Catherine Smith, Commissioner, DECD Nandika Prakash, Ph.D., Economist, DECD Peter Lent, Assistant Executive Director, DECD July 12, 2012 Presentation to

Catherine Smith, Commissioner, DECDNandika Prakash, Ph.D., Economist, DECDPeter Lent, Assistant Executive Director, DECD

July 12, 2012

Presentation to the Governor’s Business Tax Policy Review Task ForcePresentation to the Governor’s Business Tax Policy Review Task Force

Business Tax CreditsBusiness Tax Credits

AgendaAgenda

Business Tax Credits Credits and Other Programs Administered by DECD Credits Administered by Other Agencies Other Available Credits

Where applicable, the use of the tax credit against the Insurance Premiums Tax will be illustrated as well

2

SummarySummary

Summary:

In 2009, a total of 3,742 credits were filed against the corporate income tax. The total amount claimed was $128,892,313.

In 2009, a total of 145 credits were filed against the insurance premiums tax. The total amount claimed was $70,161,536.

Therefore, the average corporate business tax credit in 2009 was $34,445.

The average insurance premiums tax credit in 2009 was $483,873.

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Credits Not CoveredCredits Not Covered

Credits Recently Repealed or About to be Repealed: Financial Institutions Tax Credit Qualified Small Business Job Creation Tax Credit New Jobs Creation Tax Credit Vocational Rehabilitation Job Creation Tax Credit Computer Donation Tax Credit Small Business Guaranty Fee Traffic Reduction

(in effect but state has no qualifying non-attainment areas)

4

Tax Credits and other Programs Tax Credits and other Programs Administered by DECDAdministered by DECD

Urban and Industrial Site Reinvestment Tax Credit

Enterprise Zone Tax Credit and Related Programs

New Insurance Reinvestment Fund Tax Credit

Job Expansion Tax Credit

Film Production Tax Credit

Film Production Infrastructure Tax Credit

Digital Animation Tax Credit

Historic Homes Rehabilitation Tax Credit

Historic Preservation Tax Credit

Historic Structures Rehabilitation Tax Credit

Other DECD Programs

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Urban and Industrial Site Urban and Industrial Site Reinvestment Tax CreditReinvestment Tax Credit

(administered by DECD)(administered by DECD)Description: A tax credit available for investments in eligible industrial site investment

projects or eligible urban reinvestment projects.

Tax Credit Amount: The income year in which the investment was made and the two

succeeding income years, 0%; income years 3-6, 10%; and income years 7-9, 20%.

The tax credit may be carried forward for the five immediately succeeding income years. No carryback is allowed.

Assignment and Transfer: Credits may be assigned once, and can be separately assigned by year.

Recapture: DECD may determine an applicable recapture amount and may revoke the

certificate of eligibility if it determines the state revenue generated by the project is less than the credits claimed.

Urban and Industrial Site Urban and Industrial Site Reinvestment Tax Credit Reinvestment Tax Credit

Total Allocation: $650 million Number of Projects Under Contract: 21 Total Amount Under Contract: $426.4 million Total Investment Amount: $1.3 billion Total Credits Issued: $94 million as of 6/30/12 Assistance Agreement -Related Jobs: 10,508 retained;

5,508 created

Urban and Industrial Site Urban and Industrial Site Reinvestment Tax CreditReinvestment Tax Credit

(claims against the Insurance Premiums Tax)(claims against the Insurance Premiums Tax)

Number of claims in 2010 was 5, and the total amount claimed was $5.4 million (preliminary).

Enterprise Zone and Related ProgramsEnterprise Zone and Related Programs(administered by DECD)(administered by DECD)

Description: Benefits available to a firm established in an area designated as an Enterprise

Zone (EZ). Currently 17 zones in Connecticut.

Tax Credit Amount: Two business incentives associated with an EZ location:

a 10-year, 25% credit on that portion of the state’s corporation business tax that is directly attributable to a business expansion or renovation project . The corporate tax credit increases to 50% if a minimum of 30% of the new full-time positions are filled either by zone residents or by residents of the municipality who are WIA eligible.

a five-year, 80% abatement of local property taxes on qualifying real and personal property, subject to the property being new to the grand list of the municipality as a direct result of a business expansion or renovation project, or in the case of an existing building, having met the vacancy requirement.

EZ incentives may be available to firms located outside a zone, under certain conditions.

Newly formed corporations in an EZ may qualify for higher benefits, provided they meet certain employment and employee residency requirements.

