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OLR Bill Analysis
HB 5505
Emergency Certification
AN ACT CONCERNING CERTAIN AEROSPACE MANUFACTURING
PROJECTS.
SUMMARY
This bill authorizes the Department of Economic and Community
Development (DECD) commissioner to enter into an assistance
agreement with an eligible aerospace company that intends to take on a
qualifying helicopter production project in Connecticut. The agreement
may provide the company with up to $50 million or $75 million in total
tax benefits over its term, depending on whether it enters into federal
contracts for one or two helicopter programs, respectively. These tax
benefits may allow the company to first offset its sales and use tax
liability and, if applicable, claim a corporation business tax credit, up to
specified limits, for each year from FYs 23 to 32 (referred to as
“compliance years” in the bill).
Among other things, the eligible company must (1) have a wholly
owned subsidiary with its headquarters and production facilities in
Connecticut, (2) operate its primary helicopter production facility for its
current U.S. government helicopter programs here, and (3) employ at
least 7,000 people in the state. The qualifying project (i.e., “aerospace
manufacturing project”) must, among other things, require the
company to undertake and maintain primary production of helicopters
in Connecticut under one or more future federal contracts.
Under the bill, the commissioner must first certify that the company’s
aerospace manufacturing project meets specified criteria, including
agreeing to minimum requirements for total employment, average
employee wages, supplier spend, and capital expenditures, that
continue through at least June 30, 2042. Once certified, the commissioner
may enter into an assistance agreement with the company that has a 2022HB-05505-R00-BA.DOCX
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minimum 20-year term.
Under the bill, if the DECD commissioner determines that the
company fails to meet any of the minimum requirements during FYs 23-
32, the company must repay the tax benefit that it used for that year and
any penalty established under the assistance agreement. The bill also
establishes a framework for recapturing these tax benefits from FYs 33-
42 if the company does not meet the specified thresholds.
Lastly, the bill authorizes the DECD commissioner to revise the
assistance agreement’s terms to address delays preventing the company
from entering into these production contracts by June 30, 2024. This may
include changing the agreement’s timing, minimum requirements, and
recapture period.
EFFECTIVE DATE: Upon passage
ELIGIBILITY CRITERIA
Eligible Taxpayers
Under the bill, a taxpayer qualifies for the bill’s tax benefits if it is an
aerospace company with a place of business or wholly owned
subsidiary headquartered in Connecticut, including any subsidiaries
and affiliates it or its wholly owned subsidiary owns. The company
must also meet the following requirements when it applies to DECD for
certification:
1. employ at least 7,000 people in Connecticut;
2. operate its primary helicopter production facility for its current
federal programs here;
3. plan to bid on a helicopter production contract or contracts under
one or more federal programs; and
4. have a wholly owned subsidiary with headquarters and
production facilities in Connecticut before the bill’s passage.
Eligible Aerospace Manufacturing Project
An “eligible aerospace manufacturing project” is one involving 2022HB-05505-R00-BA.DOCX
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helicopter production in Connecticut that, if certified by the DECD
commissioner, will require the following:
1. primary helicopter production to be performed in Connecticut
for current federal programs specified in the assistance
agreement, as of the date specified in the agreement;
2. during the assistance agreement’s term, undertaking and
maintaining primary helicopter production in Connecticut for
one or more of the future federal programs specified in the
agreement under production contracts the eligible taxpayer
enters into after the bill’s passage; and
3. minimum employment, wage, supplier spend, and capital
expenditure requirements by the eligible taxpayer through at
least June 30, 2042.
Under the bill “production” means the various operations related to
completing a helicopter, including procurement, engineering,
manufacturing, assembly, integration, and testing.
Certifying Project Eligibility
DECD must certify that the aerospace manufacturing project meets
the bill’s criteria before it may enter into an assistance agreement with
the company. Any company seeking certification must apply to the
commissioner in a form acceptable to him and include information he
prescribes, including a detailed plan outlining the project, its term, and
estimated expenditures. The commissioner may also require the
company to provide any additional information he needs to certify the
company’s eligibility.
Under the bill, only the DECD commissioner may decide if a project
meets the bill’s eligibility criteria. His authority to do so is neither a
waiver of the state’s sovereign immunity nor an authorization for a
company to sue the state if he denies its application.
