Connecticut State Tax Creditsand

Other Considerations for Developers

Todd Doyle, Esq.

February 12, 2009

About Shipman & Goodwin

• Founded in 1919

• 145 Attorneys

• Full Service Law Firm

• Four offices in Connecticut

S&G Tax Practice• All aspects of federal, state and

international taxation, including planning, restructuring, audit and tax controversy.

Many Developer Clients Tax Credit Counseling

Research & Development Tax Credit

Federal Rehabilitation Tax Credit

State Tax Credit Basics

• Timing – Must apply for credit allocation PRIOR to start of construction

• Qualification – must be a “Substantial Rehabilitation”QREs in excess of 25% of Property’s

Assessed ValueApplication requires an estimate of QREs

QREsFederal vs. State Credit

Key:

No shading = Federal

Green = State

Red = Neither State nor Federal

Federal vs. State Tax CreditsTreatment of Projected Costs as QREs

• Acquisition• Hard Costs• Retail Improvements• Accounting• A&E• Permits• Remediation of Building• Land /Streetscaping• Marketing Expenses

• Legal & Title• Utility charges• R.E. taxes during construction• Financing Fees• Survey• Construction Loan Interest• Developer Fees• Contractor’s Overhead

Two State Credits• Historic Structures Credit (C.G.S.§10-416a)

25% Credit – up to $2.7 M Applies only to Residential Developments

• Historic Preservation Credit (C.G.S.§10-416b)Applies to both Residential and Non-Residential “Mixed

Used” Developments25% Credit – up to $5 M over 3 years30% Credit available to Affordable Housing Projects

Choosing Between the Two Credits

Tax Credit Mechanism

• Developer submits final certification to Commission upon Project Completion

• Commission issues Tax Credit Voucher

• Voucher = LESSER of Applicable percentage of Projected QREsApplicable percentage of QREs

Tax Credit Mechanism (cont.)• Credit may be applied against the following

taxes:Insurance and Health CentersCorporation BusinessAir CarriersRailroad CompaniesCommunity Antenna Television SystemsUtilities Company

• Voucher may be Transferred – Once• Carryforward up to 5 years

State Sales Tax Incentives for Developers

Carpentry Construction

Management Demolition Flooring

Foundation work Property Management Painting Plumbing Roofing

• State Sales Tax Exemption Applicable to Certified Rehabilitation Projects (Reg. §12-407(2)(i)(I)-1). Exempts certain otherwise taxable construction services

from 6% sales tax Exempted services include

Sales Tax Exemption Considerations

• Exemption granted under Regulations applicable to “New Construction” (Reg. §12-407(2)(i)(I)-1(c) )

• Definitions of terms “Certified Rehabilitation,” “Substantial Rehabilitation” and “QRE” determined under Federal Law. (Thus, Exemption may apply even where project does not qualify for State credits)

• Exemption Applies only to labor costs, not materials Exceptions for certain types of “fixed-fee” contracts

Sales Tax Exemption Considerations (cont.)

• Some labor costs always taxable (e.g., Janitorial, landscaping, maintenance)

• Developer must issue CERT 102 to Contractor

• Document all phases of Construction

Take Away• Generous State benefits Available for Historic

Rehabilitation Projects• Get organized – early• Get counsel• Helpful Publications

DRS Guide to Connecticut Business Tax Credits (IP 2007(31))

DRS Building Contractors’ Guide to Sales and Use Taxes (IP 2006(35))

Connecticut State Tax Creditsand

Other Considerations for Developers

Todd Doyle, Esq.

January 22, 2009