The R&D Tax Credit Aspects of Innovation in Connecticut



By and


Connecticut
Connecticut companies engage in a range of R&D-related activities.1 A sampling of recent work includes:

  • Stanley Black and Decker’s first AI-enabled automatic pill dispenser
  • United Technologies’ (now Raytheon Technologies2) work on quantum computing for the design of aerospace parts that are both stronger and lighter
  • Kaman Corp’s lighter, cheaper bearings
  • Sikorsky’s work toward the first-ever fully autonomous helicopter
  • ASML’s computer chip-related activity has generated over $6 million in CT R&D credits, including optical position sensors in semiconductor modules

At Stanley Black and Decker, the AI-enabled pill dispenser provides vocal reminders to those with chronic conditions who use the device. It also updates medical providers on progress and facilitates telemedicine.3

At Raytheon, the leader at quantum information research, Zach Dutton, says “Whether you’re in the intelligence community with satellites, or the DoD with radars; whether you’re working in commercial sales, or big-data mining of some kind, everybody is trying to solve problems and come up with the most efficient way to deploy their resources.”

Quantum mechanics provides the machine capability to solve these complex problems using what Dutton calls “the ultimate law of the universe.”4

Sikorsky plans to test run its autonomous helicopter5 within the year. The helicopters  reduce pilot workload, including complex landings, and allow two or more aircraft to navigate confined airspace more easily.6

Closely linked to autonomous vehicle innovation is the electric vehicle landscape, including electric boats. The R&D aspects of such vehicles have been documented here and here.


Transportation and Other Key Sectors

The Sikorsky project involves Connecticut’s strongest area of R&D credits since 2006 - transportation equipment manufacturing. Yet as the graph below shows, that vertical is far from the only one generating substantial credits.



More R&D Leaders

Electric Boat is a major part of General Dynamics Corporation with one of its biggest facilities located in Groton, CT. Electric Boat has been designing and building submarines for the U.S. Navy for over 100 years. Recently, the company was awarded a $9.5 billion contract to build two first-in-class Columbia class submarines.7 These submarines encompass a wide range of new innovative operational and defense technologies. With a shift in the supply chain to additive engineering, Electric Boat does not lag behind, their current plan for the Columbia class submarines include 3D printed components.8

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.9

Industry and academic leaders are excited about how the new lab will benefit the local economy.  With $4.5 invested, there are plans to add an additional $3.5 million.

NanoViricides, Inc. in Shelton, CT develops special purpose nanomaterials for viral therapy.10 Their goal is to attack enveloped virus particles and dismantle them with 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.


Public R&D

Aside from industry, another avenue of CT innovation has been publically funded research from world-class research universities in the state. Yale, Wesleyan, and the University of Connecticut are just a few.  Meanwhile, state leaders encourage innovation and collaboration between these universities and the industry.  The 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.

The University of Connecticut in particular 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. 

Connecticut has also begun implementing an initiative known as Bioscience Connecticut, a forward-thinking plan to reinvent the state’s economy through innovation.  This particular initiative draws upon research resources from UConn, the UConn Health Center, Yale University, and other nearby research institutions.

Federal and state R&D tax credit opportunities are available to support companies engaged in innovation efforts throughout the state of Connecticut.


The Research & Development Tax Credit

Enacted in 1981, the now permanent Federal Research and Development (R&D) Tax Credit allows a credit that typically ranges from 4%-7% of eligible spending for new and improved products and processes. Qualified research must meet the following four criteria:

  • Must be technological in nature
  • Must be a component of the taxpayers business
  • Must represent R&D in the experimental sense and generally includes all such costs related to the development or improvement of a product or process
  • Must eliminate uncertainty through a process of experimentation that considers one or more alternatives

Eligible costs include U.S. employee wages, cost of supplies consumed in the R&D process, cost of pre-production testing, U.S. contract research expenses, and certain costs associated with developing a patent.

On December 18, 2015, President Obama signed the PATH Act, making the R&D Tax Credit permanent. Beginning in 2016, the R&D credit can be used to offset Alternative Minimum tax for companies with revenue below $50MM and for the first time, pre-profitable and pre-revenue startup businesses can obtain up to $250,000 per year in payroll taxes and cash rebates.


The Connecticut R&D Tax Credit

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 fifteen years.11

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


Conclusion

Innovation within Connecticut encompasses a number of industries and firms, many of which work in conjunction with aggressive public initiatives.  Researchers in the state come from sectors including transportation and medical among many others.  Federal and state R&D tax credits are available to support companies and shoulder the costs of innovative activity.

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