Life After Connecticut's Reduction of State Research Credit

On June 3rd the Connecticut legislators passed a tax package that severely reduced the amount of state research credit being offered to companies from 70 percent to 50 percent. This comes along with other changes that includes a 15 year limit on utilization (the current limit on the federal credit is 20 years). Recently, Boehringer Ingelheim, a pharmaceutical company based in Germany, released an editorial (authored by SVP James Baxter) in the Hartford Courant about the implications of the recent changes.

As the largest biopharmaceutical company headquartered in Connecticut, we have made significant investments into research and development, including the recent opening of a new pilot plant to help bring innovative medicines to patients more quickly. We have committed more than $600 million in capital investments in recent years to ensure that we have state-of-the-art research and development facilities. Many of these decisions were supported by the state’s research and development tax credit.

Baxter also pointed out that the new reduction in utilization limits presents a real problem for those on the cutting edge, regardless of industry.

…the budget imposes a 15-year limit to use credits, which is shorter than the product development life cycles in many key industries, including pharmaceuticals. On average, it takes about 10 years and $3 billion to research, develop and bring an innovative new medicine to patients.

According to the Department of Revenue Services’ data, Connecticut issued roughly $109 million in tax breaks which pushed investments to $3.14 billion from 2001 to 2012. This is an astounding figure which gives onlookers an up close and personal look at the lasting impact and immediate benefit of maintaining a strong, R&D tax credit program. Baxter added:

This new change would do just the opposite, dropping our state to the bottom of the list of state-offered tax credits to spur research and development. Connecticut has long prided itself on being an innovator in research and technology dating back to the industrial revolution. The global business environment has expanded, however, and we are no longer just competing with neighboring states but also with other countries.

Source: Hartford Courant

Will Chang

William Chang is a Managing Director at R&D Incentives Group with more than 13 years of experience whose primary responsibilities include providing tax credit consulting services to CPAs and their clients, managing RDIG’s relationship with its referral partners, and managing active audits. William has extensive knowledge of federal and state tax credits and incentives and is a frequent guest speaker for CPA firms. Prior to joining the R&D Incentives Group team, William founded The Enterprise Zone Company, a tax credit consulting firm based in Southern California.