ASSISTANCE AGREEMENT
Once the DECD commissioner certifies the company’s aerospace 2022HB-05505-R00-BA.DOCX
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manufacturing project, the bill authorizes him to enter into an assistance
agreement with a term of at least 20 years. Under this agreement
(including any amendments or extensions made to it), the commissioner
may agree to provide the company tax benefits for meeting minimum
annual requirements and to further induce the company to enter into an
aerospace manufacturing project. These benefits may allow the
company to first offset its sales and use tax liability for the
corresponding compliance year and, if applicable, claim a corporation
business tax credit, as described below. Under the bill, a “compliance
year” covers the same period as a state fiscal year (i.e., July 1 to June 30),
from FY 23 to FY 32.
The bill prohibits the commissioner from entering into any assistance
agreement under the bill after January 31, 2023.
Agreement’s Required Content
The agreement must specify the conditions the company must meet
to receive the benefits. These include requiring the company to commit
to (1) maintaining its wholly owned subsidiary’s headquarters (or its
successor’s) in Connecticut, (2) operating its primary helicopter
production facility for current federal government programs here, and
(3) undertaking and maintaining its primary helicopter production for
any future federal government programs here.
The agreement must also:
1. describe the project and indicate how long it will take the
company to complete it;
2. establish the minimum requirements the company must meet in
each compliance year, as described below;
3. identify the amount of sales and use tax offsets and corporation
business tax credits for which the company is eligible for each
compliance year if it meets these minimum requirements;
4. establish the terms and conditions for repaying the tax offsets and
paying any penalties for failing to comply with the agreement; 2022HB-05505-R00-BA.DOCX
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5. specify how the company must notify the commissioner of any
disputes under the agreement; and
6. include any other terms and conditions the commissioner
requires.
Benefit Period
The agreement must require the company to earn and use the tax
benefits during the first eight years of any federal helicopter production
contract, but no later than the “benefit period.” Under the bill, the
benefit period runs from the bill’s effective date to June 30, 2032.
Dispute Resolution
The bill allows the company to sue the state in Hartford Superior
Court if it disputes a claim under the assistance agreement. The
company must (1) first notify the DECD commissioner as the agreement
requires and (2) bring the action within two years after providing this
notice. The bill reserves all legal defenses to the state except sovereign
immunity.
Conflicts With Other Statutes
The bill specifies that the agreement’s provisions supersede any
conflicting laws (1) limiting the amount of assistance the commissioner
may award under the Manufacturing Assistance Act (MAA), (2)
requiring businesses to provide security for any MAA financing they
receive, and (3) requiring legislative approval for economic
development assistance exceeding specified thresholds.
Allocation Notice
Under the bill, after the DECD commissioner and company execute
the assistance agreement, the commissioner must issue an allocation
notice indicating the (1) maximum amount of sales and use tax offset
and refundable tax credit available to the company for the benefit period
and (2) requirements the company must meet to qualify for them. The
notice must certify to the company that it may claim the offsets and
credits if it meets the specified requirements. 2022HB-05505-R00-BA.DOCX
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Revisions to the Agreement
The bill allows the commissioner to revise the assistance agreement’s
terms to address a delay, not caused by the company, that prevents it
from entering into one or more production contracts by June 30, 2024.
The revisions may include changes to the timing of the (1) benefit
period, (2) compliance years, (3) contract years (i.e., years following the
benefit period where the company must continue to meet certain
requirements to avoid benefit recapture), (4) minimum requirements
(see below), and (5) recapture period. They may also include other
conforming changes, so long as the project tax benefit must be earned
and used during the production contract’s first eight years.
The bill also authorizes the commissioner to periodically amend,
supplement, or modify the agreement’s terms as long as the changes are
consistent with the bill’s provisions.
MINIMUM REQUIREMENTS
The bill establishes the minimum conditions the company must meet
during each compliance year to qualify for the incentives for each of
these years (i.e., “minimum requirements”). These include the
following:
1. maintaining its wholly owned subsidiary’s headquarters in
Connecticut;
2. maintaining and operating the company’s primary helicopter
production facility for its current federal government programs
here;
3. undertaking and maintaining in Connecticut its primary
production for helicopters that will be produced (a) during the
assistance agreement’s term under one or more of the future
federal government programs specified in the agreement and (b)
under production contracts entered into after the bill’s passage;
4. maintaining diversity and workforce training programs
according to the agreement’s terms; and 2022HB-05505-R00-BA.DOCX
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5. achieving the employee, average wage, supplier spend, and
capital expenditure requirements for compliance years 23-32, as
described below.
Employee Requirement
Under the bill, the employee requirement the company must achieve
depends on whether it enters into one or two of the federal helicopter
production contracts specified in the assistance agreement. If it enters
into a contract for one federal program, it must have at least 7,375 full-
time employees in Connecticut on average for each compliance year
(i.e., employees working at least 35 hours per week, excluding
temporary or seasonal workers or anyone who does not receive a federal
W-2 form from the company). If it enters into contracts for two federal
programs, it must have at least 7,500 full-time employees for each year,
on average.
