SN 93(13)
Corporation Business Tax Exemption for Income Directly Attributable to Research, Design, Manufacture or Sale of
Aero-Derived Gas Turbine Systems
PURPOSE: This special Notice provides information concerning a corporation business tax exemption for net income that is directly attributable to the research, design, manufacture or sale in Connecticut of aero-derived gas turbine systems, including their parts and components, in certain advanced industrial applications.
EFFECTIVE DATE: Applicable to income years ending after October 1, 1992.
STATUTORY AUTHORITY: 1992 Conn. Pub. Acts 152, adding Conn. Gen. Stat. §12-214(a)(8).
NEW EXEMPTION: Conn. Gen. Stat. §12-214(a)(8) allows a corporation business tax exemption for corporate net income that is directly attributable to the research, design, manufacture or sale in Connecticut of aero-derived gas turbine systems, including their parts and components, in advanced industrial applications. A gas turbine, such as a jet engine, converts thermal energy into mechanical work. An aero-derived gas turbine modifies gag turbine technology for industrial applications, including electricity generation. The exemption is limited to applications which are simple-cycle systems, humid air, steam or water injection, recuperation or inter-cooling technologies.
CLAIMING THE EXEMPTION: All line references in this section on claiming the exemption are to the 1992 Form CT-1120 or the 1992 Form CT-1120S. On Form CT-1120, Schedule G, Line 8 (or Form CT-1120S, Schedule G, Line 6), enter the amount of net income which is directly attributable to the research, design, manufacture or sale in Connecticut of aero-derived gag turbine systems in advanced industrial applications and for which the exemption in Conn. Gen. Stat. §12-214(a)(8) is claimed. This amount is computed by completing the worksheet described below:
Form CT-1120: The taxpayer must prepare a worksheet, consisting of three columns (hereinafter referred to as lefthand, center and righthand columns) and 28 rows, which shall accompany the Form CT-1120. Enter in the corresponding rows of the lefthand column the amounts entered on Lines 1 through 28, inclusive, of the federal Form 1120. Enter in the corresponding rows of the center column that portion of the amount entered in the lefthand column that is directly attributable to research, design, manufacture or sale in Connecticut of aero-derived gas turbine systems in advanced industrial applications. Enter in the corresponding rows of the righthand column that portion of the amount entered in the lefthand column that is not directly attributable to research, design, manufacture or sale in Connecticut of aero-derived gas turbine systems in advanced industrial applications. The amounts entered in the lefthand column must equal the sum of the amounts entered in the center and righthand columns of each row. The amount that is entered on Line 28 of the center column is the amount that is entered on Form CT-1120, Schedule G, Line 8. The amount that is entered on Line 28 of the righthand column is the amount that is entered on Form CT-1120, Line 1.
Form CT-112OS: The taxpayer must prepare a worksheet, consisting of three columns (hereinafter referred to as lefthand, center and righthand columns) and 21 rows, which shall accompany the Form CT-1120S. Enter in the corresponding rows of the lefthand column the amounts entered on Lines I through 21, inclusive, of the federal Form 1120S. Enter in the corresponding rows of the center column that portion of the amount entered in the lefthand column that is directly attributable to research, design, manufacture or sale in Connecticut of aero-derived gas turbine systems in advanced industrial applications. Enter in the corresponding rows of the righthand column that portion of the amount entered in the lefthand column that is not directly attributable to research, design, manufacture or sale in Connecticut of aero-derived gas turbine systems in advanced industrial applications. The amounts entered in the center and righthand columns of each row must equal the amount entered in the lefthand column. The amount that is entered on Line 21 of the center column is the amount that is entered on Form CT-1120S, Schedule G, Line 6. The amount that is entered on Line 21 of the righthand column is the amount that is entered on Form CT-1120S, Line 1.
Corporations claiming this exemption must maintain substantiating records. Failure to maintain adequate records may result in the disallowance of the exemption.
