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Connecticut General Assembly Enacts Tax Law Changes During June Special Session

July 1, 2010

Authors: Alan E. Lieberman, Louis B. Schatz, Raymond J. Casella

The Connecticut General Assembly convened a special session last week during which it enacted legislation that was signed into law by Governor Rell on June 22, 2010. Among the Connecticut tax law changes adopted during the special session were the following:

-Real Estate Conveyance Tax Rate: The “temporary” increase in the municipal real estate conveyance tax rate from eleven one-hundredths of one percent (0.11%) of the consideration to one-fourth of one percent (0.25%) of the consideration is extended for yet another year through June 30, 2011. Conn. Gen. Stat. §12-494(a), as amended by Conn. Pub. Act No. 10-1 (June Spec. Sess.), §1 (effective July 1, 2010).

-Real Estate Conveyance Tax Exemptions. Two new exemptions from the real estate conveyance tax are adopted for: (i) deeds in lieu of foreclosure that transfer the transferor’s principal residence; and (ii) any instrument that transfers a transferor’s principal residence where the gross purchase price is insufficient to pay the sum of (A) all mortgages encumbering the residential property, and (B) any real property taxes and municipal utility or other charges for which the municipality may place a lien on the residential property and which would have priority over the mortgages encumbering the residential property. Conn. Gen. Stat. §§12-498(a)(19) and (20), as added by Conn. Pub. Act No. 10-1 (June Spec. Sess.), §2 (effective October 1, 2010).

-Vocational Rehabilitation Job Creation Tax Credit. In our newsletter summarizing legislation adopted during the 2010 regular legislative session, we described the enactment of a new tax credit against the corporation business, personal income and insurance premium taxes for an employer who hires a Connecticut resident with a disability who is receiving vocational rehabilitation services from the Bureau of Rehabilitation Services. The provisions of the new tax credit have been amended to extend the credit to the hiring of a person who is receiving vocational rehabilitation services from the Board of Education and Services for the Blind. Conn. Pub. Act No. 10-75, §9(a), as amended by Conn. Pub. Act No. 10-1 (June Spec. Sess.), §18 (effective June 22, 2010, and applicable to income years commencing on or after January 1, 2010).

-Tax Credit for Housing Programs. New legislation amends the tax credit for business firms making cash contributions to low and moderate income housing programs developed, sponsored or managed by a nonprofit corporation approved by the Connecticut Housing Finance Authority (“CHFA”). Under current law, the total annual amount of credits allowed to all business firms cannot exceed $10 million. Of that total, up to and until November 1st of each year, CHFA must set aside $2 million for the Supportive Housing Pilots Initiative or the Next Steps Initiative and $1 million for workforce housing. The governing statute is amended to: (i) change the deadline for the set asides from November 1st to 60 days after CHFA publishes its list of housing programs that will receive the tax credit; (ii) extend the $2 million set aside also to other supportive housing initiatives; and (iii) clarify that any tax credits remaining unused after the deadline become available for any other eligible housing program. Conn. Gen. Stat. §8-395, as amended by Conn. Pub. Act No. 10-1 (June Spec. Sess.), §19 (effective July 1, 2010).

-Triennial Tax Credit and Business Tax Review. On or before January 1, 2011, and every three years thereafter, the Commissioner of Economic and Community Development, in consultation with the Commissioner of Revenue Services, is now required to prepare a report regarding any tax credit or abatement program enacted for the purpose of the recruitment or retention of businesses. The report must include, at a minimum: (i) a baseline assessment of the tax credit and abatement programs enacted to encourage business growth in the state, including the aggregate number of jobs and annual revenue associated with taxpayers eligible for such tax credits or abatements; (ii) a listing, by program, of the amount of tax credits and abatements approved by the state during the preceding calendar year; (iii) a summary and evaluation of each tax credit program administered by the DECD (including (A) an assessment of the intended statutory and programmatic goals of the tax credit program; (B) the number of taxpayers granted tax credits under the program during the previous twelve-month period; (C) the value of the tax credits granted under the program, listed by the North American Industrial Classification System (“NAICS”) code associated with the taxpayers receiving such credit; (D) the value of the tax credits actually claimed and carried forward by taxpayers under the credit program, listed by the NAICS code associated with such taxpayers; (E) an assessment and five-year projection of the potential impact on the state’s revenue stream from tax credit carry forwards under the tax credit program; (F) an analysis of the economic impact of the tax credit program, and whether the statutory and programmatic goals of the program are being met, and any obstacles to the achievement of such goals; (G) the type and value of the tax credits assigned under the program, and a summary by the NAICS codes of the assignees; (H) a cost-benefit analysis of the revenue foregone by allowing the tax credit; (I) the cost to the state to administer the tax credit program, as compared to the net revenue generated to the state by the program; (J) the average and aggregate administrative and compliance cost, to taxpayers, to comply with the requirements of the tax credit program; and (K) a recommendation as to whether the tax credit program should be continued, modified or repealed, the basis for the recommendation and the expected impact of such recommendation on the state’s economy); and (iv) an assessment of the fairness, performance, burden, tax incidence and economic impact of the state’s corporation business tax and taxes on domestic and foreign insurance companies (including the cost to the state to administer these taxes and a comparison of such costs to the net revenue generated to the state by such taxes, and the average and aggregate administrative and compliance costs to taxpayers associated with such taxes). The report is to be submitted to the Governor, the Secretary of the Office of Policy and Management and the General Assembly committees having cognizance of matters relating to appropriations, finance and commerce. Conn. Pub. Act No. 10-1 (June Spec. Sess.), §27 (effective July 1, 2010).

Please note that the descriptions contained herein are only summaries: the application of a change in tax law to your business or to you, individually, may be impacted by tax law provisions not included in our summary that are nevertheless applicable to your particular facts and circumstances. We encourage you to contact any member of our State and Local Tax Practice Group if you have any questions. Click here to view the 2010 Connecticut tax midyear summary in its entirety.

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