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Catherine Smith, Commissioner, DECD Nandika Prakash, Ph.D., Economist, DECD

Business Tax Credits. Presentation to the Governor’s Business Tax Policy Review Task Force. July 12, 2012. Catherine Smith, Commissioner, DECD Nandika Prakash, Ph.D., Economist, DECD Peter Lent, Assistant Executive Director, DECD. Agenda. Business Tax Credits

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Catherine Smith, Commissioner, DECD Nandika Prakash, Ph.D., Economist, DECD

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  1. Business Tax Credits Presentation to the Governor’s Business Tax Policy Review Task Force July 12, 2012 Catherine Smith, Commissioner, DECD Nandika Prakash, Ph.D., Economist, DECD Peter Lent, Assistant Executive Director, DECD

  2. Agenda • 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

  3. Summary • 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.

  4. Credits Not Covered • Credits Recently Repealed or About to be Repealed: • Financial Institutions Tax Credit • Qualified Small Business Job Creation Tax Credit • New Jobs Creation Tax Credit • Vocational Rehabilitation Job Creation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)

  5. Tax Credits and other Programs Administered 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

  6. Urban and Industrial Site Reinvestment Tax Credit(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.

  7. Urban and Industrial Site 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

  8. Urban and Industrial Site Reinvestment Tax Credit(claims against the Insurance Premiums Tax) • Number of claims in 2010 was 5, and the total amount claimed was $5.4 million (preliminary).

  9. Enterprise Zone and Related Programs(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.

  10. Enterprise Zone and Related 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.

  11. Enterprise Zone and Related 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.

  12. New Insurance Reinvestment Fund Tax Credit(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.

  13. 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.

  14. Job Expansion Tax Credit (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.

  15. Job 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

  16. Film Production Infrastructure Tax Credit (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.

  17. Film Production Infrastructure Tax Credit 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.

  18. Film Production Infrastructure Tax Credit (claims against the Insurance Premiums Tax) Number of claims in 2010 was 23, and the total amount claimed was $7.14 million (preliminary).

  19. Film Production Tax Credit (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.

  20. 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.

  21. Film Production Tax Credit (claims against the Insurance Premiums Tax) Number of claims in 2010 was 29, and the total amount claimed was $18.1 million (preliminary).

  22. Digital Animation Tax Credit (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.

  23. Digital Animation Tax Credit Number of claims in 2009 was 1, and the total amount claimed was $928,726. $15 million tax credits were issued in 2010, and $15 million in 2011.

  24. Digital Animation Tax Credit (claims against the Insurance Premiums Tax) Number of claims in 2010 was 7, and the total amount claimed was $7.43 million (preliminary).

  25. Historic Homes Rehabilitation Tax Credit (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.

  26. Historic Homes Rehabilitation Tax Credit Number of claims in 2009 was 2, and the total amount claimed was $15,766.

  27. Historic Homes Rehabilitation Tax Credit (claims against the Insurance Premiums Tax) Number of claims in 2010 was 2, and the total amount claimed was $448,575 (preliminary).

  28. Historic Preservation Tax Credit(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.

  29. Historic Preservation Tax Credit (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).

  30. Historic Structures Rehabilitation Tax Credit(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.

  31. Historic Structures Rehabilitation Tax Credit(claims against the Insurance Premiums Tax) 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.

  32. Other 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.

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

  34. Tax Credits Administered by Other Agencies • 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)

  35. Angel Investor Tax Credit(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.

  36. Angel Investor Tax Credit(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.

  37. Apprenticeship Training Tax Credit(administered by DoL) 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

  38. Apprenticeship 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

  39. Hiring Incentive Tax Credit(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.

  40. Hiring Incentive Tax Credit Number of claims in 2009 was 2, and the total amount claimed was $86,571.

  41. Neighborhood Assistance Act Tax Credit(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).

  42. Neighborhood Assistance Act Tax Credit Number of claims in 2009 was 50, and the total amount claimed was $1.12 million.

  43. Neighborhood Assistance Act Tax Credit(claims against the Insurance Premiums Tax) Number of claims in 2010 was 18, and the total amount claimed was $1.14 million (preliminary)

  44. Housing Program Contribution Tax Credit(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.

  45. Housing Program Contribution Tax Credit Number of claims in 2009 was 4, and the total amount claimed was $1.56 million.

  46. Green Buildings Tax Credit(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:

  47. Green Buildings Tax Credit(contd.) 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.

  48. Other 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

  49. Electronic Data Processing Equipment Property 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.

  50. Electronic Data Processing Equipment Property Tax Credit Number of claims in 2009 was 1,278, and the total amount claimed was $9.4 million.

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