The average number of full-time employees for each compliance year
is calculated by adding the number of these employees at the end of each
quarter and dividing the total by four.
Average Wage Requirement
Under the bill, the company’s average annual wage for full-time
employees in Connecticut must be no less than the amounts specified in
the assistance agreement.
Supplier Spend Requirement
The bill requires the wholly owned subsidiary, or the company on the
subsidiary’s behalf, to annually spend at least the following amounts
with supply companies in Connecticut (i.e., total annual spend):
1. $300 million for compliance years 23 and 24,
2. $410 million for compliance years 25-29, and
3. $470 million for compliance years 29-32.
Purchases count toward the total annual spend if the supply
company is a commercial business with a “regular place of business” in 2022HB-05505-R00-BA.DOCX
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Connecticut and supplies goods and services needed to support the
company’s operations or product manufacturing. Supply companies do
not include local, state, or federal revenue collection or taxing entities.
Under the bill, the supply company has a regular place of business in
Connecticut if it operates a bona fide office, factory, warehouse, or other
space in the state at which it regularly and systematically does business
in its own name through its employees (1) in regular attendance there
and (2) carrying on its business in its own name. Regular places of
business do not include (1) the location of a supply company’s statutory
agent for service of process; (2) temporary offices used only for the
duration of the contract; and (3) offices maintained, occupied, or used
by a supplier’s affiliate.
If an expenditure qualifies for both the supplier spend and capital
expenditures requirement described below, the company may choose to
count the expenditure toward either of the categories, but not both.
Capital Expenditure Requirement
The bill requires that the wholly owned subsidiary achieve annual
capital expenditures in Connecticut that meet the minimum amounts
shown in Table 1.
Table 1: Capital Expenditures Requirement for Compliance Years 23-32
Compliance Year Minimum
Amount (millions)
23 $70.2
24 71.1
25 72.9
26 73.8
27 75.6
28 77.4
29 78.3
30 80.1
31 81.9
32 83.7
“Capital expenditures” are the bona fide costs to the company’s
wholly owned subsidiary and its subsidiaries for the following: 2022HB-05505-R00-BA.DOCX
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1. acquiring land, buildings, machinery, equipment, or any
combination thereof;
2. making site and infrastructure improvements;
3. planning;
4. spending on eligible research and development (R&D), including
developing new products and markets (i.e., spending eligible for
the state’s R&D tax credit); and
5. developing diversification strategies, including preparing plans
for regional diversification strategies and hiring consultants
needed to complete these plans and strategies.
TAX BENEFITS
The bill authorizes two forms of tax benefits under the assistance
agreement: a sales and use tax offset and refundable corporation
business tax credit, as described below. Generally, the sales and use tax
offsets must be claimed first; the company may claim a corporation
business tax credit only if it is unable to use all of its allotted offsets.
The bill caps the total benefit that may accrue to the company in the
form of these incentives (i.e., project tax benefit) over the assistance
agreement’s term at (1) $6.25 million for each compliance year ($50
million total) or (2) $9.375 million for each compliance year ($75 million
total), depending on whether the company enters into federal contracts
for one or two helicopter programs, respectively.
Sales and Use Tax Offset
Certification. The bill requires that the assistance agreement
authorize a sales and use tax offset for the company. After the federal
helicopter production contract takes effect, the company must annually
certify its actual employment, wages, supplier spend, and capital
expenditure amounts to the DECD commissioner under the assistance
agreement’s requirements and subject to a third-party audit performed
according to DECD’s audit guide. The company must do so within 60
days after each compliance year ends or by an extended date, if 2022HB-05505-R00-BA.DOCX
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requested by the company and approved by the commissioner.
Calculating and Claiming the Offset. The bill requires the DECD
commissioner, in consultation with the Department of Revenue Services
(DRS) commissioner, to determine the form, timing, and manner of
providing the offset. The company must calculate the offset amounts
after deducting any sales and use tax exemptions applicable to its
purchase. This offset does not limit the company’s ability to claim the
sales and use tax exemptions for which it otherwise qualifies under
existing law (e.g., existing exemptions for aerospace companies, see
BACKGROUND).
If the audit (see above) shows that the company claimed an offset that
exceeds the allowable amount, the company must repay the offset as
specified in the assistance agreement. After the DECD commissioner
receives the company’s certification at the end of each compliance year,
it must tell the DRS commissioner whether the company (1) has met all
of the minimum requirements necessary to qualify for the offset or (2)
must repay the offset amount in accordance with the assistance
agreement’s terms.