Enterprise Zone and Related Enterprise Zone and Related Programs Programs

From November 1, 2009, to October 31, 2011 (local tax cycle), DECD certified 42 companies for EZ-related incentive benefits.

Another 40 pre-applications were received and reviewed in anticipation of certifications in 2011.

4,488 jobs were retained and 1,306 new positions were projected by certified businesses.

SFY 2011 Statistical Summary – EZ-Related Programs

Area Existing Jobs Projected Jobs Total Jobs

Total Construction 110,580 156 161 317

Total Expansion 126,967 441 67 508

Total Leased Property 705,538 1,445 316 1,761

Total Purchased Property 1,804,060 2,446 762 3,208

Total Renovated Property - 0 0 0

Grand Total 2,747,145 4,488 1,306 5,794

Source: DECD, OBID

Enterprise Zone and Related Enterprise Zone and Related Programs Programs

The property tax abatement EZ benefit provides a five-year state reimbursement of a portion of the property tax loss towns sustain as a result of property tax exemptions granted to qualified manufacturing facilities in designated municipalities.

For SFY 2009-10, the state’s portion of the total real and personal property taxes abated was $8.1 million.

New Insurance Reinvestment Fund Tax New Insurance Reinvestment Fund Tax CreditCredit

(administered by DECD)(administered by DECD)Description: A tax credit available to insurance companies that invest eligible capital with approved fund

managers, who in turn invest such capital in eligible businesses. The Insurance Reinvestment Fund tax credit statute was amended to add this New Insurance

Reinvestment Fund tax credit, and the New Insurance Reinvestment Fund tax credit is effective for income years beginning on or after January 1, 2010.

Tax Credit Amount: The tax credit is allowable over ten years as follows: Income year in which the investment was made and

the two succeeding income years, 0%; years three to six, 10%; years seven to nine , 20%. Any tax credit not used in the income year for which it was allowed may be carried forward for the five

immediately succeeding income years until the entire tax credit is taken. No carryback is allowed.

Assignment and Transfer: A taxpayer may assign the tax credit only to an affiliate of such taxpayer.

Other Conditions: An Insurance Reinvestment Fund is subject to decertification if it is not in compliance with certain

conditions, which may cause the forfeiture of future tax credits.

New Insurance Reinvestment Fund New Insurance Reinvestment Fund

$181 million of the $200 million allocation has been approved by DECD.

As of December 31, 2011, the latest reporting date: $29.5 million of the $180 million have been invested, of

which: $3.2 million has been invested in pre-seed investments. $4.5 million has been invested in green technologies. $21.8 million has been invested in other investments.

Total jobs to be retained & created with the $29.5 million invested is 424.

Job Expansion Tax Credit Job Expansion Tax Credit (administered by DECD)(administered by DECD)

Description: A tax credit is available for income years beginning on or after January 1, 2012 for taxpayers that hire

new employees to fill new jobs after January 1, 2012 and before January 1, 2014.

Tax Credit Amount: $500 per month for each new employee.

$900 per month for each veteran employee or qualifying employee.

The tax credit can be claimed in the year of the hire and the next two income years.

Taxpayers must create a minimum number of new jobs to be eligible for the tax credit. Businesses with under 50 employees must hire at least one new full‐time employee Businesses with 50 to 100 employees must hire at least five new full‐time employees Businesses with over 100 employees must hire at least 10 new full‐time employees

No carryforward or carryback is allowed.

Flow Through of the Tax Credit : If the taxpayer is an S corporation or an entity treated as a partnership for federal income tax purposes,

then the tax credit may be claimed by the shareholders or partners. If the taxpayer is a single member limited liability company that is disregarded as an entity separate

from its owner, then the tax credit may be claimed by its owner.

Job Expansion Tax CreditJob Expansion Tax Credit

Tax Credit Disbursement: 3 years

Total Allocation: $20 million per fiscal year*

Number of Applications Received: Over 600

Total Credits Issued: $0 - Applicants still being enrolled

Jobs Created: To be determined

* = $20 million per fiscal year also includes credits under 12-217ii, 12-217nn and 12-217oo

Film Production Infrastructure Tax Film Production Infrastructure Tax Credit Credit

(administered by DECD)(administered by DECD)Description: A tax credit is available to any taxpayer that invests in a state-certified

entertainment infrastructure project. For income years beginning on or after January 1, 2010.

