2011 Connecticut Tax Law Developments
| Citation | Vol. 86 Pg. 107 |
| Pages | 107 |
| Publication year | 2021 |
86 CBJ 107. 2011 CONNECTICUT TAX LAW DEVELOPMENTS
Volume 86, No. 2, Pg. 107
June 2012
The economic narrative for Connecticut in 2011 has remained the same as it has since 2008: a sluggish economy, a fickle stock market, stagnant unemployment, and lack of consumer confidence have all impacted the state's tax collections and resulted in a substantial budget deficit. The most significant legislative action took place when the General Assembly passed and the Governor signed into law a biennial budget with sweeping changes to the state's tax code. On the administrative side, the Department of Revenue Services ("DRS" or "Department") also issued substantive guidance on numerous issues, including the treatment of nonresident contractors and catch-up withholding for Connecticut taxpayers. On the judicial front, the courts had a relatively quiet year, issuing only a few decisions addressing state tax matters.
Governor Dannel P. Malloy began his tenure as Connecticut's 88th Governor by taking action to address the state's $3.5 billion budget deficit. Barely a month into his term, Governor Malloy introduced an aggressive budget proposal, which focused heavily upon job creation measures and a myriad of tax increases. Three months later, Governor Malloy signed into law a $40.2 billion budget for FY 2012 and 2013-a modified version of his original budget proposal.(fn1) The legislative Office of Fiscal Analysis projected that the tax increases would generate $4 billion in additional revenue during the biennium, making the budget bill the largest tax increase in state history. The tax increases enacted in the budget impacted virtually all types of taxpayers throughout the state, with significant changes affecting the individual income tax, the sales and use tax, and the corporation business tax.
A. Income Taxes
1. Corporation Business Tax
Among the numerous changes to the corporation business tax in 2011, Public Act 11-6 extended and increased the rate of the corporation business tax surcharge for the 2012 and 2013 income tax years.(fn2) This legislation increased to twenty percent the ten percent surcharge originally set to expire at the end of 2011 and extended the surcharge for an additional two years. The surcharge applies only to companies with a tax liability in excess of $250 and which either file unitary returns or have $100 million or more in annual gross income.
As a job creation measure, the General Assembly increased from $11 million to $20 million per year the collective cap for the Creating New Jobs Credit,(fn3) the Small Business Creating Jobs Credit,(fn4) and the Vocational Rehabilitation Job Creation Tax Credit.(fn5) Subsequently, legislation enacted during the October "Jobs Session" phased out these three existing credits and replaced them with a new Job Expansion Tax Credit.(fn6) This new credit is a three-year credit to be applied against the insurance premiums tax, the corporation business tax, the utility company tax, or the individual income tax.(fn7) Like the three credits it replaces, it is capped at the amount of $20 million annually. It is available to businesses that create new jobs and fill those jobs with Connecticut residents who meet certain criteria. To be eligible, a qualifying business must create a certain number of qualifying jobs between January 1, 2012 and January 1, 2014. A business with fifty or fewer employees must create one new job to qualify for the credit. Employers with fifty to 100 employees must create at least five new jobs, while an entity with over 100 employees must create at least ten new jobs.(fn8) A qualifying taxpayer that meets the job creation thresholds may earn a credit equal to $500 or $900 per month for each new Connecticut resident employed.(fn9)
Additionally, legislation passed during both the regular session and the Jobs Session changed the total amount of credits available under the Urban and Industrial Site Reinvestment Tax Credit. Originally enacted in 2000, the credit was designed to encourage new investment and development in eligible industrial zones and economically distressed urban areas.(fn10) This credit applies to both the corporation business tax and insurance premiums tax. The amount of the credit depends upon the projected amount of state tax revenues to be generated by a qualifying facility. The initial legislation enacted in 2011 increased the total amount of credits available from $500 million to $750 million annually,(fn11) but the subsequent Jobs Session legislation reduced that amount to $650 million.(fn12)
Changes made during the Jobs Session also impacted the Film Production Tax Credit, which is available to offset liabilities under both the corporation business tax and insurance premiums tax. Any eligible production company that produces a qualified production and incurs expenses or costs in excess of $50,000 in Connecticut is eligible for the Film Production Tax Credit.(fn13) The credit is equal to thirty percent of the production expenses and costs incurred within
Connecticut. Legislation enacted in 2011 expanded the types of qualified productions eligible for the credit to include relocated television productions, which are ongoing television programs or current-events shows that have filmed all prior seasons outside of Connecticut and are created at a qualified production facility.(fn14) A qualified production facility is one which costs over $25 million to construct and in which the taxpayer creates 200 new, full-time jobs in Connecticut.
