The R&D Tax Credit Aspects of Connecticut Innovation



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        The Connecticut economy is actively innovating.   Local businesses are developing new technology that is necessary to compete in the global, technologically oriented economy.  The Connecticut Technology Council (CTC) and Marcum LLP have announced the 2014 Marcum Tech Top 40 list of the fastest growing technology companies in the state.  The list includes well known public companies like Priceline.com and Rogers Corporation as well as private ones such as Triple Point Technology and Shoptech Corporation. 

        Many world class research universities in the state are developing new technology as well.  Yale, Wesleyan, and the University of Connecticut are just a few.  Meanwhile, state leaders encourage innovation and collaboration between these universities and industry.  Venture capital fund, Connecticut Innovations, is the leading source of finance and support for Connecticut's innovative companies.  The organization links researchers in university labs with industrial managers in order to bring the lab efforts to market. 

        State and federal R&D tax credit opportunities are available to support companies engaged in innnovation efforts throughout Connecticut.


The Research & Development Tax Credit

        Enacted in 1981, the federal Research and Development (R&D) Tax Credit allows a credit of up to 13 percent of eligible spending for new and improved products and processes. Qualified research must meet the following four criteria:

  • New or improved products, processes, or software
  • Technological in nature
  • Elimination of uncertainty
  • Process of experimentation

        Eligible costs include employee wages, cost of supplies, cost of testing,  contract research expenses, and costs associated with developing a patent.  On December 19, 2014 President Obama signed the bill extending the R&D Tax Credit for the 2014 tax year.


Connecticut R&D

        Connecticut offers a tax credit equal to 20% of the R&D expenditures that exceed expenditures of the prior year.  Connecticut offers a tax credit equal to 20% of R&D expenditures that exceed similar expenditures from the prior year.  The credit can be used to offset income from any source. If the company has no income, R&D credits can be carried forward twenty years or backwards two years.

        For companies with gross income of $70 million or less, credits can actually be sold to the state for 65% of their value.



Bioscience Connecticut

        Governor Dannel P. Malloy plans to jumpstart Connecticut's economy through an initiative known as Bioscience Connecticut, a forward-thinking plan to reinvent the state's economy through innovation.  Leaders in all economically competitive regions will begin bringing innovative companies to their local areas as the value of innovation in today's economy is further realized. 

        This particular initiative draws upon research resources from UConn, the UConn Health Center, Yale University, and other nearby research institutions that the expertise and the facilities that bioscience companies need for successful research and development.   The governor had this to say about the initiative,

        "By becoming a leader in bioscience, Connecticut can again be at the forefront of an economic renaissance. By capitalizing on existing assets, and by attracting new ones, Connecticut can lead the new economy in a way that will make us an attractive place to do business, and a state that retains and attracts top-flight, national talent."  

        The governor sees bioscience as an anchor to the innovation initiative.  Along with the Connecticut General Assembly, he believes that if Connecticut becomes a leader in bioscience it will do wonders for the state's economy.  In addition, economic stimulus for other industries will flow from the opportunities Bioscience will generate.

        The Connecticut Center for Economic Analysis believes that Bioscience Connecticut will provide an average of 3,000 construction jobs annually through 2018.  It will also generate an increase of $4.6 billion in personal income and create 16,400 permanent jobs by 2037.  Already as a result of the initiative, the UConn Health Center's original research facilities on their Farmington campus have been renovated and modernized.  Bioscience Connecticut is also constructing a new patient care tower, a new ambulatory care center on the lower campus, and is renovating the John Dempsey Hospital.

        In addition, the initiative has generated other widespread success in the industry. Bioscience Connecticut partnered with several local hospitals and health care organizations to address pressing health care needs. In order to increase healthcare access and double federal and industry research awards, 100 new faculty members were recruited including clinician scientists, basic scientists, and clinicians. The School of Medicine and School of Dental Medicine's class sizes were expanded by 30 percent. The existing business incubator spaces were doubled in size. Additionally, a loan forgiveness program was implemented for UConn medical and dental school graduates who pursue careers in primary care in Connecticut .

