Lamont Proposes R&D Tax Credits for Small Business

Allowing small businesses to access research and development tax credits is among the Lamont administration’s policy priorities for the 2026 legislative session.

Gov. Ned Lamont announced the proposal during his Feb. 4 State of the State address to a joint session of the legislature.

Extending the credit to small businesses is a key element of CBIA’s 2026 Policy Solutions, which focus largely on small business needs.

Under current law, Connecticut offers a 1%-6% tax credit at the corporate level. This structure unintentionally strands thousands of pass-through entities such as LLCs, partnerships, and S-corporations.  

The governor’s proposal evens the playing field for small businesses by allowing pass-through entities to earn a credit equal to 6% of qualifying R&D expenditures, subject to approval by the Department of Economic and Community Development.

In doing so, it aligns Connecticut’s tax code with the modern economy. Under the proposal, tax credits for pass-through entities will be capped at $25 million annually, with an additional $1 million per-entity limit.  

Competitive Tax Policy

The governor’s proposal also recognizes the realities faced by early-stage startup companies.

Many businesses operate at a loss in their early years as they hire talent, develop intellectual property, and introduce their products to the market.

This is particularly critical for biotech startups and smaller advanced manufacturing businesses, where research costs are high, workforce development is a critical piece of growth, and modernization is required to compete in a quickly evolving economy.  

Because the credit applies to pass-through entities, much of the revenue effect falls under the state’s volatility cap, limiting exposure to the General Fund.  

“This is exactly the kind of smart, targeted policy that promotes growth for thousands of small businesses.”

CBIA’s Paul Amarone

If Connecticut wants to remain competitive, it must ensure its tax policies reflect how modern companies are formed, financed, and grown.

Expanding the R&D tax credit to pass-through entities helps keep startups from relocating, encourages reinvestment, and strengthens the state’s innovation ecosystem. 

“For Connecticut’s business community, this is exactly the kind of smart, targeted policy that promotes growth for thousands of small businesses,” said CBIA’s Paul Amarone.

“It rewards risk-taking, incentivizes research, and allows existing businesses in Connecticut to grow and expand.

“Lawmakers should seize this opportunity to modernize the R&D tax credit and reaffirm Connecticut’s commitment to small businesses.” 

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For more information, contact CBIA’s Paul Amarone (860.244.1978).