Tax Credit Amount: 20% for investments of $3 million or more in a state-certified project. No carryforward or carryback is allowed. A taxpayer claiming this tax credit may

claim all or part of the tax credit in the income year the costs giving rise to the tax credit were incurred or in any of the three succeeding income years.

Assignment and Transfer: The tax credit may be sold, assigned, or otherwise transferred, in whole or in part, up

to three times. An assignee must claim the tax credit only for the income year in which eligible

expenditures were made for the infrastructure project.


Number of claims in 2009 was 9, and the total amount claimed was $611,376.

Almost $8.7 million tax credits were issued in 2010, and $6.7 million in 2011.




Film Production Tax Credit Film Production Tax Credit (administered by DECD)(administered by DECD)

Description: A tax credit is available to any eligible production company which produces a

qualified production and incurs qualified production expenses or costs. No production expenses or costs incurred outside the state will qualify for this tax

credit.

Tax Credit Amount: 10% -30% for production expenses or costs incurred in the state. No carryforward or carryback is allowed. A taxpayer claiming this tax credit may

claim all or part of the tax credit in the income year the costs giving rise to the tax credit were incurred or in any of the three succeeding income years.

Assignment and Transfer: The tax credit may be sold, assigned, or otherwise transferred, in whole or in part,

up to three times. An assignee must claim the tax credit only for an income year in which the eligible

production company would have been eligible to claim the tax credit.

Film Production Tax Credit Film Production Tax Credit

Number of claims in 2009 was 1, and the total amount claimed was $2.96 million.

Almost $41.9 million tax credits were issued in 2010, and $48.1 million in 2011.


Film Production Tax Credit Film Production Tax Credit (claims against the Insurance Premiums Tax)(claims against the Insurance Premiums Tax)

Digital Animation Tax Credit Digital Animation Tax Credit (administered by DECD)(administered by DECD)

Description: A tax credit is available to state-certified digital animation production companies that

engage in digital animation production activities on an on-going basis. Company must:

maintain studio facilities located within the state at which digital animation production activities are conducted;

employ at least two hundred full-time employees within the state; be in compliance with regulations adopted; and be certified by DECD.

Tax Credit Amount: 10% - 30% for production expenses or costs incurred in the state. No carryforward or carryback is allowed. A taxpayer claiming this tax credit may claim all

or part of the tax credit in the income year the costs giving rise to the tax credit were incurred or in any of the three succeeding income years.

Assignment and Transfer: The tax credit may be sold, assigned, or otherwise transferred, in whole or in part, up to

three times. An assignee who receives the tax credit by assignment must claim the tax credit only for

an income year in which the digital animation production company would have been eligible to claim the tax credit.

Digital Animation Tax Credit Digital Animation Tax Credit


$15 million tax credits were issued in 2010, and $15 million in 2011.


Digital Animation Tax Credit Digital Animation Tax Credit (claims against the Insurance Premiums Tax)(claims against the Insurance Premiums Tax)

Historic Homes Rehabilitation Tax Historic Homes Rehabilitation Tax Credit Credit

(administered by DECD)(administered by DECD)Description: A tax credit to owners rehabilitating an historic home or taxpayers making

contributions to qualified rehabilitation expenditures A historic home:

Will contain one to four dwelling units of which at least one unit will be occupied as the principal residence of the owner for not less than five years following the completion of rehabilitation work;

Is located in a targeted area; and Is listed individually on the National or State Register of Historic Places, or located

in a district listed on the National or State Register of Historic Places, and has been certified by DECD as contributing to the historic character of the district.

Tax Credit Amount: the lesser of 30% of the projected qualified rehabilitation expenditures or 30% of the

actual rehabilitation expenditures. may be carried forward for four years following the year in which the voucher was

issued. No carryback is allowed. The credit allowed may not exceed $30,000 per dwelling unit for an historic home.



Number of claims in 2010 was 2, and the total amount claimed was $448,575 (preliminary).



Historic Preservation Tax CreditHistoric Preservation Tax Credit(administered by DECD)(administered by DECD)

Description: A tax credit to owners rehabilitating a certified historic structure for nonresidential use or mixed residential

and nonresidential use or a taxpayer named by the owner as contributing to the rehabilitation. A certified historic structure is historic, commercial, industrial, institutional, former municipal, state, or federal

government, cultural, nonresidential, or mixed residential and nonresidential property that: Is listed individually on the National or State Register of Historic Places; or Is located in a district listed on the National or State Register of Historic Places, and has been certified by

DECD as contributing to the historic character of such district.

