuant to proposals approved pursuant to section 12-632, as amended by this act, for planning, site preparation, construction, renovation or acquisition of facilities for purposes of establishing a child day care facility to be used primarily by the children of such business firm's employees and equipment installed for such facility, including kitchen appliances, to the extent that such equipment or appliances are necessary in the use of such facility for purposes of child day care, provided: (1) Such facility is operated under the authority of a license issued by the Commissioner of Public Health in accordance with sections 19a-77 to 19a-87, inclusive, (2) such facility is operated without profit by such business firm related to any charges imposed for the use of such facility for purposes of child day care, and (3) the amount of tax credit allowed any business firm under the provisions of this section for any income year may not exceed fifty thousand dollars. If two or more business firms share in the cost of establishing such a facility for the children of their employees, each such taxpayer shall be allowed such credit in relation to the respective share, paid or incurred by such taxpayer, of the total expenditures for the facility in such income year. The commissioner shall not grant a credit pursuant to this section to any taxpayer claiming a credit for the same year pursuant to section 12-217x.

Sec. 5. Section 12-635 of the general statutes is repealed and the following is substituted in lieu thereof (Effective July 1, 2014, and applicable to income and taxable years commencing on or after January 1, 2014):

The Commissioner of Revenue Services shall grant a credit against any tax due under the provisions of chapter 207, 208, 209, 210, 211, [or] 212 or 229, other than the liability imposed by section 12-707: (1) In an amount not to exceed one hundred per cent of the total cash amount invested during the income or taxable year by the business firm in programs operated or created pursuant to proposals approved pursuant to section 12-632, as amended by this act, for energy conservation projects directed toward properties occupied by persons, at least seventy-five per cent of whom are at an income level not exceeding one hundred fifty per cent of the poverty level for the year next preceding the year during which such tax credit is to be granted; (2) in an amount equal to one hundred per cent of the total cash amount invested during the income or taxable year by the business firm in programs operated or created pursuant to proposals approved pursuant to section 12-632, as amended by this act, for energy conservation projects at properties owned or occupied by charitable corporations, foundations, trusts or other entities as determined under regulations adopted pursuant to this chapter; or (3) in an amount not to exceed sixty per cent of the total cash amount invested during the income or taxable year by the business firm (A) in employment and training programs directed at youths, at least seventy-five per cent of whom are at an income level not exceeding one hundred fifty per cent of the poverty level for the year next preceding the year during which such tax credit is to be granted; (B) in employment and training programs directed at handicapped persons as determined under regulations adopted pursuant to this chapter; (C) in employment and training programs for unemployed workers who are fifty years of age or older; (D) in education and employment training programs for recipients in the temporary family assistance program; or (E) in child care services. Any other program [which] that serves persons at least seventy-five per cent of whom are at an income level not exceeding one hundred fifty per cent of the poverty level for the year next preceding the year during which such tax credit is to be granted and [which] that meets the standards for eligibility under this chapter shall be eligible for a tax credit under this section in an amount equal to sixty per cent of the total cash invested by the business firm in such program.

Sec. 6. Section 12-635a of the general statutes is repealed and the following is substituted in lieu thereof (Effective July 1, 2014, and applicable to income and taxable years commencing on or after January 1, 2014):

The Commissioner of Revenue Services shall grant a credit against any tax due under the provisions of chapter 207, 208, 209, 210, 211, [or] 212 or 229, other than the liability imposed by section 12-707, in an amount not to exceed sixty per cent of the total cash amount invested during the income or taxable year by the business firm in community-based alcoholism prevention or treatment programs operated or created pursuant to proposals approved pursuant to section 12-632, as amended by this act.

The following Fiscal Impact Statement and Bill Analysis are prepared for the benefit of the members of the General Assembly, solely for purposes of information, summarization and explanation and do not represent the intent of the General Assembly or either chamber thereof for any purpose. In general, fiscal impacts are based upon a variety of informational sources, including the analyst's professional knowledge. Whenever applicable, agency data is consulted as part of the analysis, however final products do not necessarily reflect an assessment from any specific department.


OFA Fiscal Note

State Impact:

Municipal Impact: None

Explanation

The bill expands the existing Neighborhood Assistance Act (NAA) tax credit program by increasing, from $5.0 million to $10.0 million, the aggregate annual cap on the amount of credits that may be awarded, and by allowing more taxpayers to claim the credits. This results in a revenue loss of up to $5.0 million annually beginning in FY 15, and a one-time cost to the Department of Revenue Services (DRS) of $3,000-$5,000 in FY 15 only.¹

The one-time cost of $3,000-$5,000 to DRS is for personal income tax form alteration and changes to the online Taxpayer Service Center (TSC) in order to accommodate the provisions of the bill extending the credit to pass-through business entities.

The Out Years

The annualized ongoing revenue impact identified above would remain constant into the future due to the annual cap on the amount of credits available

OLR Bill Analysis

sSB 75

AN ACT INCREASING THE CAP ON THE NEIGHBORHOOD ASSISTANCE ACT TAX CREDIT PROGRAM AND EXTENDING THE PROGRAM TO PASS-THROUGH ENTITIES.

SUMMARY:

This bill expands the Neighborhood Assistance Act (NAA) Program, which provides tax credits to businesses that contribute to or invest in certain municipally approved community projects and programs. It raises, from $5 million to $10 million, the cap on the amount of credits the Department of Revenue Services (DRS) can annually award for these purposes. DRS must continue to award, as the law requires, $3 million in NAA credits to businesses contributing funds specifically for energy conservation projects, job training programs, and programs benefiting low-income people.

The bill also authorizes an income tax credit for making NAA contributions and investments by allowing taxpayers who own, hold shares in, or are partners in a business entity that does not pay business taxes except the $250 business entity tax. The income the entity generates is passed through to these taxpayers and is subject to the personal income tax. Entities that pass through income in this manner are often referred to as “pass-through” entities and include S corporations, limited liability companies, limited liability partnerships, and limited partnerships.

EFFECTIVE DATE: July 1, 2014, and the income tax credits apply to income years beginning on or after January 1, 2014.

NAA TAX CREDITS FOR PASS-THROUGH ENTITIES

The bill allows NAA credits, currently available only against income taxes on businesses, to also be used against the personal income tax. In doing so, it allows taxpayers who own, hold shares in, or partner in a pass-through entity to claim credits against their personal income taxes for the contributions or investments the entity makes in a NAA project or program. The bill does not specify how an entity's shareholders or partners must apportion the income tax credit. Presumably, these taxpayers would divide credit in proportion to their shares of the business' income.

The bill specifies that the shareholders or partners of an S corporation or an entity regarded as a partnership for paying federal income taxes may claim NAA program credits. It also specifies that the owner of a single-member limited liability company may claim the credit if the entity is separated from the owner and ignored or disregarded for federal income taxes.

BACKGROUND

NAA

Under current law, the NAA program provides business tax credits to businesses that contribute or invest at least $250 in certain municipally approved community activities and programs. The credits are generally 60% of the contribution or investment, although certain energy conservation related investments are eligible for a 100% credit. But a business can annually claim no more than (1) $50,000 per year for investing in childcare facilities and (2) $150,000 for other NAA-eligible contributions or investments.

COMMITTEE ACTION

Commerce Committee

Joint Favorable Substitute

¹ According to DRS, credit-eligible donations under the NAA program currently exceed the $5.0 million cap.