DRS: Corporate Credit Overview 25JAN2017

Overview of Connecticut Business Tax Credits  


General Information

This Online Guide to Connecticut Business Tax Credits provides a brief overview of Connecticut’s business tax credits.  On the Guide’s homepage, there are links to summaries of the business tax credits along with a link to a reference chart that lists each available tax credit, statutory authority for the tax credit, what tax types the tax credit may be applied against, and other information.


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.

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.

 

Who is Eligible to Earn the Tax Credit?

The authorizing state statutes usually specify what entities may earn tax credits. In general, only the entity that earned the credit may claim the credit. However, there are tax credits that may be claimed by an entity other than the entity that earned the credit.  Please review the language of the specific tax credit to determine what entities may claim the credit.


Assignment and Transfer of Tax Credits

Tax credits that may be assigned are specifically identified in the reference chart and in the tax credit summaries. If a tax credit is assigned, the assignee must claim the tax credit when 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.

Insurance Companies and Health Care Centers: In addition to the assignments that are permitted under the specific provisions of this tax credit statute, this credit may also be assigned by an insurance company or health care center to an affiliate provided that the affiliate may only apply the assigned credit against its tax liability under Chapter 207 (Insurance Companies and Health Care Centers Taxes).


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 Form CT-1120K, Business Tax Credit Summary.


Important note: Do not use Form CT-1120K in connection with a tax credit to be applied against the taxes imposed by Chapter 207 (Insurance Companies and Health Care Centers Taxes) or Chapter 229 (Income Tax) of the Connecticut General Statutes.  Instead, taxpayers subject to the Insurance/Health Care Taxes should use Form CT-207K, Insurance/Health Care Tax Credit Schedule, and taxpayers subject to the Income Tax should use Schedule CT-IT Credit, Income Tax Credit Summary.  Please refer to the appropriate tax return instructions for information on how to claim credits against these taxes.


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.

Taxpayers may apply the Electronic Data Processing Equipment Property tax credit only after all other allowable tax credits have been applied. If a taxpayer claims the Electronic Data Processing Equipment Property tax credit, the taxpayer must first use the tax credit against the Corporation Business Tax, and then against other applicable taxes.


Please refer to the appropriate tax return instructions for information on the ordering rules for claiming business tax credits against taxes other than the Corporation Business Tax.
 

Limitation on the Application of Tax Credits


Tax Credits Against the Corporation Business Tax (Chapter 208)


Standard Credit Limit.  The amount of tax credits otherwise allowable against the tax imposed under Chapter 208 for any income year may not exceed 50.01% of the amount of tax due prior to the application of tax credits or be used against the minimum tax of $250.  This limit on the application of tax credits was set at 70% for income years beginning before 2015.

 

Income Years Beginning

Standard Credit Limit

Prior to January 1, 2015

70%

January 1, 2015 and after

50.01%

 

Excess Credit Limit.  Taxpayers may claim certain credits subject to a higher percentage limitation than the general 50.01% credit limitation on returns for income years beginning on or after January 1, 2016. Research and experimental expenditures tax credits (Conn. Gen. Stat. §12-217j), research and development expenses tax credits (Conn. Gen. Stat. §12-217n), and urban and industrial site reinvestment tax credits (Conn. Gen. Stat. §32-9t) that remain unused after application of the standard ordering rules and the 50.01% limitation are “excess credits.”  Excess credits may be used above the general 50.01% limitation, provided the total of all credits used (regular and excess credits) shall not exceed the following percentage limitations in the following income years:

Income Years Beginning

Excess Credit Limit

January 1, 2016 – December 31, 2016

55%

January 1, 2016 – December 31, 2016

60%

January 1, 2018 – December 31, 2018

65%

January 1, 2019 and after

70%

 

Only excess credits may be utilized above the 50.01% limitation.  All other credits are subject to the standard limitation.


Tax Credits Against Insurance/Health Care Centers Taxes (Chapter 207)

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. Through calendar year 2016, the amount of tax credits allowed against the taxes imposed under Chapter 207 is reduced. Through calendar year 2016, the amount of tax credits allowed against the taxes imposed under Chapter 207 may not exceed 70% for Insurance Reinvestment Fund and Second Insurance Reinvestment Fund tax credits, 55% for Digital Animation, Film Production and Film Production Infrastructure tax credits, and 30% for all other credits.  


Tax Credits Against the Hospitals Tax and the Ambulatory Surgical Centers Gross Receipts Tax (Chapter 211a)

The amount of tax credits otherwise allowable against the taxes imposed under Chapter 211a may not exceed the following percentages of the amount of tax due prior to the application of tax credits:


Calendar Quarters Occurring During

Credit Limit

July 1, 2015 – December 31, 2015

50.01%

January 1, 2016 – December 31, 2016

55%

January 1, 2017 – December 31, 2017

60%

January 1, 2018 – December 31, 2018

65%

 January 1, 2019 and after
70%

 

There was no limit on the application of tax credits against the taxes imposed under Chapter 211a for calendar quarters occurring before July 1, 2015.


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

Under certain circumstances, the Research and Development (Nonincremental) Expenses tax credit and the Research and Experimental (Incremental) Expenditures tax credit 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.


No other business tax credit is refundable.


Last updated January 25, 2017