General Information
General Information
This guide provides a brief overview of Connecticut’s available business tax credits. There is a reference chart at the end of the guide 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.
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
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 Reinvestment 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.
Tax Credit Summaries
Each section may include the following information:
- Description and Applicable Taxes;
- Definitions;
- Tax Credits Amounts;
- Carryforward and Carryback Limitations;
- How to Apply;
- Assignments and Transfer;
- Flow-Through of the Tax Credit;
- How to Claim the Tax Credit;
- Recapture;
- Where to Get Additional Information; and
- Statutory and Regulatory References.
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
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
Assignment and Transfer of Tax Credits
Tax credits that may be assigned are specifically identified in this summary. 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
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 Reinvestment 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.
Effect on Other Documents
Informational Publication 2010(13), Guide to Connecticut Business Tax Credits, supersedes Informational Publication 2007(31), Guide to Connecticut Business Tax Credits, which may no longer be relied upon or after the issuance of this publication.
Effect of this Document
An Informational Publication issued by DRS addresses frequently asked questions about a current position, policy, or practice, usually in a less technical question and answer format.
For Further Information
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