The Finance Committee is considering a proposal (SB 1055) that significantly cuts the carryforward period for research and development (R&D) tax credits, seriously damaging the credit’s value to the many Connecticut businesses that conduct R&D in the state.

The R&D tax credit has proved one of the state’s most successful drivers of economic activity and job growth. As the state’s primary tax policy for fostering innovation, it helps keep businesses anchored to Connecticut by providing them with the long-term conditions they need to develop and bring new products to market.

Currently, companies can fully utilize the credit over any number of years, but SB 1055 imposes a 15-year limit, which is much shorter than the development-production cycles of many key industries.

Three of Connecticut’s biggest industries—aerospace, defense and pharmaceuticals—depend on the R&D tax credit to carry them through what is usually a very lengthy process from innovation to production.   

In a recent presentation to state lawmakers, one aerospace company explained that the R&D phase for one of their new products lasted for 20 years, during which they invested more than $1 billion in the product that is just now reaching the production stage.

Reducing the credit’s value would make that kind of patient, long-term investment untenable in Connecticut. It might also encourage those businesses in Connecticut that are engaged in R&D to seek better business climates elsewhere.

Multiplier Effect

For years, Connecticut has cultivated the R&D industry because of its economic power—not just in the excellent jobs and wages those companies offer, but also in the multiplier effect the industry has on other businesses that are located here to support them.

Only in Connecticut

Lawmakers need to remember that the R&D tax credit is earned by making an investment in Connecticut R&D jobs or facilities--as specified and encouraged by the legislature. The credit can only be claimed after the investment targeted has been made.

CBIA urges the committee to preserve the carryforward period for R&D tax credits.

For more information, contact CBIA’s Bonnie Stewart at 860.244.1925 or bonnie.stewart@cbia.com.