CT Commerce Committee considers R&D tax credit for pass-through entities

HBJ PHOTO | DAVID KRECHEVSKY The State Capitol in Hartford.

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Pass-through business entities with research and development expenses would receive a tax credit under a bill being considered by state lawmakers.

The legislature’s Commerce Committee will conduct a public hearing Thursday on House Bill 7008, An Act Concerning a Research and Development Tax Credit for Pass-Through Entities.

A “pass-through” business, such as a partnership or S corporation, is one in which any profits pass through to the business owner and are taxed at the individual tax rate.

Under the bill, beginning Jan. 1, 2026, pass-through entities would be eligible for a 6% credit against the state income tax for R&D expenses they incur.

Jim Gildea, president of ManufactureCT, an association that represents manufacturers across the state, submitted testimony supporting the bill in advance of the public hearing.

“As an independent board that advocates for Connecticut’s manufacturers, our organization felt the need to speak out in favor of this important perspective, with our support grounded in a desire to see all manufacturing companies have the economic tools necessary to be successful,” Gildea states.

He notes that the R&D tax credit is “critical to smaller manufacturers and pass-through business entities,” adding that a recent survey identified it as one of the most important issues facing manufacturers.

While the credit already exists for C corporations and larger manufacturers, it can be even more critical for pass-through businesses and S corps that “simply do not have the resources and manpower necessary at times to make the critical investment necessary in the area of research and development,” he states.

The credit for smaller manufacturers, he adds, would “spur creativity and innovation and help find solutions to problems they face which in turn would help drive the business forward.”

Paul Amarone, a lobbyist for the Connecticut Business & Industry Association (CBIA), also submitted testimony supporting the bill.

Amarone states that small businesses with fewer than 100 employees regularly invest in growing and expanding their businesses but cannot currently take advantage of the tax credit.

“With a rapidly changing economy, the expansion of AI and an aging workforce, small businesses are constantly looking for ways to improve their products and services while keeping up with larger corporations,” he states.

R&D credits, he adds, can be even more influential for pass-through entities than it is for larger corporations,” since small businesses often lack the resources available to larger entities.

Daniel O’Keefe, commissioner of the state Department of Economic and Community Development (DECD), also submitted testimony in advance of the public hearing.

He said “DECD strongly supports investing in R&D efforts in Connecticut,” but not necessarily creating a new tax credit program.

Instead, he urged lawmakers to support Gov. Ned Lamont’s budget proposal, which allows the R&D tax credit awarded to biotechnology companies to be refundable for 90% of its value.

A bill proposing a 6% R&D tax credit for pass-through entities was also raised during the 2024 legislative session, but it died after being referred to the legislature’s Finance, Revenue and Bonding Committee.

The Commerce Committee is scheduled to conduct its public hearing Thursday at 11 a.m. in Room 1E of the Legislative Office Building.