      
Connecticut United for Research Excellence CURE
        CURE serves as the bioscience cluster of Connecticut. It is a diverse network of small and large life and healthcare sciences companies. Their focus ranges from biotherapeutics to healthcare technology, to medical devices . Universities, scientists, educators, mentors, students, entrepreneurs, business experts, service providers. and investors are all included in the network. CURE encourages entrepreneurship, builds bioscience companies, and collaborates to ensure a sustainable and valuable bioscience and healthcare community. They actively supported the $1.5 million investment Connecticut has made in STEM education and also in the pioneering new area, stem cell research . Their aim is to keep the Connecticut community strong while improving life quality.

        According to CURE, Connecticut's bioscience R&D spending was $286 million in 2005. Medical devices and equipment as well as drugs and pharmaceuticals are two highly specialized subsectors as in regards to employment concentration. Since 2007, Connecticut's medical device subsector has increased employment by 3.8 percent . The table below represents a summary of Connecticut's performance in selected bioscience-related metrics:

Bioscience Performance Metrics
Summary of State Performance in Selected Bioscience-related Metrics


Metric

Connecticut

US

Quintile

Bioscience Industry, 2012

Employment

24,194

1,619,746

III

Location Quotient

1.19

N/A

II

Establishments

864

73,088

III

Academic Bioscience R&D Expenditures, FY 2012

R&D ($ thousands)

$727,019

$38,139,876

II

Share of Total R&D

79%

61%

I

R&D Per Capita

$202

$119

I

NIH Funding, FY 2013

Funding ($ thousands)

$444,605

$22,293,255

II

Funding Per Capita

$124

$70

I

Bioscience Venture Capital Investments, 2009-13

($ Millions)

$673.4

$49,401.7

II

Bioscience and Related Patents, 2009-13

 

2,991

100,238

II



The University of Connecticut

        Universities are an integral part of the innovation community.  The University of Connecticut plays a key role as a resource for Connecticut industries and as a partner to support economic development.  They have several research centers and more than 85 academic centers which offer expertise, research, employees, and other types of assistance to local businesses. 

UConn Tech Park
        Technology parks provide much economic leverage to their home regions.  UConn is collaborating with industry partners and entrepreneurs to develop a Technology Park at their Storrs Campus. The goals of the park include job creation, incubation of startups, advanced economic development, provide an interface linking basic research and industrial applications, and accelerate innovation in the industrial arena.

        A new Eminent Faculty program was included as part of the initiative when it began in 2011. Twenty five to thirty faculty members will be hired to collaborate with industry partners on research and development. This will lead to innovative breakthroughs and commercialization of research projects.  That will eventually lead to thousands of new jobs in Connecticut. Ultimately, the aim is to secure UConn's position as a leader in high-tech innovation and as an essential research and development partner to regional and national businesses. That in turn will increase Connecticut's global competitiveness.
 
        Governor Malloy and Senate President Donald Williams Jr. are leading the initiative. They recently allocated $172 million to develop the inaugural building for the park. Referred to as the Innovation Partnership Building (IPB), the 115,000 square foot building is expected to be completed by the first quarter 2017.  The building will be comprised of agile and flexible-use laboratories with a focus on advanced manufacturing materials, cyber-infrastructure, pharmaceuticals, and biotechnology.  The labs will feature specialized equipment to support collaborative R&D activities among university, industrial, and entrepreneurial partners. The Innovation Partnership Building is part of an expansive network of industry-supportive resources, programs, and collaborations.

        UConn is collaborating with industry partners and entrepreneurs to develop a Technology Park at their Storrs Campus. Their goals for the Tech Park are to create jobs and new business startups to advance economic development, provide an interface linking basic research and industrial applications, and accelerate innovation with industry (from startups to mid-size and large corporations).

        A new Eminent Faculty program was included as part of the UConn Tech Park Initiative in 2011. In this new program, 25 to 30 faculty members will be hired to collaborate with industry partners in R&D. This will lead to innovative breakthroughs, commercialization, and job creation. The UConn Tech Park along with the Eminent Faculty Program are expected to create thousands of new jobs in Connecticut. Their aim is to secure UConn's position as a leader in high-tech innovation and as an essential research and development partner to regional and national industries.

