Connecticut Seal

General Assembly

File No. 572

    February Session, 2018

Substitute Senate Bill No. 263

Senate, April 18, 2018

The Committee on Finance, Revenue and Bonding reported through SEN. FONFARA of the 1st Dist. and SEN. FRANTZ, L. of the 36th Dist., Chairpersons of the Committee on the part of the Senate, that the substitute bill ought to pass.

AN ACT ELIMINATING CERTAIN UNCLAIMED AND SELDOM CLAIMED TAX CREDITS.

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

Section 1. Subdivision (3) of subsection (n) of section 12-217u of the general statutes is repealed and the following is substituted in lieu thereof (Effective July 1, 2018):

(3) For purposes of determining the number and specification of qualified employees under subsection (d) of this section [, and the number and specification of new employees under section 12-217e,] with respect to any taxpayer which has received financial assistance under section 32-236, the dates, numbers and specifications shall be the dates, numbers and specifications provided in an agreement executed by the Commissioner of Economic and Community Development with such financial institution to provide financial assistance pursuant to section 32-236. In no event shall the definition of qualified employee be more favorable to the employer than the definition provided in this section.

Sec. 2. Section 32-9o of the general statutes is repealed and the following is substituted in lieu thereof (Effective July 1, 2018):

It is hereby found and declared as a matter of legislative determination that: [(a)] (1) There is a serious need for the investment of private capital in business enterprises located in municipalities experiencing conditions of high unemployment, poverty, aging housing stock and low or declining rates of growth in job creation, population and per capita income; [(b)] (2) high property tax rates and the unavailability or high cost of credit to business organizations have discouraged industrial activity in such municipalities and perpetuated prevailing patterns of economic and social stress; [(c)] (3) private capital investment in the construction, renovation and expansion of manufacturing and other industrial facilities will best contribute to increasing employment and an expanding tax base in such municipalities and the development of a more productive and balanced economy in the state; and [(d)] (4) the tax, grant and other financial incentives provided by subdivisions (59) and (60) of section 12-81 and sections [12-217e,] 32-9p to 32-9s, inclusive, as amended by this act, and 32-23p to encourage such private investment are important and necessary applications of the resources of the state in the exercise of its responsibility to preserve and foster the health, safety and general welfare of the state and its people. Accordingly the necessity, in the public interest and for the public benefit and good, of the provisions under said sections is hereby declared as a matter of legislative determination.

Sec. 3. Section 32-9p of the general statutes is repealed and the following is substituted in lieu thereof (Effective July 1, 2018):

As used in subdivisions (59) and (60) of section 12-81 and sections [12-217e,] 32-9p to 32-9s, inclusive, as amended by this act, and 32-23p, the following words and terms have the following meanings:

(a) "Area of high unemployment" means, as of the date of any final and official determination by the authority or the department to extend assistance under said sections, any municipality which is a distressed municipality as defined in subsection (b) of this section, and any other municipality in the state which in the calendar year preceding such determination had a rate of unemployment which exceeded one hundred ten per cent of the average rate of unemployment in the state for the same calendar year, as determined by the Labor Department, provided no such other municipality with an unemployment rate of less than six per cent shall be an area of high unemployment.