Tax Credit Amount: 25% of the projected qualified rehabilitation expenditures or 25% of the actual qualified rehabilitation

expenditures. If the project creates qualified affordable housing units, the tax credit is equal to the lesser of 30% of the

projected qualified rehabilitation expenditures or 30% of the actual qualified rehabilitation expenditures. The credit allowed may not exceed $5 million for any fiscal three-year period. The tax credit may be carried forward for five succeeding income years following the year in which the

substantially rehabilitated structure was placed in service. No carryback is allowed.

Assignment and Transfer: The tax credit can be assigned, in whole or in part, once. An assignee must claim the tax credit in the same year in which the assignor would have been eligible to

claim the tax credit.

Historic Preservation Tax Credit Historic Preservation Tax Credit (contd.)(contd.)

Flow Through of the Tax Credit: Any tax credits that are provided to multiple owners of certified historic structures

shall be passed through to persons designated as partners, members, or owners, either pro rata or according to an agreement among such persons.

Recapture: In the case of projects completed in phases, if the residential portion of the project

described in the rehabilitation plan is not completed within the schedule outlined in such plan, the owner shall capture 100% of the amount of the tax credit for which a voucher was issued.

DECD, in its discretion, may provide an extension of time for completion of such residential portion, but in no event shall such extension be more than three years.

Claims: Tax credit effective 2008, no claims filed against corporate income taxes as

of 2009. The number of claims against the insurance premiums tax in 2010 was 2,

and the total claim amount was $1.35 million (preliminary).

Historic Structures Rehabilitation Tax Historic Structures Rehabilitation Tax CreditCredit

(administered by DECD)(administered by DECD)Description: A tax credit an owner rehabilitating a certified historic structure for residential use or to a

taxpayer named by the owner as contributing to the rehabilitation.

Tax Credit Amount: The lesser of the tax credit reserved upon certification of the rehabilitation plan or 25% of

the actual qualified rehabilitation expenditures . The credit allowed may not exceed $2.7 million. The tax credit may be carried forward for five years following the year in which the

rehabilitated structure was placed into service. No carryback is allowed.

Assignment and Transfer: The tax credit can be assigned, in whole or in part, once. An assignee must claim the tax credit in the same year in which the assignor would have

been eligible to claim the tax credit.

Flow Through of the Tax Credit: Any tax credits that are provided to multiple owners of certified historic structures shall be

passed through to persons designated as partners, members, or owners, either pro rata or according to an agreement among such persons.

Historic Structures Rehabilitation Historic Structures Rehabilitation Tax CreditTax Credit


Number of claims in 2010 was 2, and the total amount claimed was $87,008 (preliminary).

One claim was filed against the corporate income tax in 2009, for $419,562.

Other DECD ProgramsOther DECD Programs

Three programs were replaced with the Job Expansion Tax Credit:

Job Creation Tax Credit : Number of Applications Received: 16 Total Credits Issued: $1,749,980 thru 2011 Jobs Created: 468

Qualified Small Business Job Creation Tax Credit: Number of Applications Received: 109 Total Credits Issued: $484,300 thru 2011 Jobs Created: 256

Vocational Rehabilitation Job Creation Tax Credit: Number of Applications Received: 0 Total Credits Issued: $0 thru 2011 Jobs Created: 0

The Manufacturing Reinvestment Account (MRA) has one company enrolled in the program.

Job Audit Results of DECD’s Financial Job Audit Results of DECD’s Financial Assistance Programs Assistance Programs

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Business Assistance Portfolio Job Audit Results as of June 30, 2011

Job Goal Attainment

# of Companies

Contract Actual Jobs Per

Audit

% of Contract Requirement

AttainedJobs Retained

Jobs Created

Total

Met Job Goal 33 12,464 3,467 15,931 17,005 107%

Did Not Meet Job Goal

26 2,325 1,584 3,909 3,060 78%

Total 59 14,789 5,051 19,840 20,065 101%

Source: DECD-Totals may differ due to rounding

Tax Credits Administered by Other Tax Credits Administered by Other AgenciesAgencies

Angel Investor Tax Credit (CI)

Apprenticeship Training Tax Credit (DOL)

Hiring Incentive Tax Credit (DOL)

Neighborhood Assistance Program Act Tax Credit (DRS)

Housing Program Contribution Tax Credit (CHFA)

Green Buildings Tax Credit (DEEP)

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Angel Investor Tax CreditAngel Investor Tax Credit(administered by CI)(administered by CI)

Description: A tax credit available for early-stage Connecticut technology ventures by angel

investors. Qualified technology ventures:

Advanced materials, bioscience, clean energy, IT, photonics Gross revenue < $1 million < 7 years in business < 25 paid employees (75% CT residents) > 50% owned by management and their families

Angel investors: Must make $25,000 minimum investment Own < 50% of the technology venture

Tax Credit Amount: 25% of cash investment (maximum tax credit is $250,000). Any tax credit that is claimed by the angel investor but not applied may be carried

forward for the five immediately succeeding taxable years. No carryback is allowed.

