Connecticut State Tax Credits and Other Considerations for Developers

1. Connecticut State Tax CreditsandOther Considerations for Developers Todd Doyle, Esq. February 12, 2009

2. About Shipman & Goodwin • Founded in 1919 • 145 Attorneys • Full Service Law Firm • Four offices in Connecticut

3. 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

4. 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 Value • Application requires an estimate of QREs

5. QREsFederal vs. State Credit Key: No shading = Federal Green = State Red = Neither State nor Federal

6. Acquisition Hard Costs Retail Improvements Accounting A&E Permits Remediation of Building Land /Streetscaping Marketing Expenses Federal vs. State Tax CreditsTreatment of Projected Costs as QREs • Legal & Title • Utility charges • R.E. taxes during construction • Financing Fees • Survey • Construction Loan Interest • Developer Fees • Contractor’s Overhead

7. 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” Developments • 25% Credit – up to $5 M over 3 years • 30% Credit available to Affordable Housing Projects

8. Choosing Between the Two Credits

9. Tax Credit Mechanism • Developer submits final certification to Commission upon Project Completion • Commission issues Tax Credit Voucher • Voucher = LESSER of • Applicable percentage of Projected QREs • Applicable percentage of QREs

10. Tax Credit Mechanism (cont.) • Credit may be applied against the following taxes: • Insurance and Health Centers • Corporation Business • Air Carriers • Railroad Companies • Community Antenna Television Systems • Utilities Company • Voucher may be Transferred – Once • Carryforward up to 5 years

11. 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

12. 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

13. 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

14. 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))

15. Connecticut State Tax CreditsandOther Considerations for Developers Todd Doyle, Esq. January 22, 2009