(b) "Distressed municipality" means, as of the date of the issuance of an eligibility certificate, any municipality in the state which, according to the United States Department of Housing and Urban Development meets the necessary number of quantitative physical and economic distress thresholds which are then applicable for eligibility for the urban development action grant program under the Housing and Community Development Act of 1977, as amended, or any town within which is located an unconsolidated city or borough which meets such distress thresholds. Any municipality which, at any time subsequent to July 1, 1978, has met such thresholds but which at any time thereafter fails to meet such thresholds, according to said department, shall be deemed to be a distressed municipality for a period of five years subsequent to the date of the determination that such municipality fails to meet such thresholds, unless such municipality elects to terminate its designation as a distressed municipality, by vote of its legislative body, not later than September 1, 1985, or not later than three months after receiving notification from the commissioner that it no longer meets such thresholds, whichever is later. In the event a distressed municipality elects to terminate its designation, the municipality shall notify the commissioner and the Secretary of the Office of Policy and Management in writing within thirty days. In the event that the commissioner determines that amendatory federal legislation or administrative regulation has materially changed the distress thresholds thereby established, "distressed municipality" means any municipality in the state which meets comparable thresholds of distress which are then applicable in the areas of high unemployment and poverty, aging housing stock and low or declining rates of growth in job creation, population and per capita income as established by the commissioner, consistent with the purposes of subdivisions (59) and (60) of section 12-81 and sections [12-217e,] 32-9p to 32-9s, inclusive, as amended by this act, and 32-23p, in regulations adopted in accordance with chapter 54. For purposes of sections 32-9p to 32-9s, inclusive, as amended by this act, "distressed municipality" also means any municipality adversely impacted by a major plant closing, relocation or layoff, provided the eligibility of a municipality shall not exceed two years from the date of such closing, relocation or layoff. The Commissioner of Economic and Community Development shall adopt regulations, in accordance with the provisions of chapter 54, which define what constitutes a "major plant closing, relocation or layoff" for purposes of sections 32-9p to 32-9s, inclusive, as amended by this act. "Distressed municipality" also means the portion of any municipality which is eligible for designation as an enterprise zone pursuant to subdivision (2) of subsection (b) of section 32-70.

(c) "Eligibility certificate" means a certificate issued by the department pursuant to section 32-9r, as amended by this act, evidencing its determination that a facility for which an application for assistance has been submitted qualifies as a manufacturing facility and is eligible for assistance under [section 12-217e and] subdivisions (59) and (60) of section 12-81.