Addressing a related credit, the Budget Bill limited the amount of Film Production Tax Credits available for transfer by a film production company not subject to the corporation business tax or insurance premiums tax. Such taxpayers may transfer only fifty percent of the credit in 2011 and twenty-five percent of the credit in 2012 and beyond.(fn15 )These restrictions do not apply if the qualifying production is filmed at a qualified production facility located in Connecticut, is intended for film, television, or digital media production, and includes an investment of $3 million. The Budget Bill also increased the required minimum number of principal photography days within the state from twenty-five percent to fifty percent for purposes of the Film Production Tax Credit.(fn16) Jobs Session legislation also relaxed the existing credit limitation for the Film Production, Infrastructure Projects in the Entertainment Industry, and Digital Animation Tax Credits by increasing the limitation from thirty percent to fifty-five percent of the tax liability, subject to an ordering regime when combined with other credits.(fn17) Finally, for the Infrastructure Credit, legislation enacted during the Jobs Session eliminates the carry-forward prohibition, permitting a taxpayer to take the credit in the year in which the expenditures were made or in the three immediately succeeding years.(fn18)
As an incentive to promote workforce training, development, and expansion, as well as to encourage the purchase of machinery, equipment, or facilities, Public Act 11-140, enacted during the Regular Session, created a program permitting up to fifty small manufacturers to defer their corporation business tax liabilities.(fn19) As part of the program, a manufacturer must first establish an interest-bearing manufacturing reinvestment account at a Connecticut bank. The manufacturer may deposit the lesser of $50,000 annually or 100% of its domestic gross receipts for up to five years and may deduct such deposits from its income subject to the corporation business tax. A manufacturer may withdraw funds from the account to train its workers or purchase machinery, equipment, or manufacturing facilities. When it withdraws such amounts from the bank, the manufacturer is required to pay a 3.5% tax on the withdrawal. This proposal provides two incentives: deferring the time for payment of tax; and reducing the rate of tax on qualifying deposits from 7.5% to 3.5%. Subsequent legislation passed during the Jobs Session both increased the amount of the required investment to the lesser of $100,000 or the manufacturer's domestic gross receipts and doubled to 100 the number of eligible small manufacturers.(fn20)
In 2010, the General Assembly created a development zone surrounding Bradley International Airport, allowing manufacturers and other qualifying business within the designated zone to qualify for corporation business tax credits. Legislation enacted in 2011 established new airport development zones surrounding the Danielson, Groton/New London, Hartford-Brainard, Waterbury-Oxford, and Windham airports.(fn21)
The Neighborhood Assistance Act Tax Credit has long been provided to corporations that make cash investments in qualifying community programs conducted by municipal agencies or tax-exempt entities.(fn22) Under the prior law, the taxpayer was limited to $75,000 in Neighborhood Assistance Act credits each year, and a taxpayer's total charitable contributions for the year in which it would seek the credit were required to equal or exceed the total charitable contributions made in the previous year. The Budget Bill increased the total amount of annual credits that a taxpayer may claim from $75,000 to $150,000, and a separate enactment eliminated the requirement that a taxpayer's charitable contributions equal or exceed the prior year's con-tribution.(fn23)
Finally, newly enacted legislation provides that a company may apply overpayments of estimated corporation business tax to its estimated tax payments for the subsequent year.(fn24) The DRS had interpreted the prior law to not permit such an overpayment to be applied against a subsequent year's tax and had instead issued refunds for...
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