The General Assembly’s Finance, Revenue, and Bonding Committee is considering a significant modernization of the state’s research and development tax credit.
Governor Ned Lamont’s proposed budget adjustments—featured in SB 84—include allowing thousands of small and mid-sized businesses organized as pass-through entities to access the credit.
Last week, the Commerce Committee unanimously voted to move a near identical proposal to the Finance Committee, paving the way for multiple avenues of passage.
That bill, HB 5319, received overwhelming support from the business community.
Expanding access to the R&D tax credit represents an important step toward strengthening Connecticut’s innovation economy and ensuring that small businesses and startups have the tools they need to invest, grow, and create jobs in the state.
Key Innovation Incentive
Connecticut has long offered an R&D tax credit designed to encourage companies to invest in research, product development, and new technologies.
The credit typically ranges from 1% to 6% of qualifying R&D expenditures, depending on company size and other factors.
“Thousands of Connecticut innovators operate as pass-through entities and currently lack access to meaningful R&D incentives.”
CBIA’s Chris Davis
However, under current law the credit is largely limited to companies paying the corporation business tax, with early-stage and high-growth companies that are organized as pass-through entities—including LLCs, partnerships, and S-corporations—left out.
“Thousands of Connecticut innovators operate as pass-through entities and currently lack access to meaningful R&D incentives,” CBIA’s Chris Davis told Finance Committee members at a March 11 hearing.
“These businesses often fund research internally, operate on tight margins, and absorb significant risk
when developing new products or processes.”
Fiscal Responsibility
Under the governor’s proposal, pass-through entities would be eligible to claim a 6% tax credit for qualifying R&D expenditures, aligning the state’s incentive structure with the way many modern companies are organized.
To ensure fiscal responsibility, the proposal includes several guardrails:
- A statewide cap of $25 million annually for pass-through entity credits
- A $1 million per company annual cap
- Refundability provisions allowing companies—particularly early-stage firms with little or no tax liability—to benefit from the credit
For biotechnology companies, refundable credits could reach 90% of their value, while other businesses could receive refunds of a portion of unused credits.
Why This Matters
Research and development is one of the most important drivers of economic growth.
In industries such as advanced manufacturing, bioscience, aerospace, and technology innovation requires significant investment in talent, equipment, and experimentation.
For many startups and small manufacturers, these investments occur well before a company becomes profitable.
Without access to incentives like the R&D tax credit, early-stage companies must shoulder those costs entirely on their own.
Modernizing the R&D tax credit stands out as a practical step toward building a stronger, more competitive economy.
Expanding the credit to pass-through entities helps address that challenge by:
- Encouraging investment in new technologies and products
- Helping startups reinvest capital into growth and hiring
- Supporting high-skill job creation in research, engineering, and manufacturing
- Strengthening Connecticut’s competitiveness with other states
Importantly, the proposal recognizes that innovation today often happens in smaller, entrepreneurial firms—not just large corporations.
As lawmakers consider the governor’s budget recommendations, modernizing the R&D tax credit stands out as a practical step toward building a stronger, more competitive economy.
For more information, contact CBIA’s Paul Amarone (860.244.1978).