(d) "Manufacturing facility" means any plant, building, other real property improvement, or part thereof, (1) which (A) is constructed or substantially renovated or expanded on or after July 1, 1978, in a distressed municipality, a targeted investment community as defined in section 32-222, an enterprise zone designated pursuant to section 32-70 or an airport development zone established pursuant to section 32-75d, or (B) is acquired on or after July 1, 1978, in a distressed municipality, a targeted investment community as defined in section 32-222, an enterprise zone designated pursuant to said section 32-70 or an airport development zone established pursuant to section 32-75d, by a business organization which is unrelated to and unaffiliated with the seller, after having been idle for at least one year prior to its acquisition and regardless of its previous use; (2) which is to be used for the manufacturing, processing or assembling of raw materials, parts or manufactured products, for research and development facilities directly related to manufacturing, for the significant servicing, overhauling or rebuilding of machinery and equipment for industrial use, or, except as provided in this subsection, for warehousing and distribution or, (A) if located in an enterprise zone designated pursuant to said section 32-70, which is to be used by an establishment, an auxiliary or an operating unit of an establishment, which is an economic base business as defined in subsection (d) of section 32-222 or has a North American Industrial Classification code of 114111 through 114210, 311111 through 339999, 482111 through 484230, 488310, 488320, 488991, 493120, 493130, 493190, 511210, 512110, 512120, 512191, 522210, 522293, 522294, 522298, 522310, 522320, 522390, 523110, 523120, 523130, 523140, 523210, 523910, 524113, 524114, 524126, 524127, 524128, 524130, 524292, 541711, 541712, 551111, 551112, 551114, 561422, 611310, 611410, 611420, 611430, 611513, 611519, 611710 or 624410 or any business that is part of an economic cluster, as defined in subsection (e) of section 32-222, or any establishment or auxiliary or operating unit thereof, as defined in the North American Industrial Classification System Manual, or (B) if located in an enterprise zone designated pursuant to said section 32-70, which is to be used by an establishment primarily engaged in supplying goods or services in the fields of computer hardware or software, computer networking, telecommunications or communications, or (C) if located in a municipality with an entertainment district designated under section 32-76 or established under section 2 of public act 93-311, is to be used in the production of entertainment products, including multimedia products, or as part of the airing, display or provision of live entertainment for stage or broadcast, including support services such as set manufacturers, scenery makers, sound and video equipment providers and manufacturers, stage and screen writers, providers of capital for the entertainment industry and agents for talent, writers, producers and music properties and technological infrastructure support including, but not limited to, fiber optics, necessary to support multimedia and other entertainment formats, except entertainment provided by or shown at a gambling or gaming facility or a facility whose primary business is the sale or serving of alcoholic beverages, or (D) if located in an airport development zone established pursuant to section 32-75d, (i) which, for the Bradley Airport development zone, is to be used for the warehousing or motor freight distribution of goods transported by aircraft to or from an airport located in such zone, or (ii) in the opinion of the Commissioner of Economic and Community Development, may be dependent upon or directly related to such airport and which, except as provided in this subparagraph, is to be used for any other business service, excluding any service provided by an organization that has a North American Industrial Classification code of 237130, 441110 to 454390, inclusive, 532111, 532112 or 812930; and (3) for which the department has issued an eligibility certificate in accordance with section 32-9r, as amended by this act. In the case of facilities which are acquired, the department may waive the requirement of one year of idleness if it determines that, absent qualification as a manufacturing facility under subdivisions (59) and (60) of section 12-81, and sections [12-217e,] 32-9p to 32-9s, inclusive, as amended by this act, and 32-23p, there is a high likelihood that the facility will remain idle for one year. In the case of facilities located in an enterprise zone designated pursuant to said section 32-70, (A) the idleness requirement in subparagraph (B) of subdivision (1) of this subsection, for business organizations which over the six months preceding such acquisition have had an average total employment of between six and nineteen employees, inclusive, shall be reduced to a minimum of six months, and (B) the idleness requirement shall not apply to business organizations with an average total employment of five or fewer employees, provided no more than one eligibility certificate shall be issued under this subparagraph for the same facility within a three-year period. Of those facilities which are for warehousing and distribution, only those which are newly constructed or which represent an expansion of an existing facility qualify as manufacturing facilities. In the event that only a portion of a plant is acquired, constructed, renovated or expanded, only the portion acquired, constructed, renovated or expanded constitutes the manufacturing facility. A manufacturing facility which is leased may for the purposes of subdivisions (59) and (60) of section 12-81 and sections [12-217e,] 32-9p to 32-9s, inclusive, as amended by this act, and 32-23p, be treated in the same manner as a facility which is acquired if the provisions of the lease serve to further the purposes of subdivisions (59) and (60) of section 12-81 and sections [12-217e,] 32-9p to 32-9s, inclusive, as amended by this act, and 32-23p and demonstrate a substantial, long-term commitment by the occupant to use the manufacturing facility, including a contract for lease for an initial minimum term of five years with provisions for the extension of the lease at the request of the lessee for an aggregate term which shall not be less than ten years, or the right of the lessee to purchase the facility at any time after the initial five-year term, or both. For a facility located in an enterprise zone designated pursuant to said section 32-70, and occupied by a business organization with an average total employment of ten or fewer employees over the six-month period preceding acquisition, such contract for lease may be for an initial minimum term of three years with provisions for the extension of the lease at the request of the lessee for an aggregate term which shall not be less than six years, or the right of the lessee to purchase the facility at any time after the initial three-year term, or both, and may also include the right for the lessee to relocate to other space within the same enterprise zone, provided such space is under the same ownership or control as the originally leased space or if such space is not under such same ownership or control as the originally leased space, permission to relocate is granted by the lessor of such originally leased space, and such relocation shall not extend the duration of benefits granted under the original eligibility certificate. Except as provided in subparagraph (B) of subdivision (1) of this subsection, a manufacturing facility does not include any plant, building, other real property improvement or part thereof used or usable for such purposes which existed before July 1, 1978.

(e) "Service facility" means a manufacturing facility described in subparagraph (A) or (B) of subdivision (2) of subsection (d) of this section, provided such facility is located outside of an enterprise zone in a targeted investment community.

(f) "Capital reserve fund bond", "commissioner", "department", "industrial project" and "insurance fund" have the meanings provided in section 32-23d.

(g) "Municipality" means any town, city or borough in the state.

