connecticut state tax credits and other considerations for developers todd doyle, esq. february 12,...
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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