🔒Proposed R&D tax credit boost ‘a huge win’ for CT bioscience firms

When Gov. Ned Lamont addressed BioCT’s 2025 legislative breakfast on Jan. 27 in New Haven, his keynote address included a surprise.

While praising the bioscience sector as one of the state’s strengths, Lamont said his proposed two-year budget — set to be released nine days later — would include a revision to the state’s research and development (R&D) tax credit.

“In terms of the R&D tax credit, we weren’t competitive,” he told the gathering of more than 200 people. “So, our budget proposal takes that R&D tax credit up to, I think it is 90%, (which) makes us much more competitive with what I see going around the region.”

Event attendees welcomed that announcement.

“There’s been a big push from BioCT and other legislative action groups” to support the increase, said Bill Claffey, a tax attorney and partner at accounting firm Fiondella, Milone & LaSaracina LLP. He participated in a panel discussion during the event.

“It was kind of a surprise to those of us pushing for it that they were going to increase the exchange rate,” Claffey said. “That’s what he referred to, raising the exchange rate from 65% to 90%.”

According to Claffey, state law allows qualified companies that are not yet profitable — such as bioscience firms that aren’t generating net income because they don’t yet have a product to sell — to carry forward any R&D tax credits and use them to offset future corporate business taxes.

Connecticut, however, also allows qualified companies to exchange those tax credits for a “refund” (a reimbursement from the state) up to a certain amount. Currently, that amount is 65% of the tax credit; Lamont’s proposal would increase that to 90%.

Claffey called the R&D exchange a “great policy.”

“There are only a handful of states that do have a refundable R&D tax credit,” he said. “Our neighbors, New York and Massachusetts, have refundable tax credits for life science-type companies, but the rate of exchange is higher.”

In Massachusetts the rate is 90%; in New York it’s 100%, he said.

“If I’m a biotech company and I’m looking to start my business, that rate is kind of a big decision-maker. If I get 100% or 90%, that may be more attractive,” Claffey said.

The tax-code change won’t lead to a windfall for bioscience companies, according to Lamont’s budget projections. Increasing the exchange rate from 65% to 90% will cost the state only $1.8 million in tax revenue in each of the next two fiscal years (2026 and 2027).

Even still, Claffey said the change would be a win for Connecticut if the state wants to be a real player in the biotech sector.

Bioscience companies offer high-paying jobs and will not just bank the exchange reimbursement, he said.

“They invest, or they fall behind,” Claffey said. “So, how do they typically invest? They’re hiring new people. They’re investing in machinery. They’re investing in supplies, and it just builds up the ecosystem within the state. So, this would be a tremendous win if they can get it approved.”

Another incentive

Claffey said eliminating another tax, the capital base tax, would also help bioscience companies. The tax subtracts a company’s liabilities from its assets and, if the result is net positive, the state applies a 0.26% tax to that.

Connecticut is one of the few states that still has that type of levy, he said, adding that the tax was supposed to be phased out by 2024, but the legislature extended it to sunset in fiscal year 2028.

In his budget proposal, however, Lamont proposed eliminating the tax two years earlier, by fiscal 2026. That would cost the state $35.7 million in tax revenue over the next two fiscal years.

“For a biotech company, it’s really a sore spot,” Claffey said of the capital base tax, “because they spend so much time and effort trying to get investors to invest in the company, … and then that investment goes on their balance sheet and they’ve got to pay a tax on that.”