Sec. 4. Section 32-9r of the general statutes is repealed and the following is substituted in lieu thereof (Effective July 1, 2018):

(a) Any person may apply to the department for a determination as to whether the facility described in an application qualifies as a manufacturing facility or service facility. Applications for eligibility certificates are to be made on the forms and in the manner prescribed by the department. In evaluating each application the department may require the submission of all books, records, documents, drawings, specifications, certifications and other evidentiary items which it deems appropriate. No eligibility certificate shall be issued after March 1, 1991, for a manufacturing facility located in a distressed municipality which does not qualify as a targeted investment community unless the department has issued to the applicant a commitment letter for such facility prior to March 1, 1991. Notwithstanding the provisions of this subsection, an eligibility certificate may be issued by the department after March 1, 1991, for a qualified manufacturing facility acquired, constructed or substantially renovated in a distressed municipality provided the commissioner determines that such acquisition, construction or substantial renovation was initiated prior to March 1, 1991, and was legitimately induced by the prospect of assistance under section 12-217e, revision of 1958, revised to January 1, 1991, and subdivisions (59) and (60) of section 12-81, respectively. The department may issue an eligibility certificate for a qualified manufacturing facility or a qualified service facility located in a targeted investment community upon determination by the commissioner (A) that the acquisition, construction or substantial renovation relating to the qualified manufacturing facility or qualified service facility in such community was induced by the prospect of assistance under [section 12-217e and] subdivisions (59) and (60) of section 12-81; and (B) the applicant demonstrates an economic need or there is an economic benefit to the state. The department shall issue an eligibility certificate for a qualified manufacturing facility located in an airport development zone established pursuant to section 32-75d, and may issue an eligibility certificate for a facility described in subparagraph (D) of subdivision (2) of subsection (d) of section 32-9p, as amended by this act, upon determination by the department (i) that the acquisition, construction or substantial renovation relating to the qualified manufacturing facility or facility described in said subparagraph (D) in the airport development zone was induced by the prospect of assistance under [section 12-217e and] subdivisions (59) and (60) of section 12-81; (ii) the applicant demonstrates an economic need and there is an economic benefit to the state without causing an economic detriment to or conflict with an existing zone; and (iii) that the applicant serves an airport-related function or relies substantially on airport services. The department shall issue an eligibility certificate if the commissioner determines (1) that the manufacturing facility is located in an enterprise zone designated pursuant to section 32-70 and is a qualified manufacturing facility, or (2) that the facility is a plant, building, other real property improvement, or part thereof, which is located in a municipality with an entertainment district designated under section 32-76 or established under section 2 of public act 93-311, and which qualifies as a "manufacturing facility" under subsection (d) of section 32-9p, as amended by this act, in that it is to be used in the production of entertainment products, including multimedia products, or as part of the airing, display or provision of live entertainment for stage or broadcast, including support services such as set manufacturers, scenery makers, sound and video equipment providers and manufacturers, stage and screen writers, providers of capital for the entertainment industry and agents for talent, writers, producers and music properties and technological infrastructure support including, but not limited to, fiber optics, necessary to support multimedia and other entertainment formats, except entertainment provided by or shown at a gambling or gaming facility or a facility whose primary business is the sale or serving of alcoholic beverages.

(b) The department shall reach a determination as to the eligibility of a facility within a reasonable time period, but may postpone the determination to the extent required to verify to its satisfaction that there is a high likelihood that any proposed facility will actually be constructed, expanded, substantially renovated or acquired. Upon a favorable finding, the department shall issue to the applicant a certificate to the effect that the facility concerned is a manufacturing facility or a service facility and is eligible for assistance under [section 12-217e and] subdivisions (59) and (60) of section 12-81.

(c) Except as specified in subsection (d) of this section, upon an unfavorable determination the department shall issue a notice to the applicant to the effect that the facility concerned has been determined not to be a manufacturing facility or a service facility, together with a statement in reasonable detail as to the reasons for the unfavorable determination. Any aggrieved applicant shall be afforded an opportunity for a public hearing on the matter within thirty days following issuance of the notice. The department shall reconsider the application based upon the information presented at the public hearing and reaffirm or change its earlier determination within ten days of the hearing.

(d) Upon an unfavorable determination regarding an application concerning an airport development zone, the department shall issue a notice to the applicant to the effect that the facility concerned has been determined not to be a manufacturing facility or a service facility, together with a statement in reasonable detail as to the reasons for the unfavorable determination. Any aggrieved applicant shall be afforded an opportunity for a public hearing on the matter within thirty days following issuance of the notice. The department shall reconsider the application based upon the information presented at the public hearing and reaffirm or change its earlier determination within ten days of the hearing.