DIRECTLY ATTRIBUTABLE: Examples of items of income that are directly attributable to the research, design, manufacture or sale of aero-derived gas turbine systems include, but are not limited to, income from performing research in connection with, or from the design of, aero-derived gas turbine systems or their parts; income from the sale of an aero-derived gas turbine system patent; royalties for the use of an aero-derived gas turbine system design or patent; income from the sale or lease of an aero-derived gas turbine system.
Where a corporation receives a lump sum from the exempt activity and non-exempt activities, then only that portion that is properly allocable to the exempt activity is directly attributable to the research, design, manufacture or sale in Connecticut of aero-derived gas turbine systems. For example, if a supplier sells to a manufacturer for the lump-sum of $50,000 certain component parts of an aero-derived gas turbine system, along with parts for printing press operations, only that portion of the $50,000 that is properly allocable to the component parts of the aero-derived gas turbine system is directly attributable to the research, design, manufacture or sale in Connecticut of aero-derived gas turbine systems and should be stated in the center column of the worksheet.
Examples of items of deduction that are directly attributable to the research, design, manufacture or sale of aero-derived gas turbine systems include, but are not limited to, wages and benefits paid to employees whose services are solely related to research or design of aero-derived gas turbine systems or their parts; costs of acquiring, leasing or constructing real or personal property that is used solely for the research, design, manufacture or sale of aero-derived gas turbines or their parts. Where a corporation pays wages and benefits to employees whose services are partially related to research, design, manufacture or sale of aero-derived gas turbines or if a corporation acquires, leases or constructs real or personal property that is used partially for research, design, manufacture or sale of aero-derived gas turbines, then only that portion of these costs that is properly allocable to the research, design, manufacture or sale of aero-derived gas turbine systems is directly attributable to the exempt activity.
Where a corporation incurs a cost or expense that represents a cost of doing business generally, and the amount to be allocated to either the research, design, manufacture or sale in Connecticut of aero-derived gas turbine systems or to other non-exempt activities is not easily ascertainable, such cost or expense shall be allocated to the exempt activity in accordance with a reasonable formula. The basis for such allocation shall accompany the worksheet in a separate statement and must be supported by proper documentation. Expenses that might be included in this category are insurance costs, workers compensation fund contributions, unemployment compensation fund contributions, advertising costs, attorney retainer fees, employee pension expenses, and charitable contributions. The appropriate basis for prorating such expenses will vary according to the type of expense involved. For example, a charitable contribution could be properly allocated to the exempt activity on the basis of the ratio of net income from the exempt activity to the net income from all activities. On the other hand, unemployment compensation fund contributions could be properly allocated to the exempt activity on the basis of the ratio of total cost of employee compensation directly attributable to the exempt activity to the total cost of employee compensation attributable to all activities.
IN CONNECTICUT: The corporation business tax exemption may be claimed only for net income that is directly attributable to the research, design, manufacture or sale in Connecticut of aero-derived gas turbine systems. The exemption may not be claimed for net income that is directly attributable to the research, design, manufacture or sale outside Connecticut of aero-derived gas turbine systems.
APPORTIONMENT FACTORS: The apportionment factors of Conn. Gen. Stat. §12-218 are unaffected by Conn. Gen. Stat. §12-214(a)(8).
ADDITIONAL TAX: The computation of the additional tax under Conn. Gen. Stat. §12-219 is unaffected by Conn. Gen. Stat. §12-214(a)(8).
EFFECT ON OTHER DOCUMENTS: None.
EFFECT ON THIS DOCUMENT: A Special Notice is a document that announces a new policy or practice in response to changes in State or federal laws or regulations or to judicial decisions. A Special Notice indicates the Department's informal interpretation of Connecticut tax law and may be referred to for general guidance by taxpayers or tax practitioners.
SN 93(13)
Corporation business tax
Issue: 7/7/93