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Research and Development (Nonincremental) Expenditures Credit


A credit may be applied against the Connecticut corporation business tax for research and development expenses incurred in Connecticut.


Research and development expenses are those expenses that may be deducted under Section 174 of the Internal Revenue Code of 1986, as in effect on May 28, 1993, and basic research payments as defined under Section 41 of the Internal Revenue Code of 1986, as in effect on May 28, 1993, provided the expenditures and payments are:

  • Paid or incurred for the research and experimentation and basic research conducted in Connecticut; and

  • Not funded, as provided in Section 41(d)(4)(H) of the Internal Revenue Code of 1986, as in effect on May 28, 1993, by any grant, contract, or otherwise by a person or governmental entity other than the taxpayer unless the other person is included in a combined return with the person paying or incurring such expenses.

Research and development expenses may include but are not limited to:

  • Expenditures incurred in connection with the taxpayer’s trade or business that represent research and development costs in the experimental or laboratory sense;

  • All costs incident to the development or improvement of a product including any pilot model, process, formula, invention, technique, patent, or similar property. The product can be used by the corporation in its trade or business or can be held for sale, lease, or license; or

The following are examples of Internal Revenue Code of 1986, Section 174 expenses that do not qualify:

  • Overhead and other expenses, such as general and administrative expenses that relate to a corporation’s activities as a whole and do not contribute directly to the research and development effort; or

  • The ordinary testing or inspection of materials or products for quality control, for efficiency surveys, management studies, consumer surveys, advertising or promotions, for research in connection with literary, historical, or similar projects, and the costs of acquiring another’s patent, model, production, or process.

Credit Percentage

A tentative credit of 6% is available to a qualified small business.

A qualified small business is defined as a company that has gross income for the previous income year that does not exceed $100 million and has not met the gross income test through transactions with a related person, as defined in Conn. Gen. Stat. §12-217w.

All other companies calculate their credit as provided in the chart below.

Expense Amounts $50 million or less

Credit Percentage 1%

more than $50 million but not more than $100 million

$500,000 + 2% over $50 million

more than $100 million but not more than $200 million

$1,500,000 + 4% over $100 million

more than $200 million

$5,500,000 + 6% over $200 million

Companies headquartered in an Enterprise Zone, with revenues in excess of $3 billion, employing more than 2,500 employees, may elect to multiply their research and development expenses by 3.5% instead of using the credit percentage listed above.

  • Costs of obtaining a patent, such as attorneys’ fees expended in making and perfecting a patent application.

Informational Publication 2006(15), Guide to Connecticut Business Tax Credits Issued: 04/24/07


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