Development Agency Advises State Eliminate Several Business Tax Credits

HARTFORD (AP) — Several Connecticut tax credits and property tax abatements have a negative or limited impact and should be abolished, the state Department of Economic and Community Development said in a report to the legislature.

The report recommends the elimination of several tax credit programs, such as a business tax credit in enterprise zones that the state agency said has had no effect on economic development, and another credit for taxes paid by manufacturers in enterprise zones criticized for creating too few jobs.

Those recommendations have stirred some opposition. State Representative Selim Noujaim, R-Waterbury, said his 26-year-old, family-run machine shop in Waterbury has been made possible by the establishment of enterprise zones.

“It is very costly to do business in Connecticut and the ability of businesses to compete is going to be more difficult for manufacturers,” he said.

The Department of Economic and Community Development said a few tax credits have a significant impact. For example, the agency recommended keeping the Urban and Industrial Site Reinvestment tax credit, which allows a credit for investments of at least $5 million in a qualified urban or industrial project or at least $50 million in a municipality approved by the economic development commissioner.

Commissioner Joan McDonald said the site reinvestment credit works well because of the agency’s oversight. A business may not initiate a qualifying project without the commissioner’s approval and it must demonstrate that the incentives have an economic need.

For all tax credit programs applied to corporate, insurance premiums, and unrelated business taxes, the state forfeited revenue of $1.64 billion between 1989 and 2007, the report said.

Corporate tax credits have jumped 87 percent between 1995 and 2007, to nearly $109 million, the report said.

The legislature, which began its 2011 session Wednesday, January 5, will be trying to close a deficit of as much as $3.67 billion for the fiscal year beginning July 1.

Not all tax credits were intended to promote Connecticut’s economy. Credits target quality of life issues such as traffic reduction, air pollution abatement, child care, clean alternative fuels, employer-assisted housing, grants to higher education, and neighborhood assistance.

Ms McDonald said she wasn’t aware of the traffic reduction tax credit, which may be applied against a corporation business tax by companies that participate in traffic reduction programs to promote clean air.

The Department of Economic and Community Development said the credit peaked at nine claims in 2001 and declined to two in 2005.

There are other little-used credits. Research and development grants to colleges and universities had no more than two claims each year since 2001; the Small Business Administration Guaranty Fee credit has been taken by six or fewer firms since 2003, and the number of apprenticeship training credit claims amounted to fewer than 15 since 2003 and has declined from a high of 78 claims in 1999.

But credits that are popular with businesses include a five percent credit of the amount paid or incurred by a business for a new capital investment such as machinery, a 100 percent credit on property tax paid on electronic data processing equipment and a research and development tax credit.

The commissioner said the research and development credit is among the most important to Connecticut’s economy. However, the report said many businesses are not using the credit and are carrying it forward from one year to the next, providing no economic benefit.