§ 5922. Financial services development tax credit

(a) Definitions. As used in this subchapter:

(1) “Qualified person” means any corporation, partnership, limited liability company, sole proprietor, or trust primarily engaged in business as an investment advisor and registered as such with the Federal Securities Exchange Commissions or primarily engaged in investment management, or an investment company.

(2) “Investment management” means the provision of investment management, research, distribution, or administration services to or on behalf of an investment company, including trustees, and sponsors or participants of employee benefit plans that have accounts in an investment company, or to or on behalf of an investment advisor.

(3) “Investment company” means any person registered under the Federal Investment Company Act of 1940 (the Act) or a company that would be required to register as an investment company under the Act except that such person is exempt to such registration pursuant to Section 3(c)(1) of the Act.

(4) “Qualified payroll expense” means compensation for performance by the qualified person‘s employees related to investment advisor, investment management, or investment company services in Vermont.

(5) “Apportioned ratio” means the revenue from assets under management or other investment business for non-Vermont residents who are unrelated persons, divided by the total revenue from assets under management or other investment business for unrelated persons during the tax year.

(6) “Apportioned payroll ratio” means qualified payroll expense divided by total payroll expense compensation for employees’ services related to investment advisor, investment management, or investment company services during the tax year.

(7) “Unrelated persons” means any person other than the person claiming the credit under this section, or his or her spouse, parent, child, or sibling.

(b) Non-Vermont revenue tax credit. Subject to subsections (c) and (d) of this section, a qualified person shall be allowed to claim against its income tax, from sources defined in subsection (a) of this section, a credit in the amount of the qualified person’s Vermont income tax liability from sources defined in subsection (a), times the apportioned ratio and the payroll ratio. As used in this subsection, “Vermont income tax liability” means for an individual, the taxpayer‘s Vermont income tax liability as determined under this chapter multiplied by the percentage of the taxpayer’s adjusted gross income from sources defined in subsection (a) of this section; and for a corporation, the taxpayer’s Vermont tax liability as determined under this chapter multiplied by the percentage of the taxpayer’s Vermont net income from sources defined in subsection (a) of this section.

(c) Claims. A credit available in subsection (b) of this section to a qualified person who is a partnership, limited liability company, subchapter S corporation, or trust may not be claimed by the entity, but may be claimed by the entity’s partners, members, shareholders, or beneficiaries on their distributive share of the income from sources defined in subsection (a) of this section. The credit allowed shall be the pre-credit tax on the distributive share of income, multiplied by the qualified person’s apportioned ratio and payroll ratio. No credit shall be allowed under this section based upon income received by the claimant for services as an employee.

(d) Limitations. The credit shall be available in the tax year of the income used to calculate the credit.

(1) The credit may not be applied to reduce the Vermont income tax liability of the person claiming the credit, from sources defined in subsection (a) of this section, to less than 25 percent of pre-credit tax.

(2) Unused credit may not be carried forward or back.

(3) The credit may not be applied as a result of transferring employees or assets among affiliated companies or persons. The Commissioner may adopt rules to define affiliates.

(e) Recapture. In the event a qualified person ceases to employ in Vermont, for a period in excess of 120 consecutive days, at least 65 percent of the number of employees it employed in Vermont as of the year a tax credit was taken under this section, there shall be imposed upon such person a recapture penalty equal to a percentage of the total credits taken, computed in accord with the following table:

The recapture shall be reported on the taxpayer’s income tax return for the tax year in which the 120-day threshold is exceeded.

(f) Applicability of credit. A qualified person who claims and is awarded tax credits under this section shall report, on a form approved by the Commissioner of Taxes, such person’s qualified payroll expenses as of July 1, 1996. No credits shall be available for taxable years beginning on or after January 1, 2007 unless the General Assembly specifically authorizes the allowance of credits under this section for taxable years 2007 and after. The Department of Economic Development shall evaluate the effectiveness of the financial services development tax credit. (Added 1995, No. 184 (Adj. Sess.), § 10; amended 1999, No. 49, § 96c, eff. June 2, 1999; 2001, No. 138 (Adj. Sess.), § 1, eff. June 21, 2002; 2003, No. 70 (Adj. Sess.), § 43, eff. March 1, 2004; 2011, No. 139 (Adj. Sess.), § 35, eff. May 14, 2012; 2021, No. 105 (Adj. Sess.), § 546, eff. July 1, 2022.)