(e) The decision of the department rendered pursuant to subsection (c) or (d) of this section to issue an eligibility certificate or to deny an application for the issuance of an eligibility certificate either upon the expiration of thirty days without a public hearing following an initial unfavorable determination or upon any reconsideration of the application pursuant to subsection (c) or (d) of this section is conclusive and final as to the matters thereby decided, and chapter 54 shall not apply to the administrative determinations authorized to be made by this section.

(f) Any person who claims a benefit under [section 12-217e or] subdivisions (59) and (60) of section 12-81 shall notify the department of any change in fact or circumstance which may bear upon the continued qualification as a manufacturing facility or a service facility for which an eligibility certificate has been issued. Upon receipt of such information or upon independent investigation, the department may revoke the eligibility certificate in the manner provided in subsection (c) of this section.

(g) The commissioner shall adopt regulations, in accordance with chapter 54, to carry out the provisions of this section. Such regulations shall provide that establishments in the category of business support services, as defined in subsection (b) of section 32-222, or manufacturing facilities, as defined in subsection (d) of section 32-9p, as amended by this act, may be eligible for a certificate if they are located in an enterprise zone.

Sec. 5. Subsection (o) of section 32-9t of the general statutes is repealed and the following is substituted in lieu thereof (Effective July 1, 2018, and applicable to income years commencing on or after January 1, 2018):

(o) No taxpayer shall be eligible for a credit under (1) this section, and (2) section [12-217e or] 38a-88a, as amended by this act, for the same investment. No two taxpayers shall be eligible for any tax credit with respect to the same investment or the same project costs.

Sec. 6. Subsection (e) of section 32-56 of the general statutes is repealed and the following is substituted in lieu thereof (Effective July 1, 2018):

(e) Any business facility located in a municipality declared by the commissioner to be severely impacted by a prime defense contract cutback or major aerospace or defense plant closure pursuant to subsection (c) of this section, which facility would be a manufacturing facility, as defined in subsection (d) of section 32-9p, as amended by this act, but for the fact that the facility is not in a distressed municipality, as defined in subsection (b) of section 32-9p, as amended by this act, will be deemed a manufacturing facility for the purposes of sections 32-9p to 32-9s, inclusive, as amended by this act, [section 12-217e,] and subdivisions (59) and (60) of section 12-81, if the purpose of the construction, expansion, renovation or acquisition of such facility is not dependent on prime defense contracts or related subcontracts. The provisions of this section shall apply to a business facility located in a building that was vacant (1) on July 1, 1998, and was formerly used for defense manufacturing, or (2) on or after June 21, 2011, and was formerly a major aerospace or defense plant with not less than eight hundred employees.

Sec. 7. Subsection (h) of section 38a-88a of the 2018 supplement to the general statutes is repealed and the following is substituted in lieu thereof (Effective July 1, 2018, and applicable to income years commencing on or after January 1, 2018):

(h) No taxpayer shall be eligible for a credit under this section and [either section 12-217e or] section 12-217m for the same investment. No two taxpayers shall be eligible for any tax credit with respect to the same investment, employee or facility.

Sec. 8. Sections 12-217e and 12-217v of the general statutes are repealed. (Effective July 1, 2018)

This act shall take effect as follows and shall amend the following sections:

Section 1

July 1, 2018

12-217u(n)(3)

Sec. 2

July 1, 2018

32-9o

Sec. 3

July 1, 2018

32-9p

Sec. 4

July 1, 2018

32-9r

Sec. 5

July 1, 2018, and applicable to income years commencing on or after January 1, 2018

32-9t(o)

Sec. 6

July 1, 2018

32-56(e)

Sec. 7

July 1, 2018, and applicable to income years commencing on or after January 1, 2018

38a-88a(h)

Sec. 8

July 1, 2018

Repealer section

Statement of Legislative Commissioners:

In Sec. 3(d)(3) and Sec. 5(o), "as amended by this act" was inserted to conform to standard drafting conventions.