        The Tech Park will increase Connecticut's global competitiveness which will be an important part of Connecticut's future economic growth. Governor Malloy and Senate President Donald Williams Jr. are leading this initiative and allocating $172 million to develop the inaugural building for the Tech Park, which will house the Innovation Partnership Building (IPB). The IPB is expected to be completed by 2015. It will consist of a 125,000 square foot building. The building will be comprised of agile and flexible-use laboratories. The labs will feature specialized equipment to support collaborative R&D activities among university, industrial, and entrepreneurial partners. Advanced manufacturing materials, cyber-infrastructure, pharmaceuticals, biotechnology, and related fields will be the areas of emphasis. This will build on their capacity for both industry and federal support for technology innovation.


Pratt & Whitney Airplane Engines

        Pratt & Whitney is a world leader in the design, manufacture, and service of aircraft engines.  The Hartford based company, in conjunction with the University of Connecticut (UConn), recently opened the new Pratt & Whitney Additive Manufacturing (AM) Innovation Center at UConn.    

        What may be the most advanced AM laboratory in the country, it is the first additive manufacturing facility in the Northeast to work with metals rather than plastics.  It also has two innovative electron beam melting machines (EBM).  The Arcam A2X model machine is for the manufacturing of large, complex metal parts at high temperatures. The A2X models are the first to be introduced in North America.

        Researchers at the lab aim to develop advanced techniques for complex production of parts used in aerospace, biomedical science, and other industries. The long term goal is to ramp up Connecticut's industry production capabilities.  They will accomplish this by reducing manufacturing times, eliminating material waste, and creating a new generation of intricate, light-weight, and durable custom-made products.

        Industry and academic leaders are excited about how the new lab will benefit the local economy.  With $4.5 invested, there are plans to invest an additional $3.5 million. UConn President Susan Herbst had this to say about the initiative,

        "This unique partnership between Pratt & Whitney and UConn is an excellent example of the innovation and collaboration that will drive Connecticut's future economic success.  The new Pratt & Whitney Additive Manufacturing Innovation Center will allow us to push into new frontiers of manufacturing and materials science while training a new generation of engineers in some of the world's most sophisticated manufacturing technology."


Healthcare


Research & Testing: NanoViricides

        NanoViricides, Inc. in Shelton, CT develops special purpose nanomaterials for viral therapy.  Their goal is to attack enveloped virus particles and dismantle them by using innovative drug candidates. Some targeted viruses include H1N1 swine flu, H5N1 bird flu, seasonal Influenza, HIV, oral and genital Herpes, viral diseases of the eye including EKC and herpes keratitis, Hepatitis C, Rabies, Dengue fever, and Ebola virus, among others.

        In July 2014, NanoViricides opened a new R&D pilot manufacturing facility in West Haven.  The opening was joined by Congressman Jim Himes, Governor Malloy, and Cowlis Andrews from The Office of Business Development of the Department of Economic and Community Development. 

        NanoViricides could potentially have a tremendous impact on Connecticut's economic development. Congressman Himes even suggested that it could be a great influence on humanity, with particular emphasis on Influenza and HIV.   As globally devastating diseases, any successful drugs created at the lab would have a huge worldwide.  NanoViricides CEO, Dr. Eugene Seymour, spoke about the technology having "the promise of being as transformative against viral diseases, as penicillin has been against bacterial diseases."



Connecticut Innovations

        Connecticut Innovations, the state's venture capital arm, received more than $90,000 from the U.S. Small Business Administration (SBA) to help small tech and science companies compete in the SBA's grant programs. They will use this money to perform outreach and provide technical assistance to companies pursuing R&D grants from SBA's Small Business Innovation Research and Small Business Technology Transfer programs. The program emphasizes helping socially or economically disadvantaged companies compete for the money, since grants have become increasingly competitive.


Conclusion

        Connecticut is experiencing exciting innovations. Research & Development is driving the efforts. Taxpayers should be aware of Federal and State tax incentives which are available to them to help shoulder the costs of innovation.

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