DRS: Corporate Credit Overview 01MAR2012

Overview of Connecticut Business Tax Credits  


 

General Information

This overview of Connecticut’s available business tax credits includes a reference chart that lists each available tax credit, statutory authority for the tax credit, what taxes the tax credit may be applied against, and other informational notes.

 

Tax credits are “tax expenditures” paid for by foregoing revenues that would otherwise be paid to the state. Tax credits are also a matter of “legislative grace” and, therefore, narrowly construed. Careful attention must be paid to determine:

 

  • Who is eligible to claim the tax credit;
  • Whether the tax credit has an application process that must be followed;
  • Whether the tax credit has a flow-through provision;
  • Whether the tax credit is assignable and transferable;
  • The timing and manner in which the tax credit must be claimed;
  • Specific state taxes to which the tax credit applies;
  • Ordering rules for claiming tax credits;
  • Applicable limitations on the amount of tax credits that may be applied to a particular tax;
  • Whether the tax credit may be carried forward if not used in the income year when earned; and
  • Whether the tax credit may be refunded.
Who is Eligible to Earn the Tax Credit?

The authorizing state statutes usually specify what entities may earn tax credits. Under the majority of tax credit statutes, only the entity that earned the credit may claim the credit. See Bell Atlantic Nynex Mobile v. Commissioner of Revenue Services, 273 Conn. 240 (2005). However, there are tax credits that may be claimed by an entity other than the entity that earned the credit. See Flow-Through of Tax Credits below.

Please review the language of the specific tax credit to determine what entities may claim the credit.

 

Application Process

Tax credits may require an application process or pre-certification of eligibility. If a tax credit requires an application, it is noted in the summary of the tax credit.

 

Flow-Through of Tax Credits

Tax credits under Conn. Gen. Stat. Chapter 208 follow much of the Internal Revenue Code and federal income tax principles, including the conduit treatment of partnerships. See Bell Atlantic Nynex Mobile v. Commissioner of Revenue Services, 273 Conn. 240, 248. However, other chapters of the Connecticut General Statutes do not and conduit treatment is not applicable to such chapters.

 

Assignment and Transfer of Tax Credits

Tax credits that may be assigned are specifically identified in the reference chart that follows. Unless otherwise specifically provided statutorily, tax credits may only be assigned once. Even if a tax credit may be assigned, assignment may only be made before the tax credit has been claimed (reported) on a tax return. If a tax credit is assigned, the assignee must claim the tax credit in the year in which the business that earned the tax credit would have been eligible to claim the tax credit. If a tax credit that allows carryforward is assigned, the assignee is entitled to the same carryforward provisions. DRS will rely solely on documentation provided by the Department of Economic and Community Development or the Department of Energy and Environmental Protection with respect to proof of assignment.

 

Claiming the Tax Credits

For most tax credits, there is a specific form that must be completed to claim the tax credit. Failure to provide all documentation required for the specific tax credit form may result in a denial of the tax credit. In addition to completing the applicable tax credit forms, you must report any such tax credit on Form CT -1120K, Business Tax Credit Summary. Important note: Do not use Form CT-1120K in connection with a tax credit to be applied against the tax as imposed by Chapter 207 or 229 of the Connecticut General Statutes. Please refer to the appropriate tax instruction booklet for information on how to claim these credits.

 

To Which Taxes Do Tax Credits Apply?

Each state statute authorizing a tax credit also specifies the tax or taxes against which the tax credit may be applied. Please refer to the tax credit summaries to determine the taxes against which specific tax credits may be applied.

 

Ordering Rules for Claiming Corporation Business Tax Credits

The Connecticut General Statutes specify the order in which tax credits are to be applied to the Corporation Business Tax. In accordance with these rules, tax credits must be applied (used) in the following order:

 

1.      Carrybacks expiring first;

2.      Current year tax credits that do not have a carryforward or carryback provision;

3.      Any tax credit carryforward expiring first;

4.      Non-expiring tax credits.

The Financial Institutions tax credit must be claimed before any other credit allowed against the tax imposed under Chapter 208 of the Connecticut General Statutes. In addition, taxpayers may apply the Electronic Data Processing Equipment Property tax credit only after all other allowable tax credits have been applied. If a taxpayer uses the Electronic Data Processing Equipment Property tax credit, the taxpayer must first use the tax credit against the tax imposed under Chapter 208, and then against the taxes imposed under Chapters 207, 208a, 209, 210, 211, or 212.

 

Limitation on the Application of Tax Credits

 

Tax Credits Against Chapter 208

In general, the amount of tax credits otherwise allowable against the taxes imposed under Chapter 208 for any income year may not exceed 70% of the amount of tax due prior to the application of tax credits. However, for income years beginning on or after January 1, 2011, and prior to January 1, 2013, the amount of the tax credit limitation may exceed 70% if a taxpayer has an average monthly net employment gain. To calculate the amount by which the tax credit limitation may exceed 70%, a taxpayer must calculate its average monthly net employee gain for the income year and multiply that amount by $6,000. In no event may the amount of tax credit or credits otherwise allowable against the tax for such income year exceed 100% of the tax due or be used against the minimum tax of $250.

 

Tax Credits Against Chapter 207

For calendar year 2010, the amount of tax credits otherwise allowable against the taxes imposed under Chapter 207 may not exceed 70% of the amount of tax due prior to the application of tax credits. The same rule applies for all tax credits. For the 2011 and 2012 calendar years only, the amount of tax credits allowed against the taxes imposed under Chapter 207 is reduced. For those two calendar years, the amount of tax credits allowed against the taxes imposed under Chapter 207 may not exceed 70% for Insurance  einvestment Fund tax credits, 55% for Digital Animation, Film Production and Film Production Infrastructure tax credits, and 30% for all other credits. The ordering rule for the application of the tax credits is adjusted in light of the new credit limitations.