Angel Investor Tax CreditAngel Investor Tax Credit(administered by CI)(administered by CI)

Through June 30, 2012 (effective date July 2010):

Qualified Connecticut Businesses: 39

Number of Angels with Reservation Numbers: 117

Number of Investments made by Angels: 114

Approved Investments in Qualified Connecticut Businesses: 134

Number of Companies invested in: 34

Investments in Qualified Connecticut Businesses: $13,967,598

Tax Credits Reserved: $4,115,828

Tax Credits Issued: $3,491,899

In the first six months after the Fall 2011 change allowing investments of $25,000 and above (down from $100,000 and above), 84 investors pledging $8.6 million in 23 companies applied for the program, compared to 13 investors pledging $2.4 million in nine companies in the six months prior.

Apprenticeship Training Tax CreditApprenticeship Training Tax Credit(administered by DoL)(administered by DoL)

37

Description: Can be claimed by corporations that employ apprentices who are

receiving training in the manufacturing, plastics, plastics-related, or construction trades

The apprenticeship period must be at least 4,000 hours (two years) but not more than 8,000 hours (four years); and

Each apprentice must be employed on a full-time basis, which is defined as working a minimum of 120 hours per month

Tax Credit Amount: Manufacturing, Plastics, and Plastics-Related Trades: $4 times the

number of apprentice work hours, not to exceed 50% of the total wages paid to the apprentice, or $4,800

Construction Trades: $2 times the number of hours completed, not to exceed 50% of the total wages paid to the apprentice, or $4,000

No carryforward or carryback is allowed

Apprenticeship Training Tax CreditApprenticeship Training Tax Credit

Number of claims in 2009 was 9, and the total amount claimed was $668,245. The annual average claim over the 2005-2009 period was $455,766 suggesting

approximately 90 to 100 apprentices were hired on average each year

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Hiring Incentive Tax CreditHiring Incentive Tax Credit(administered by DoL)(administered by DoL)

Description: A tax credit available to business firms that hire recipients of

Temporary Family Assistance (TFA). A qualifying employee should be employed not less than 30 hours per

week by the same business firm; at the time of hiring is, and has been receiving benefits from the TFA program for more than nine months; and meets other requirements that the CT DoL may establish in regulations.

Business firm means any business entity authorized to do business in Connecticut and subject to the corporation business tax.

Tax Credit Amount: $125 for each full month that the employee was employed. No credit

allowed if firm has been previously granted a tax credit with respect to wages paid to the same employee.

Any unused tax credit balance can be carried forward and applied to five successive income years. No carryback is allowed.

39

Hiring Incentive Tax Credit Hiring Incentive Tax Credit


40

Neighborhood Assistance Act Neighborhood Assistance Act Tax CreditTax Credit

(administered by DRS)(administered by DRS)Description: A tax credit under the Neighborhood Assistance Act (NAA) tax credit program for cash

investments of at least $250 to certain community programs.

Tax Credit Amount:

100% of the cash invested is available to business firms that invest in energy conservation projects.

60% of the cash invested is available to business firms that invest in programs that provide: community-based alcoholism prevention or treatment programs; neighborhood assistance; job training; education; community services; crime prevention; construction or rehabilitation of dwelling units for families of low and moderate income in the state; funding for open space acquisitions; child day care facilities; child care services; and any other program which serves persons at least 75% of whom are at an income level not exceeding 150% of the poverty level for the preceding year.

Total NAA tax credits may not exceed $150,000 annually for each business firm.

No carryforward is allowed. Carryback allowed to the two immediately preceding income years (beginning with the earlier of the two years).

