DRS: Financial Institutions Credit 01MAR2012

Financial Institutions Tax Credit

Conn. Gen. Stat. §12-217u


This tax credit will not be available for the income years beginning on or after January 1, 2014.

 

Description and Applicable Taxes

A tax credit that may be applied against the tax imposed under Chapter 208 of the Connecticut General Statutes is granted to the financial institutions that build and occupy a facility located in Connecticut of at least 900,000 square feet, and create and maintain an average of 1,200 to 2,000 qualified employees in Connecticut. The tax credit is allowed for ten consecutive years, but this period may be extended for an additional five years if the taxpayer employs an average of at least 3,000 employees in the income year following the ten year period. The tax credit is allowed for a maximum of 15 consecutive years.

 

Depending upon the number of qualified employees employed by the financial institution, the amount of the tax credit allowed to an eligible financial institution varies from 30% to 50% of its corporation business tax liability. The aggregate credit is limited to between $72 million and $120 million over ten-year period for which it is claimed. If the tax credit is taken for the additional five-year period, the amount of the tax credit allowed to an eligible financial institution for years 11 through 15 is 25% of its corporation business tax liability, and the total aggregate credit is limited to $145 million over the 15-year period.

 

A taxpayer claiming this tax credit is not eligible to claim the Fixed Capital Investment tax credit.

 

 

Definitions

For purposes of this tax credit, the following definitions apply:

 

A financial institution is:

·        Any bank, holding company, or out-of-state bank, and any out-of-state holding company; or

·        Any establishment described in major group 61 or 62 in the Standard Industrial Classification (SIC) Manual, 1987, or in Subsector 522 or 523 in the North American Industry Classification System (NAICS), United States, 1997, engaged primarily in the extending of credit in the form of loans or the underwriting, purchase, sale, or brokerage of  securities and other financial contracts on its own account or for the account of others, and exchanges, exchange clearinghouses, and other services allied with the exchange of securities and commodities or a holding company controlling any such establishment.

 

A qualified employee is an individual whose compensation is paid within this state and is either:

  • Employed directly by the financial institution or a related person and works an average of at least 35 hours per week for at least eight consecutive weeks; or
  • An independent contractor of the financial institution or of a related person and works an average of at least 35 hours per week for at least eight consecutive weeks for the financial institution or the related person;     OR
  • An employee or principal of a company other than the financial institution or a related person if:

1. The individual works an average of at least 35 hours per week for at least eight consecutive weeks providing services to the financial institution or a related person; and


2. The company derives at least 80% of its gross revenues from the financial institution, from one or more related persons, or from a combination.

 

However, this general definition is subject to several limitations. For example, a qualified employee does not include an individual who would have satisfied the criteria of a qualified employee before the Department of Economic and Community Development (DECD) approved the financial institution’s proposal to create new positions in Connecticut.

 

Compensation is paid within this state if the individual’s service is performed:

  • Entirely within the state; or
  • Both within and outside the state, but the service performed outside the state is incidental to the individual’s service within the state.

Special rules apply to determining the number of qualified employees with respect to any taxpayer who has received financial assistance under Conn. Gen. Stat. §32-236.

 

A related person means a corporation, limited liability company, partnership, trust, association, unincorporated organization, or similar organization that is controlled by the financial institution.

 

With respect to a corporation, control means ownership of stock processing at least 50% of the total combined voting power of all classes of stock entitled to vote. With respect to a partnership, association, or similar unincorporated organization, control means ownership of at least 50% of the capital or profits interest in such partnership or association. With respect to a trust, control means ownership of at least 50% of the beneficial interest in the principal or income of such trust. Ownership is determined as provided in section 267(c) of the Internal Revenue Code of 1986, as in effect on October 14, 1994, other than paragraph (3) of that section.

 

The average number of qualified employees is the sum of the average of the number of qualified employees:

  • Reported on federal Form 941, Employer’s Quarterly Federal Tax Return, of the financial institution or a related person;
  • Who are included on the quarterly reports required to be submitted to DECD; and
  • Reported on federal Form 941, Employer’s Quarterly Federal Tax Return of the company.

 

Tax Credit Amount

As described below, a financial institution is entitled to the Financial Institution tax credit if it satisfies certain requirements during the initial qualified year and subsequent qualified years.

 

Initial Qualified Year (1)

A financial institution is entitled to the tax credit if, during the initial qualified year, it:

  • Constructs a new facility in Connecticut of at least 900,000 gross square feet for the exclusive purpose of carrying on the business of a financial institution;
  • Obtains a temporary or permanent certificate of occupancy for such facility;
  • Employs during the income year for which the tax credit is claimed an average of at least 1,200 to 2,000 qualified employees; and
  • Obtains an initial Certificate of Eligibility from the Department of Economic and Community Development (DECD).

In the case of a taxpayer receiving financial assistance under Conn. Gen. Stat. §32-236, the initial qualifying year is the year in which DECD executes an agreement to provide financial assistance.

 

Subsequent Qualified Years (Years 2 through 10)

A financial institution will continue to be entitled to the tax credit if, during the subsequent qualified years, it:

  • Continues to employ during the income years for which the tax credit will be claimed an average of 1,200 to 2,000 qualified employees; and
  • Obtains an annual eligibility certificate from DECD.

Additional Qualified Years (Years 11 through 15)

A financial institution may claim a tax credit in years 11 through 15 if it:

  • Employs an average of at least 3,000 qualified employees in each of years 11 through 15; and
  • Has been issued a certificate by DECD.

Tax Credit Available in Years 1 Through 10

For years one through 10, the amount of the tax credit allowed to an eligible financial institution varies from 30% to 50%, depending upon the number of qualified employees employed by the corporation as indicated below:

Average Number of Qualified Employees Employed During the Year

Percentage of Corporation Business Tax That May be Taken as a Tax Credit

Maximum Aggregate Amount of Tax Credit That May be Taken Over Ten Year Period

1,200-1,599

30%

$72 million

1,600-1,999

40%

$96 million

2,000 or more

50%

$120 million

 

Tax Credit Available in Additional Five-Year Period

If the financial institution satisfies the requirements for the additional five-year credit period by employing an average of 3,000 or more qualified employees, then it is eligible for a 25% tax credit for years 11 through 15. The aggregate amount of credit over the 15-year period may not exceed $145 million.

 

Rules Relating to Ordering

The tax credit must be taken prior to any other tax credits allowed against the tax imposed under Chapter 208 of the Connecticut General Statutes.

 

 

Carryforward and Carryback Limitations

No carryforward or carryback is allowed.

 

 

How to Apply

A financial institution that intends to build and occupy a facility in Connecticut of at least 900,000 square feet and to create and maintain new jobs in Connecticut should submit a proposal to DECD. DECD, in consultation with the Department of Banking, and the Department of Revenue Services (DRS), determines whether the applicant is eligible for the tax credit. If the proposal is approved, DECD will issue an eligibility certificate to the financial institution.

 

 

How to Claim the Tax Credit
Enter the available tax credit on Form CT-1120K, Business Tax Credit Summary.

 

 

Where to Get Additional Information

Direct inquiries to:

Connecticut Department of Economic and Community Development

Managing Director, Business Recruitment Division

505 Hudson Street

Hartford CT 06106

860-270-8045

www.ct.gov/ecd

 

 

Statutory and Regulatory References

Conn. Gen. Stat. §12-217u

 

 

Last updated March 1, 2012