Quick Summary: Connecticut R&D Credits
Connecticut offers two primary R&D incentives: the RC Credit for incremental spending and the RDC Credit for non-incremental spending, with specialized refund options for qualified small businesses.
Connecticut Tax Credit Glossary
| Glossary Term (Link) | Definition |
|---|---|
| Research and Experimental Expenditures Credit (RC Credit) | A Connecticut tax credit based on the incremental increase in research and experimental expenditures over time. |
| Research and Development Expenditures Credit (RDC Credit) | A non-incremental credit available to corporations for research and development expenses conducted specifically within Connecticut. |
| Connecticut Department of Revenue Services (DRS) | The state agency responsible for the administration and collection of Connecticut state taxes and credits. |
| Connecticut General Statutes (C.G.S.) § 12-217j | The legal provision establishing the tax credit for incremental research and experimental expenditures in Connecticut. |
| Connecticut General Statutes (C.G.S.) § 12-217n | The statute governing the non-incremental research and development expenditures credit for Connecticut corporate taxpayers. |
| Qualified Small Business (QSB) (for RDC) | A company meeting specific gross income thresholds entitled to enhanced rates for R&D tax credits. |
| Qualified Small Business (QSB) (for Refund Exchange) | A business eligible to exchange unused research credits for a cash refund under specific criteria. |
| Corporation Business Tax | The primary tax imposed on corporations for the privilege of carrying on business in Connecticut. |
| Incremental Credit (RC) | A credit calculated based on the excess of current research spending over a defined base. |
| Non-Incremental Credit (RDC) | A credit allowed for the total amount of qualified research expenses incurred during the year. |
| Prior Year’s Expenditures (RC Base) | The expenditures from the preceding year used to determine the incremental growth for RC credits. |
| Base Period Expenditures | The historical spending levels used as a benchmark for calculating the incremental research tax credit. |
| Excess Qualified Research Expenses (QREs) | The portion of research spending that exceeds the base amount, qualifying for the RC credit. |
| Research and Experimental Expenditures | Costs incurred for activities intended to discover information that eliminates uncertainty in product or process. |
| Research and Development Expenses | Direct costs associated with the systematic investigation and development of new products or technologies internally. |
| IRC § 174 (Reference) | The federal tax code section defining research and experimental expenditures for tax deduction and credit. |
| IRC § 41 (Reference) | The federal statute providing the framework for the Credit for Increasing Research Activities and definitions. |
| Basic Research Payments | Payments made to qualified organizations for research intended to advance scientific knowledge without specific goals. |
| Research Conducted in Connecticut | Qualified research activities performed within the geographical boundaries of Connecticut to satisfy state credit requirements. |
| Funded Research Exclusion (Connecticut) | A rule preventing taxpayers from claiming credits for research funded by another person or entity. |
| Tentative Tax Credit Amount (RDC) | The initial calculated credit amount before applying any limitations, caps, or workforce reduction adjustments. |
| Tentative Tax Credit Rate Schedule (RDC Tiered) | The progressive rate table used to calculate the RDC credit based on total expenditure levels. |
| 6% Credit Rate (QSB-RDC) | A special fixed credit rate available to Qualified Small Businesses for their R&D expenditures. |
| 1% Credit Rate (RDC Tier 1) | The initial credit rate applied to the first tier of qualified research expenditures for RDC. |
| Maximum Credit Allowed (Percentage of Tax Liability) | The limit on how much the credit can reduce a company’s total state tax liability. |
| 70% Tax Liability Limit (Effective 2023+) | The statutory restriction limiting the total amount of credits utilized to 70% of tax liability. |
| Unused Credit Carryforward | Excess credit amounts from the current year that can be applied to future tax years. |
| Carryforward Period (15 Years) | The specific fifteen-year timeframe during which taxpayers may use accumulated R&D tax credit carryforwards. |
| Form CT-1120RC | The specific Connecticut tax form used to claim the Research and Experimental Expenditures (RC) Credit. |
| Form CT-1120 RDC | The tax form required for calculating and claiming the Connecticut Research and Development Expenditures Credit. |
| Form CT-1120 XCH | The form used by qualified small businesses to apply for the exchange of credits for refunds. |
| Application for Exchange of Tax Credit for Refund | The formal process for a business to trade unused tax credits for cash from the state. |
| Exchange of Credit for Refund (QSB) | A program allowing small businesses with no tax liability to receive a cash refund instead. |
| Refund Percentage (65% of Credit Value) | The specific rate at which unused tax credits are converted into a cash refund payment. |
| Refund Cap ($1,500,000 Annual) | The maximum dollar amount a company can receive in a single year from credit refunds. |
| Qualified Small Biotechnology Company (Refund Percentage) | Biotech companies meeting specific criteria that qualify for higher or specialized refund exchange rates. |
| Exchange Eligibility (Zero/Negative Apportioned Net Income) | Condition where a company has no current tax liability, allowing for the refund exchange option. |
| Capital Base Tax ($250 Minimum) | The minimum tax payment required for corporations in Connecticut based on their total capital holdings. |
| Corporate Gross Income Test ($100 Million QSB) | Income threshold used to define a Qualified Small Business for the purpose of the RDC credit. |
| Corporate Gross Income Test ($70 Million QSB Refund) | Income limit applied to determine if a business is eligible for the tax credit refund exchange. |
| Related Person (Gross Income Test) | A rule requiring the inclusion of income from affiliated entities when testing for small business status. |
| Enterprise Zone (EZ) | Designated geographic areas in Connecticut where businesses may qualify for enhanced tax incentives and credits. |
| Enterprise Zone Headquartered Company (3.5% Rate) | A special 3.5% RDC credit rate for companies with their headquarters located in Enterprise Zones. |
| Department of Economic and Community Development (DECD) | The state department that manages business incentives and economic growth programs within Connecticut. |
| Workforce Reduction (Credit Reduction) | A penalty that reduces available credits if a company significantly decreases its Connecticut employee count. |
| Combined Return (Combined Group) | A tax filing method where affiliated corporations report their income and credits as a single unit. |
| Accumulated Credits (C.G.S. § 12-217aaa) | Large pools of historic unused credits that can be utilized under specific capital project agreements. |
| Capital Projects (for Accumulated Credit Utilization) | Substantial investments in Connecticut facilities that allow for the redemption of old, unused tax credits. |
| Taxable Year / Income Year | The annual period for which a company’s income is measured and tax liability is determined. |