41

Neighborhood Assistance Act Tax Neighborhood Assistance Act Tax Credit Credit


42

Neighborhood Assistance Act Tax Neighborhood Assistance Act Tax CreditCredit

((claims against the Insurance Premiums Tax)claims against the Insurance Premiums Tax)

Number of claims in 2010 was 18, and the total amount claimed was $1.14 million (preliminary)

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Housing Program Contribution Housing Program Contribution Tax CreditTax Credit

(administered by CHFA)(administered by CHFA)

Description: A tax credit available to business firms that make cash contributions to

housing programs that benefit low and moderate income individuals and families.

The housing programs must be sponsored, developed, or managed by nonprofit corporations.

Tax Credit Amount: 100% of the cash contribution made by the business firm. The minimum

qualifying contribution is $250, and the maximum allowed is $75,000 per business.

The maximum tax credit allowed in the aggregate to all business firms in any one fiscal year is $10 million ($1 million for workforce housing, $2 million for Supportive Housing, and $7 million for Tier I general housing).

The amount of tax credit that is not used may be carried forward or back for the five immediately succeeding or preceding income years until the full credit is taken.

44

Housing Program Contribution Tax Housing Program Contribution Tax Credit Credit


45

Green Buildings Tax CreditGreen Buildings Tax Credit(administered by DEEP)(administered by DEEP)

Description: A tax credit for eligible construction, renovation, or rehabilitation projects.

The eligible projects must use Energy Star equipment and appliances, if applicable, and must have energy use that does not exceed:

70% of the energy use allowed by the state energy code for new construction eligible projects; or

80% of the energy use allowed by the state energy code for renovation or rehabilitation eligible projects.

Available for income years beginning on or after January 1, 2012.

Tax Credit Amount: Equal to the allowable cost times the applicable credit percentage, which

depends on the certification level of the project:

46

Green Buildings Tax CreditGreen Buildings Tax Credit(contd.)(contd.)

47

Tax Credit Amount (contd): The tax credit percentage from the above table increases by 0.5% if the

eligible project meets any one of the following requirements: • is a mixed-use development; • is located in a brownfield or enterprise zone; • does not require a sewer extension of more than 1/8 mile; or • is located within 1/4 mile walking distance of bus transit, rail, light rail,

streetcar, or ferry services Excess tax credit may be carried forward for up to five income years. No

carryback is allowed.

Assignment and Transfer A taxpayer allowed a green buildings tax credit may assign the tax credit to

another taxpayer or taxpayers. A project owner, including a non-profit entity, may transfer a tax credit to a

pass-through partner in return for a lump sum cash payment.

Other Available Tax CreditsOther Available Tax Credits

Electronic Data Processing Tax Credit

Fixed Capital Investments Tax Credit

Human Capital Investments Tax Credit

Machinery and Equipment Tax Credit

Research and Development (Nonincremental) Expenses Tax Credit

Research and Development Tax Credit for Grants to Institutions of Higher Education

Research and Experimental (Incremental) Expenditures Tax Credit

Displaced Workers Tax Credit

Land Donation Tax Credit

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Electronic Data Processing Equipment Electronic Data Processing Equipment Property Tax CreditProperty Tax Credit

Description: A tax credit equal to 100% of the personal property tax owed and paid on

electronic data processing (EDP) equipment during any income year may be applied against the taxes imposed under Chapters 207, 208, 208a, 209, 210, 211, or 212 of the Connecticut General Statutes

Taxpayers shall be allowed this tax credit only after all other allowable tax credits have been applied

Tax Credit Amount: 100% of the Connecticut personal property tax owed and paid in any income

year on EDP equipment. If the amount of tax credit allowable in any income year exceeds the taxes

imposed under Chapters 207, 208, 208a, 209, 210, 211, or 212 of the Connecticut General Statutes, then any unused tax credit balance may be carried forward to any of the five succeeding income years. No carryback is allowed.

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Electronic Data Processing Equipment Electronic Data Processing Equipment Property Tax CreditProperty Tax Credit

Number of claims in 2009 was 1,278, and the total amount claimed was $9.4 million.

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Electronic Data Processing Equipment Electronic Data Processing Equipment Tax CreditTax Credit



51

Fixed Capital Investment Tax Fixed Capital Investment Tax CreditCredit

Description: A tax credit for amounts paid or incurred by a corporation for fixed capital Fixed capital must have a class life of more than four years; must have been purchased

from someone other than a related person; must not be leased or acquired to be leased to another person within 12 months of purchase; and must be held and used in Connecticut by a corporation for a period of not less than five full years following its purchase.

Fixed capital does not include inventory, land, buildings or structures, or mobile transportation property.

