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Proposed Legislation Would Strengthen Connecticut Manufacturing Reinvestment Accounts


Synopsis
Proposed legislation expanding Connecticut’s Manufacturing Reinvestment Account program offers increased tax benefits to eligible manufacturing businesses. Interested taxpayers must apply to the Connecticut DECD to participate in this program.

Issue
The Connecticut General Assembly passed a bill expanding Connecticut’s Manufacturing Reinvestment Account (MRA) program, doubling the amount of tax benefits available and expanding the definition of who is eligible to participate in the program.

Connecticut first began offering MRAs in 2010, becoming the first state in the nation to do so. MRAs are similar to individual retirement accounts for businesses except that monies deposited in a MRA are set aside for reinvestment in the business (manufacturing equipment, facilities, and training). Essentially, taxpayers participating in an MRA account receive a “double deduction” for state income tax purposes – one deduction in the year of the contribution and a potential “second deduction” in the year the funds are distributed from the account. 

Currently, under this program, eligible taxpayers can contribute up to $100,000 per year for five years to a MRA. An eligible taxpayer is currently defined as a manufacturer having not more than 50 employees.  Taxpayers, whether subject to Connecticut’s Corporation Business Tax or Personal Income Tax, who invest in a MRA receive a deduction for contributions to the MRA in the year of the contribution. When funds are withdrawn from the account, the taxpayer then either includes 50% or 100% of such amounts in income, depending on whether the funds were used for a permissible purpose.

The proposed legislation increases this “deduction” to 100% for all eligible distributions from the MRA.   The proposed legislation also expands the definition of eligible taxpayer to be a manufacturer having not more than 150 employees (from 50 employees) and reduces the number of taxpayers eligible to participate in the MRA program to 50 (from 100).

Governor Malloy is expected to sign the legislation into law. A date for such signing has not yet been announced.

What Does CohnReznick Think?
Corporate taxpayers claiming the maximum benefits allowed under the program could see their Connecticut Corporation Business Tax reduced by up to $37,500 (with personal income taxpayers realizing a slightly lower reduction in their Connecticut Personal Income Tax). Connecticut manufacturers should review the potential benefits of participating in the program to determine whether the MRA program is helpful to them.

Contact
For more information, please contact Patrick Duffany, Partner and State and Local Tax Practice Leader, at 860-368-3607 or Matthew Nick, Senior Manager, State and Local Tax Practice, at 860-271-7933.

To learn more about CohnReznick’s State and Local Tax Practice, please visit our webpage.

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