Proposal would affect R&D, one of Connecticut’s ‘true competitive advantages’

(April 13, 2006) One of Connecticut’s leading competitive advantages could be substantially lost if a bill weakening the advantage of conducting research and development in the state gains approval.

The Finance Committee modified SB-669 by first narrowing the definition of what constitutes research and development, then increasing the amount of the tax credit in an attempt to keep the measure revenue neutral.

Unfortunately, the narrowing of the definition is not overcome by the increase in the tax credit.

After speaking with numerous companies and tax professionals, CBIA has learned that many companies will be negatively affected by the bill. A variety of industries are opposed to the measure, including manufacturers, as well as the biotechnology and pharmaceutical sectors.

Fastest growing
Research and development is one of Connecticut’s fastest-growing sectors. The tax credit for R&D has allowed Connecticut to become a national leader in this field — resulting in thousands of jobs being created here.

Pitney Bowes, whose world headquarters is in Stamford, invests more than $170 million each year in research development. More than 10% of the company’s Connecticut employees are involved in R&D — and they have helped to place Pitney Bowes among the nation’s leaders in patents received.

With Connecticut’s high business costs, the state’s tax credit for research and development is one of Connecticut’s “few true competitive advantages,” says Leigh Walton, director of government affairs for Pitney Bowes.

She says the state’s policy to encourage investment in research can be “the driver of Connecticut’s economic future” — if the tax credit isn’t narrowed to rule out certain types of R&D.

“Connecticut’s ability to stay on the cutting edge of R&D depends on keeping the credit intact,” says Walton.

Third in nation
Connecticut ranks third in the nation in R&D as a percentage of the overall state economy. Through the incentives, Connecticut has succeeded in maintaining R&D facilities in the state, expanding jobs at those facilities, and attracting new R&D facilities.

Most of Connecticut’s growth in these industries has taken place since the legislature adopted the tax incentives. Weakening them makes little sense as the state’s economy continues to struggle to add jobs.

Property tax revaluation
While the business community understands the concerns of municipalities in the state over rising property taxes, CBIA is encouraging a reasoned approach to finding a solution.

Shifting the burden to any one group over another would not be a good answer. That’s why CBIA is seeking changes to several property tax revaluation bills:

• SB-531 permits towns to shift the property tax burden among various classes of properties by limiting the extent of increases for certain classifications, and allowing towns to impose different assessment ratios for different classifications.
• SB-535 Allows a five-year phase-in on individual land parcels if the value of the parcel exceeds a certain percentage. The phase-in applies to all classes of property. CBIA opposes various classification schemes that would permit towns to tax different classes of properties at different rates. The association believes that a more-limited phase-in is a better approach.
• SB-701 permits towns to phase in the effects of their revaluation over five years for any or all of their property classes if the assessed value increased by 50% or more.
• CBIA opposes these bills because we oppose various classification schemes that permit towns to impose different rates to different properties. Further, we believe a more reasonable approach would be to permit the phase-in for only those properties experiencing at least a 50% increase in property taxes.
  
• However, CBIA is supporting SB-668, which makes a variety of changes to ensure that towns conduct revaluation and requires the Office of Policy and Management to establish a working group on the revaluation process. This measure will keep revaluations on schedule.

Legislators and local governments should work to ensure that the needs of those most affected are met — and the health of the state’s business community is not harmed.