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Connecticut Wage Base Reduction

Taxpayers that pay or incur more than $200 million in research and development expenses in an income year must reduce their Research and Development Credit if workforce reductions exceed certain percentages. To determine the extent of workforce reductions, the current Connecticut wage base is compared to a historic Connecticut wage base determined from the third full income year immediately preceding the current income year. The Connecticut wage base is calculated from the total wages assigned to Connecticut with exclusions for the ten most highly paid executives of the taxpayer.

The Research and Development Credit must be reduced by the following percentages based on the extent of the workforce reduction from the historic wage base.

Workforce Wage Base Reduction Reduction

Percentage

Percentage

not more than 2%

0%

more than 2% but not more than 3%

10%

more than 3% but not more than 4%

20%

more than 4% but not more than 5%

40%

more than 5% but not more than 6%

70%

more than 6%

100%

How to Compute the Credit The allowable credit is the lesser of:

  • One-third of the amount of the credit allowable for any income year; or

  • The greater of:

    • 50% of the taxpayer’s tax liability, determined without regard to any credits allowed by Conn. Gen. Stat. §12-217n; or

    • The lesser of 200% of the credit otherwise allowed for the income year or 90% of the taxpayer’s tax liability, determined without regard to any credits allowed by Conn. Gen. Stat. §12-217n.

Any taxpayer also claiming a corporation business tax credit on Form CT-1120RC, Research and Experimental Expenditures Credit, will reduce the amount of research and development expenses that

might otherwise be taken into account in computing the allowable credit by the amount of the incremental increase in research and experimental expenditures, as computed on Form CT-1120RC.

Any taxpayer also claiming a corporation business tax credit on Form CT-1120GC, Tax Credit for Research and Development Grants to Institutions of Higher Education, will reduce the amount of research and development expenses that might otherwise be taken into account in computing the allowable credit by the amount of the incremental increase in grants, as computed on Form CT-1120GC.

Calculate the credit by multiplying the amount spent on research and development conducted in Connecticut by the appropriate percentage. The calculation reported on Form CT-1120 RDC, Research and Development Credit, must be entered on Form CT-1120K, Business Tax Credit Summary.

In the case of combined returns, all allowances and limitations will be made on an aggregate basis for all taxpayers included in the combined return, provided, the credit attributable to a qualified small business may be taken only against the combined tax liability attributable to the qualified small business. The amount of the combined tax for all corporations properly included in a combined corporation business tax return that is attributable to a qualified small business will be in the same ratio to the combined tax that the net income apportioned to Connecticut of the qualified small business bears to the net income in the aggregate of all corporations included in the combined return. For the purposes of computing this ratio, any net loss apportioned to Connecticut by a corporation included in the combined return will be disregarded.

Carryforward/Carryback Limitations

Credits that are allowed but that exceed the limitation amounts may be carried forward to each successive income year until such credits are fully taken. All allowable credits from prior years must be carried forward and applied before the current year credit may be taken. No carryback is allowed.

54

Informational Publication 2006(15), Guide to Connecticut Business Tax Credits Issued: 04/24/07

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