2010 Connecticut Tax Law Developments
| Pages | 71 |
| Publication year | 2021 |
85 CBJ 71. 2010 CONNECTICUT TAX LAW DEVELOPMENTS
Volume 85, No. 1, Pg. 71
March 2011
As in the prior two years, the sluggish economy heavily impacted Connecticut's tax landscape in 2010. State revenue collections remained stagnant, contributing to a state budget deficit of historic proportions. Apparently paralyzed by the scope of the deficit and the impending gubernatorial transition, the General Assembly limited its contribution to tax policy to the passage of the recommendations of the Majority Leaders' Job Growth Roundtable(fn1) - a package of tax incentives intended to spur economic development in the state, targeting primarily individual income taxpayers, corporate taxpayers and insurance companies. The bill's passage represents the first time that the state has offered meaningful tax incentives to individual income taxpayers and offers benefits to both individual investors and companies seeking start-up capital to benefit.
Perhaps the most significant tax development in 2010 was newly-elected Governor Dannel P. Malloy's nomination of Kevin B. Sullivan as Commissioner of Revenue Services. Known for his distinguished public service as both a state senator and Lieutenant Governor, Commissioner Sullivan has committed the Department of Revenue Services (the "Department") to be "efficient, effective, honest, transparent and, above all, fair."(fn2) The Commissioner himself is demonstrating this commitment by continuing a regular dialogue with tax practitioners and business representatives on a variety of issues. It is hoped that this continued communication will result in improved taxpayer interactions with the Department.
For the first time since 2008, Governor M. Jodi Rell and the General Assembly agreed on the passage of a state budget.(fn3) While no additional taxes were included in the measure, the $19 billion budget enacted for Fiscal Year 2011 relied heavily upon borrowing and federal stimulus funds to remedy the existing budget shortfall from FY 2010. As a result, the state faces a projected budget deficit in excess of $3 billion for FY 2012, leaving the new Malloy Administration with little choice but to seek tax increases. In all, the General Assembly passed several tax-related measures worthy of note.
A. Corporate and Income Taxes
1. Corporation Business Tax
The most note-worthy legislation provides for incentives recommended by the Roundtable. one such incentive was the small Business Job Creation Tax Credit. Beginning with income tax years commencing on or after January 1, 2010, this credit is available for qualified small businesses that create new, full-time jobs and that hire state residents as employees.(fn4) The credit, equal to $200 per month, per employee hired and available for new jobs created up until December 31, 2012, may be used against liabilities arising under the Insurance premiums Tax, the Corporation Business Tax, and the Individual Income Tax.
Another outgrowth of the Roundtable was the vocational Rehabilitation Job Creation Tax Credit, which provides businesses with a credit for hiring employees who have a disability, receive vocational rehabilitation services from the state, work at least twenty hours per week, and start employment after January 1, 2010.(fn5) As with the Small Business Job Creation Tax Credit, this credit is equal to $200 per month for each employee hired and is available to offset a liability arising under the Insurance Premiums Tax, the Corporation Business Tax, and the Individual Income Tax.
Both the Small Business Job Creation Tax Credit and the Vocational Rehabilitation Job Creation Tax Credit were enacted as part of the General Assembly's recent focus on targeting tax credits to selected groups of taxpayers, which represents a change in practice in Connecticut. These two credits, along with the Job Incentive Tax Credit enacted in 2006, are collectively capped at $11 million for any one fiscal year.(fn6)
Currently, a credit may be taken against the Corporation Business Tax for a manufacturing facility located in a distressed municipality, a targeted investment community, or an enterprise zone.(fn7) The General Assembly expanded the credit to include any manufacturing facility located within the newly created Bradley Airport Development Zone.(fn8) This expansion of the Corporation Business Tax coincides with the Property Tax exemption also available for the Bradley Airport Development Zone, which is discussed below.
Also, as a result of the Roundtable, the General Assembly both broadened and narrowed the Film Production Tax Credit(fn9) and the Tax Credit for Infrastructure Projects in the Entertainment Industry(fn10) (the "Film Tax Credits"), making the credits more widely available while also limiting the type of expenses that qualify for the credit.(fn11) The threshold for qualifying for the Film Production Tax Credit has been reduced so that a company can now qualify for the credit by conducting 25% (formerly 50%) of its principal photography days within Connecticut. A company also qualifies for the credit if it expends more than $1 million of post-production costs in Connecticut. With respect to costs qualifying for the credit, the legislation narrows the expenses eligible for the credit by limiting compensation to base salary (i.e., excluding bonuses, stock options, etc.) and by eliminating development costs. With regard to the Tax Credit for Infrastructure projects in the Entertainment Industry, the legislation tightens the criteria for determining eligible production and infrastructure costs by permitting only buildings, facilities, and installations made pursuant to a capital lease to qualify.(fn12)
The General Assembly amended the approval process under the R.E. van Norstrand Neighborhood Assistance Act, which provides Corporation Business Tax credits to business firms that invest in certain community activities and programs.(fn13) The legislation eliminates the municipalities' role in approving a business firm's application, leaving the Commissioner as the sole decision-maker.(fn14) The legislation also increases the credit for investments in community-based alcoholism prevention or treatment programs from 40% to 60% of the total cash amount invested.(fn15)
Effective for income tax years commencing January 1, 2014, Public Act 10-75 eliminates several Corporation Business Tax credits, including:
-the tax credit (ranging from 30% to 50%) for financial institutions constructing new facilities and creating new jobs,(fn16) as well as the additional five-year credit for employing 3,000 qualified employees;(fn17)
-the 100% tax credit for certain costs borne by small businesses with respect to obtaining financing from the United States Small Business Administration;(fn18) and
- the 50% tax credit for the donation of new or used computers to a board of education or school.(fn19)
Finally, in arriving at net income for purposes of determining income taxable under the Corporation Business Tax, the tax statutes generally allow a deduction for any item that is deductible for U.S. federal income tax purposes, unless otherwise excepted. In 2010, the General Assembly included an additional exception for the recipient of dividends paid from a captive real estate investment trust ("REIT").(fn20) As a result, any dividends paid from a captive REIT cannot be deducted and must be included in net income of the recipient, unless the captive REIT itself is taxable in Connecticut.(fn21)
2. Individual Income Tax
The General Assembly did not limit the incentives arising from the Roundtable to the Corporation Business Tax. As noted above, the Small Business Job Creation Tax Credit and the Vocational Rehabilitation Job Creation Tax Credit may be used as a credit against an Individual Income Tax liability. In addition, an individual taxpayer who makes a qualifying investment of at least $100,000 in certain Connecticut businesses may qualify for the new Angel Investor Tax Credit, which was designed to spur investment of start-up capital in Connecticut-based initiatives.(fn22) The Angel Investor Tax Credit is the only tax credit available exclusively for Individual Income Tax payers and is equal to 25% of the individual's cash investment. The recipients of such investments must be engaged in bioscience, advanced materials, photonics, information technology, clean technology, or any other emerging technology, have a principal place of business in Connecticut, have been approved by Connecticut Innovations, Incorporated, and satisfy other revenue- and employee-related criteria. A total of $6 million of Angel Investor credits are available for FY 2011 and FY 2012, with $3 million being allocated to FY 2013. The credit is neither transferable nor refundable and is capped at $250,000 for each...
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