In addition, for the 2011 and 2012 calendar years the amount of tax credits otherwise allowable may exceed the tax credit limitations set forth above. To calculate the amount by which the tax credit cap may be exceeded, a taxpayer must calculate its average monthly net employee gain for the income year and multiply that amount by $6,000. In no event may the amount of tax credit or credits otherwise allowable against the tax for such income year exceed 100% of the tax due.

 

Carryforward or Carryback of Tax Credits

Many of the tax credits may be carried forward for a period of years if they are not used in the year they are claimed. If a tax credit may be carried forward, the statute specifically provides for carryforward and also specifies the term of years for which the tax credit may be carried forward.

 

The Neighborhood Assistance tax credit and the Housing Program Contribution tax credit are the only tax credits that may be carried back.

 

Refund of Tax Credits

None of the business tax credits are refundable. However, under certain circumstances two of the research and development tax credits may be exchanged with the state for 65% of their value. See the summaries for the Research and Development (Nonincremental) Expenses tax credit and the Research and Experimental (Incremental) Expenditures tax credit.

 
Connecticut Business Tax Credit Chart
 

Credit Name

Statutory
Authority

Credit May be Applied Against Tax Imposed Under Conn. Gen. Stat.

Additional Notes


Apprenticeship Training Tax Credit in Manufacturing, Plastics, Plastics-Related,  Or Construction Trades


§12-217g


Ch 208


Computer Donation Tax Credit


§10-228b


Chs 207, 208, 209, 210, 211, 212

Credit will not be available for income years beginning on or after January 1, 2014


Digital Animation Tax Credit


§12-217ll


Chs 207, 208


Assignable


Displaced Electric Worker Tax Credit


§12-217bb


Ch 208


Displaced Worker Tax Credit


§12-217hh

§§12-202, 12-210, or

Chs 208, 212

Credit may not be applied against tax imposed under §12-202a


Donation of Land Tax Credits


§§12-217dd,

12-217ff


§12-217


Electronic Data Processing

Equipment Property Tax Credit


 

§12-217t


Chs 207, 208, 208a, 209, 210, 211, 212


Enterprise Zone Tax Credit for Qualifying Corporations


§12-217v


Ch 208


Film Production Infrastructure

Tax Credit


§12-217kk


Chs 207, 208


Assignable


Film Production Tax Credit


§12-217jj


Chs 207, 208


Assignable with certain limits


Financial Institutions Tax Credit


§12-217u


Ch 208

Credit will not be available for income years beginning on or after January 1, 2014.


Fixed Capital Investment Tax Credit


§12-217w


Ch 208


Green Buildings Tax Credit


§12-217mm


Ch 208

Assignable. Credit will be available for tax years beginning on or after January 1, 2012.


Hiring Incentive Tax Credit


§12-217y


Ch 208


Historic Preservation Tax Credit


§10-416b


Chs 207, 208, 209, 210, 211, 212

Assignable. Formerly referred to as the Historic Investment Tax Credit


Historic Homes Rehabilitative
Tax Credit


§10-416


Chs 207, 208, 209, 210, 211, 212


Not Assignable


Historic Structures Rehabilitation Tax Credit


§10-416a


Chs 207, 208, 209, 210, 211, 212


Assignable


Housing Program Contribution Tax Credit


§8-395


Chs 207, 208, 209, 210, 211, 212


Human Capital Investment Tax Credit


§12-217x


Ch 208


Insurance Reinvestment Fund Tax Credit


§38a-88a


§38a-743 or Chs 207,208, 229

Assignable. Credit is only available if new investment criteria are met.

Job Expansion Tax Credit



§12-217pp



Chs 207, 208, 209, 212, 229

Credit is limited to employees hired between January 1, 2012 and December 31, 2013.

Credit may not be applied against tax imposed under §12-707.


New Insurance Reinvestment Fund Tax Credit


§38a-88a


Ch 207


Assignable only to an affiliate


Machinery and Equipment Expenditure Tax Credit


§12-217o


Ch 208


Neighborhood Assistance Act Program Tax Credit


§§12-631 through 12-638


Chs 207, 208, 209, 210, 211, 212

Credit can be earned by an entity subject to tax imposed under Ch.213a but cannot be applied against tax imposed under Ch.213a.


New Jobs Creation Tax Credit


§12-217ii


§§12-202,12-210, or Chs 208, 212

Credit may not be applied against tax imposed under §12-202a.

DECD will not issue eligibility certificates after December 31, 2011.


Qualified Small Business Job Creation Tax Credit


§12-217nn


Chs 207, 208, 229

Credit not available for income years beginning on or after January 1, 2013. May not be applied against tax imposed under §12-707.


Research and Experimental (Nonincremental) Expenses Tax Credit


§12-217n


Ch 208


Exchangeable


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


§12-217l


Ch 208


Research and Experimental (Incremental) Expenditures Tax Credit


§12-217j


Ch 208


Exchangeable


Service and Manufacturing Facilities Tax Credit


§12-217e


Ch 208


Small Business Guaranty Fee Tax Credit


§12-217cc


Ch 208

Credit will not be available for income years beginning on or after January 1, 2014.

Urban and Industrial Site Reinvestment Tax Credit


§32-9t

§38a-743 or Chs 207, 208,  208a, 209, 210, 211, 211a, 211b, 212, 212a


Assignable


Vocational Rehabilitation Job Creation Tax Credit


§12-217oo


Chs 207, 208, 229

Credit may not be applied against tax imposed under §12-707.

Credit cannot be earned for employees hired during income years beginning on or after January 1, 2012.

 
Last updated March 1, 2012