Refundable Tax Credit
Under the bill, if the audit shows that the company is unable to use
all of the offset for a compliance year, then the agreement must
authorize the company to claim the excess amount as a refundable
corporation business tax credit. The credit may be for up to $5 million
for each compliance year and $45 million total over the agreement’s
term.
The company must claim the refundable credit on its corporate tax
return for the income year that ends during the compliance year. The
bill exempts the credit from statutes that (1) limit the total amount of tax
credits a corporation may use to reduce its corporation business tax
liability and (2) specify the order in which corporations must claim their
eligible credits.
Carry Forwards. Under the bill, if the excess amount is greater than 2022HB-05505-R00-BA.DOCX
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$5 million for any year, the company may carry forward the excess to
future compliance years until it is fully used, but no later than June 30,
2032.
The company may first use the carried forward amount to offset its
sales and use tax liability and then as refundable corporation business
tax credits of up to $5 million for each compliance year. The company
must use the carry forward amount before applying any sales and use
tax offset it earns in any future compliance year.
Credit Voucher. The bill requires DECD to issue the company a
credit voucher that establishes the refundable credit amount allowed
and income year for which it may be claimed. It must do so within 30
days after receiving the audit described above, or as provided in the
assistance agreement, during each year of the benefit period. The
commissioner must annually provide the DRS commissioner with a
report detailing these credit vouchers.
REPAYMENT AND RECAPTURE
Repayment During Compliance Years
Under the bill, if the DECD commissioner determines that the
company failed to meet any of the minimum requirements for a
compliance year, the company must repay any project tax benefit that it
used for that year and pay any penalty established under the assistance
agreement.
Recapture During Contract Years
The bill subjects the sales and use tax offset and refundable tax credit
to potential recapture for 10 years, from FYs 33 to 42. Specifically, the
recapture applies during each 12-month period from July 1, 2032,
through June 30, 2042 (i.e., contract years), if the company fails to meet
the following requirements as detailed in the assistance agreement:
1. meeting the annual threshold for employee head count, average
wages, supplier spend, and capital expenditures detailed in the
assistance agreement;
2. maintaining its wholly owned subsidiary’s headquarters in 2022HB-05505-R00-BA.DOCX
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Connecticut, as described in the assistance agreement;
3. maintaining and operating the company’s primary helicopter
production facility for its current federal government programs
here;
4. undertaking and maintaining in Connecticut its primary
helicopter production that will be produced during the assistance
agreement’s term under one or more of the future federal
government programs specified in the agreement and entered
into after the bill’s passage; and
5. maintaining diversity and workforce training programs
according to the agreement’s terms.
For each of these contract years, the bill establishes a targeted and
minimum job requirement that depends on whether the company enters
into one or two of the federal helicopter production contracts specified
in the assistance agreement. Table 2 shows these requirements.
Table 2: Annual Job Requirements from FY 33-42
Job Requirement One Program Two Programs
Minimum Number 6,000 7,000
Targeted Number 7,250 7,750
For any year in which the number of actual jobs is less than the
minimum number required, the bill requires the company to repay 10%
of the aggregate project tax benefits it used (i.e., the “annual recapture
amount”). This annual recapture amount is prorated at 90% (i.e., 9% of
the aggregate project tax benefits it used) if the number of actual jobs
equals or exceeds the minimum but is less than the targeted amount.
The bill authorizes the DECD commissioner to establish other
requirements (e.g., wage requirements) that apply to the recapture of
the remaining 10% of the annual recapture amount. However, the total
amount of the recapture may not exceed the annual recapture amount.
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BACKGROUND
Connecticut Strategic Defense Investment Act
Enacted in 2016 (PA 16-1, Sept. Special Session), this law authorizes a
similar framework for providing financial incentives to an eligible
aerospace company engaging in a qualifying helicopter manufacturing
project in Connecticut. Specifically, the law authorizes DECD to enter
into an assistance agreement to provide an eligible company with up to
$140 million in bond-funded grants and $80 million in sales and use tax
offsets for the manufacturing project over a 14-year term (i.e., July 1,
2018, to June 30, 2032). In exchange, the company must, among other
things, maintain minimum levels of employment, payroll, supplier
spend, and capital expenditures and keep its primary production
facility and subsidiary’s headquarters in Connecticut. The annual
amount of incentives the company receives depends on the extent to
which it meets or exceeds the specified performance requirements (CGS
§§ 32-4n & -4o).