1. Connecticut State Tax Credits and Other 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. QREs Federal vs. State Credit Key: No shading = Federal Green = State Red = Neither State nor Federal

6. Federal vs. State Tax Credits Treatment 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

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 Credits and Other Considerations for Developers Todd Doyle, Esq. January 22, 2009