Tax Credit Amount: 5% of the amount paid or incurred by a corporation for any new fixed capital investment

. Any tax credit not used during the income year in which the acquisition was made may

be carried forward to the next five succeeding income years until the entire tax credit is used. No carryback is allowed.

Recapture (some exceptions apply): If not held and used for three full years, corporation required to recapture 100% of the

credit If not held and used for five full years, corporation required to recapture 50% of the

credit

52

Fixed Capital Investment Tax Fixed Capital Investment Tax CreditCredit

Number of claims in 2009 was 1,805, and the total amount claimed was $80.8 million.

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Human Capital Investment Human Capital Investment Tax CreditTax Credit

Description:

A tax credit for expenditures made by a corporation for a human capital investment.

Human capital investment means: In-state job training; work education programs; worker training and education in institutions of higher education; donations or capital contributions to institutions of higher education for improvements or advancement of technology; planning, site preparation, construction, renovation, or acquisition of facilities for the purpose of establishing a day care facility to be used primarily by the children of employees; child care subsidies paid to employees for child care; contributions made to the Individual Development Account Reserve Fund administered by the CT DoL.

Tax Credit Amount:

5% of the amount paid or incurred by the corporation for a human capital investment.

No corporation claiming this tax credit shall claim any other credit against any tax with respect to the same investment.

Any tax credit not used during the income year may be carried forward to the next five succeeding income years until the entire credit is used. No carryback is allowed.

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Human Capital Investment Tax Human Capital Investment Tax Credit Credit


55

Machinery and Equipment Machinery and Equipment Tax CreditTax Credit

Description:

A tax credit for expenditures in machinery and equipment (M&E) by corporations that have no more than 800 full-time, permanent employees.

Based on the amount spent on machinery and equipment acquired for and installed that exceeds the amount spent for such machinery and equipment in the preceding income year (the incremental increase).

Tax Credit Amount:

5% of the incremental increase in M&E expenditures for corporations employing between 251 and 800 full-time, permanent employees.

10% of the incremental increase in M&E expenditures for corporations employing not more than 250 full-time, permanent employees.


56

Machinery and Equipment Tax Machinery and Equipment Tax Credit Credit


57

Research and Development Research and Development (Nonincremental) Expenses Tax Credit(Nonincremental) Expenses Tax Credit

Description: A tax credit for research and development (R&D)expenses incurred in

Connecticut.

Tax Credit Amount: Tentative tax credit = 6% of R&D expenses for qualified small businesses

(gross income < $100 million). For all others, the tentative credit is calculated as shown:

If it results in a greater tentative tax credit, companies headquartered in an Enterprise Zone, with revenues in excess of $3 billion, employing more than 2,500 employees, shall multiply their research and development expenses by 3.5% instead of using the tax credit percentage listed above.

Firms that incur more than $200 million in research and development expenses in an income year must reduce their R&D tax credit if workforce reductions exceed certain percentages.

Research and Development Expenses

Tentative Tax Credit Percentage

$50 million or less 1%More than $50 million but not more than $100 million

$500,000 + 2% over $50 million

More than $100 million but not more than $200 million

$1,500,000 + 4% over $100 million

More than $200 million$5,500,000 + 6% over $200 million

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Research and Development Research and Development Tax Credit Tax Credit (contd.) (contd.)

Tax Credit Amount contd. The allowable tax credit is the lesser of:

One-third of the amount of the tax credit allowable for any income year; or The greater of:

50% of the taxpayer’s tax liability, determined without regard to any tax credits allowed by this tax credit; or

The lesser of 200% of the tax credit otherwise allowed for the income year or 90% of the taxpayer’s tax liability, determined without regard to this tax credit.

Tax credits that are allowed but that exceed the limitation amounts may be carried forward to each successive income year until such credits are fully taken. All allowable tax credits from prior years must be carried forward and applied before the current year tax credit may be taken. No carryback is allowed.

Exchange of Tax Credit for Refund A qualified small business that cannot take this tax credit in a taxable year as a result of

having no tax liability, may exchange the tax credit with the State of Connecticut for a tax credit refund equal to 65% of the value of the tax credit or may elect to carry the tax credit forward.

For this purpose, a qualified small business is defined as a company that has gross income for the previous year that does not exceed $70 million and has not met the gross income test through transactions with a “related person” as defined in the Fixed Capital Investment tax credit summary.

