R&D Tax Credit Expansion Bill Draws Broad Support

Small business leaders are calling for lawmakers to expand access to the state’s research and development tax credit program.

The General Assembly is considering legislation expanding the R&D tax credit to pass-through entities, which represent more than 123,000 firms across the state.

Many small to midsize companies are structured as S corporations, limited liability companies, and limited liability partnership companies, collectively referred to as pass-through entities.

Under the state’s current tax structure, these small businesses cannot take advantage of the R&D tax credit, which can only be applied to the corporation tax.

Allowing small businesses to leverage the tax credit is one of CBIA’s 2023 Transform Connecticut policy recommendations.

The legislature’s Commerce Committee heard testimony from numerous small business leaders Feb. 10 in support of HB 6584, which gives pass-through entities the option to leverage the tax credit.

‘More Competitive’

Meredith Shay, president and CEO of Colchester-based InCord, told committee members that the bill “levels the playing field” for Connecticut small businesses.

“Supporting HB 6584 is a sign to the business community that Connecticut is ready to compete
for and foster talent, technology, and innovation,” she said.

“Neighboring states like New Jersey, Massachusetts, and Vermont have made purposeful investments by expanding their R&D tax credit programs to pass-throughs.

“This bill will make the state more competitive in terms of recruiting companies to Connecticut, but also level the playing field between us and the large corporations.”

“HB 6584 is a sign to the business community that Connecticut is ready to compete for and foster talent, technology, and innovation.”

InCord’s Meredith Shay

Shay was one of numerous small business leaders who testified in support of HB 6584, joining representatives from Connecticut Spring and Stamping, HABCO Industries, Hobson & Motzer, Magnatech LLC, Moroso Performance Products, Inc., OKAY Industries, Seimon Company, and The Plastics Forming Company.

Magnatech president John Emmerson told the committee his company “relies heavily on being innovative and continuously improving processes and products to compete in a global market.”

“By expanding the R&D tax credit to businesses like mine, we will be able to invest in not only equipment and other efficiencies, but also people,” he said.

“The R&D tax credit will help offset the cost of hiring additional engineers, scientists, and other professionals as well as ‘Connecticut-shore’ employees engaging in R&D in other locations.”

‘Commonsense Update’

Paul Pescatello, the executive director of the Connecticut Bioscience Growth Council, told committee members that HB 6584 “was a commonsense update to the tax code.”

“It takes about 12 years and $2.7 billion to bring a new medicine from concept to the finish line of an FDA
approved product available on pharmacy shelves,” Pescatello said.

“Most life sciences research leads to new insights and further research. The state where all this research occurs gets the benefit of the research investment dollars being circulated throughout its economy.”

For every dollar of R&D tax credit claimed, Connecticut earns between $1.24 and $2.36.

An analysis by the legislature’s nonpartisan Office of Legislative Research reveals a substantial return on investment for the state from R&D tax credits.

For every dollar of R&D tax credit claimed, Connecticut earns between $1.24 and $2.36. The state gains between 1,406 and 3,648 jobs each year because of the credit.

“That’s very effective policy,” Pescatello said. “It makes much commonsense to use this policy to incentivize pass-throughs in the same way as C-corps.”

The Greater New Haven and Quinnipiac Chambers of Commerce, National Federation of Independent Business, ManufactureCT, BioCT, and the Biotechnology Innovation Organization also testified in support of the legislation.

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For more information, contact CBIA’s Ashley Zane (860.244.1169) | @AshleyZane9.