CE

Joint Favorable Subst.-LCO C/R

FIN

FIN

Joint Favorable

 

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:

Agency Affected

Fund-Effect

FY 19 $

FY 20 $

Department of Revenue Services

GF - Revenue Gain

1.8 million

2 million

Note: GF=General Fund

Municipal Impact: None

Explanation

The bill, which eliminates two Corporation Business Tax credit programs, results in a revenue gain of $1.8 million in FY 19 and $2 million in FY 20 and annually thereafter.

The Out Years

The annualized ongoing fiscal impact identified above would continue into the future.

Sources:

Department of Revenue Services Annual Reports

OLR Bill Analysis

sSB 263

AN ACT ELIMINATING CERTAIN UNCLAIMED AND SELDOM CLAIMED TAX CREDITS.

SUMMARY

This bill eliminates the corporation business tax credit programs for (1) establishing new businesses in the state's 18 enterprise zones and (2) developing or acquiring facilities for specified uses in these zones and other designated areas (see BACKGROUND). It also makes several technical and conforming changes.

EFFECTIVE DATE: July 1, 2018, except the conforming changes to the statutes prohibiting taxpayers from claiming tax credits under multiple programs take effect on that date and apply to income years beginning on or after January 1, 2018.

ELIMINATED TAX CREDIT PROGRAMS

Creating Corporations in Enterprise Zones (CGS 12-217v)

The bill eliminates the program providing a 10-year corporation business tax credit for creating a business in an enterprise zone and meeting specified employment goals. The credit is for 100% of the business's tax liability for the first three years and 50% for the next seven.

The employment goals businesses must meet to claim the credit vary depending on whether a business is a bioscience business. Bioscience businesses must employ at least 75 employees who reside in the enterprise zone or its host municipality and qualify for federal training assistance. But if the business has at least 188 employees, then at least 40% of them must meet the same criteria.

Other businesses may similarly claim the credit if they employ at least 150 people who reside in the enterprise zone or its host municipality and qualify for federal job training assistance. If they employ at least 375 people, then at least 40% of them must meet these criteria.

Developing or Acquiring Facilities in Enterprise Zones and other Designated Areas (CGS 12-217e)

The bill eliminates the corporation business tax credit program for developing or acquiring facilities in designated areas. The program has two components, each geared toward certain types of facilities located in different designated areas.

The bill eliminates the first component that provides a flat 10-year credit, in an amount that varies as follows:

The bill also eliminates the program's second component that provides a 10-year sliding scale credit to service firms that acquire or develop property outside of an enterprise zone in a targeted investment community. The credit amount is based on the number of jobs they create and ranges from 15% for creating between 300 and 500 jobs to 50% for creating 2,000 or more jobs.

BACKGROUND

Designated Areas

The bill eliminates two tax credit programs geared toward businesses in targeted investment communities and distressed municipalities, which Table 1 identifies. By law, a municipality with an enterprise zone is designated a targeted investment community (CGS 32-222 (u)).

Table 1: Targeted Investment Communities and Distressed Municipalities

Targeted Investment Communities

Distressed Municipalities

Bridgeport

Bristol

East Hartford

Groton

Hamden

Hartford

Meriden

Middletown

New Britain

New Haven

New London

Norwalk

Norwich

Southington

Stamford

Thomaston

Waterbury

Windham

Ansonia

Bridgeport

Bristol

Chaplin

Derby

East Hartford

East Haven

Enfield

Griswold

Hartford

Killingly

Meriden

Montville

Naugatuck

New Britain

New Haven

New London

Norwich

Plymouth

Putnam

Sprague

Torrington

Waterbury

West Haven

Windham

The municipalities with entertainment districts are Bridgeport, New Britain, Stamford, and Windham.

The municipalities that have or are part of an airport development zone are: East Granby, Suffield, Windsor, and Windsor Locks (i.e., Bradley Airport Development Zone); Groton and New London (i.e., Groton-New London Airport Development Zone); and Waterbury and Oxford (i.e., Waterbury-Oxford Development Zone).

COMMITTEE ACTION

Commerce Committee

Joint Favorable Change of Reference - FIN

Yea

20

Nay

0

(03/22/2018)

Finance, Revenue and Bonding Committee

Joint Favorable

Yea

51

Nay

0

(04/05/2018)

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