A qualified small business may receive no more than $1,500,000 of tax credit refund for any one income year. 59

Research and Development Research and Development (Nonincremental)Expenses (Nonincremental)Expenses

Tax CreditTax Credit


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Research and Development Tax Credit Research and Development Tax Credit for Grants to Institutions of Higher for Grants to Institutions of Higher

EducationEducation

Description: A tax credit for the incremental increase in amounts spent by a

corporation for any grant or combination of grants to any institution of higher education made for the purposes of research and development related to advancements in technology.

Tax Credit Amount: 25% of the excess of the current income year's expenditures for

research and development grants to institutions of higher education over the average expenditures for such grants during the three immediately preceding income years.


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Research and Development Tax Credit Research and Development Tax Credit for Grantsfor Grants

to Institutions of Higher Educationto Institutions of Higher Education

Number of claims in 2009 was 1, and the total amount claimed was $605.

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Research and Experimental Research and Experimental (Incremental) (Incremental)

Expenditures Tax CreditExpenditures Tax CreditDescription: A tax credit for the incremental increase in research and experimental (R&E) expenditures

conducted in Connecticut. This includes R&D costs in the experimental or laboratory sense, all costs incident to the

development or improvement of a product, and the costs of obtaining a patent, and others.

Tax Credit Amount: 20% of the excess of the R&E expenditures conducted during the current income year over

the amount spent on such expenditures during the preceding income year. The tax credit can be carried forward for 15 successive income years until the tax credit is

fully taken. No carryback is allowed.

Exchange of Tax Credit for Refund A qualified small business that cannot take this tax credit in a taxable year as a result of

having no tax liability, may exchange the tax credit with the State of Connecticut for a tax credit refund equal to 65% of the value of the tax credit or may carry the tax credit forward.

A qualified small business is defined as a company that has gross income for the previous year that does not exceed $70 million and has not met the gross income test through transactions with a “related person” as defined in the Fixed Capital Investment tax credit summary.

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Research and Experimental Research and Experimental (Incremental) Expenditures Tax (Incremental) Expenditures Tax

CreditCredit


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Displaced Worker Tax CreditDisplaced Worker Tax Credit

Description: Two distinct tax credits available for displaced workers A credit is available to an electric supplier in Connecticut that hires a displaced

electric worker for a minimum period of six months of full-time employment A credit is available for each displaced worker hired by an employer (displaced

worker = any person employed in CT whose position was terminated because of a business restructuring in which at least ten employees were terminated and whose new salary is at least 75% of his or her previous annual salary)

Tax Credit Amount: $1,500 for each displaced electric worker that is hired, allowed in the income

year in which the displaced electric worker first completes six full months of full-time employment

$1,500 for each displaced worker that is hired, allowed for the income year during which the displaced worker first completes 12 full months of full-time employment

No carryforward or carryback is allowed

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Displaced Worker Tax CreditDisplaced Worker Tax Credit

Number of claims in 2009 was 5, and the total amount claimed was $24,000. The amount claimed rose from $1,500 in 2006 to $24,000 in 2009, following

the expansion of the credit to include all displaced workers (from 1999 to 2006 the credit only covered displaced electric workers).

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Donation of Land Tax CreditDonation of Land Tax Credit

Description: Two tax credits available for the donation of land A credit is available for the donation of land to be permanently preserved as protected

open space or used as a public water supply source (donation must be made to the state, a political subdivision of the state, or a nonprofit land conservation organization)

A credit is available for the donation of land for educational use (donation must be made to any town, city, or borough, and any school district or regional school district for the purposes of schools and related facilities)

Tax Credit Amount: 50% of the use value of the land (the fair market value of land at its highest and best

use) The tax credit for the donation of open space land may be carried forward for a period of

25 successive income years until the tax credit is fully taken. No carryback is allowed. The tax credit for the donation of land for educational use may be carried forward for a

period of 15 successive income years until the tax credit is fully taken. No carryback is allowed.

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Donation of Land Tax CreditDonation of Land Tax Credit


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ReferencesReferences

http://www.ct.gov/ecd

http://www.ct.gov/drs

http://www.ct.gov/ecd/lib/ecd/decd_2010-11_annual_report.pdf

http://www.ct.gov/drs/lib/drs/publications/pubsip/2010/ip2010-13.pdf

http://www.ct.gov/drs/lib/drs/research/annualreport/drs_fy11_annual_report.pdf

http://www.ctangeltaxcredit.com/

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Documents

Catherine Smith, Commissioner, DECD Nandika Prakash, Ph.D., Economist, DECD Peter Lent, Assistant Executive Director, DECD July 12, 2012 Presentation to