Research and Experimental (Incremental) Expenditures Tax Credit
Conn. Gen. Stat. §12-217j
Description and Applicable Taxes
A tax credit may be applied against the tax imposed under Chapter 208 (Corporation Business Tax) for the incremental increase in research and experimental expenditures conducted in Connecticut.
Research and experimental expenditures as defined in §174 of the Internal Revenue Code of 1986, as amended, 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
- Costs of obtaining a patent, such as attorneys’ fees expended in making and perfecting a patent application.
The following are examples of expenses that do not qualify:
- Overhead and other expenses, such as general and administrative expenses, that related 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.
Tax Credit Amount
Multiply by 20% the excess of the research and experimental expenditures conducted in Connecticut during the current income year over the amount spent on such expenditures during the preceding income year.
Carryforward and Carryback Limitations
In general, the amount of tax credits allowable against the corporation business tax shall not exceed 50.01% of the amount of tax due. However, Research and Experimental Expenditures Tax Credits may be used up to 60% of the tax due in income year 2022, and up to 70% of the tax due in income year 2023 and thereafter.
The tax credit shall be carried forward for 15 successive income years until the tax credit is fully taken. No carryback is allowed.
How to Claim the Tax Credit
Complete Form CT-1120RC, Research and Experimental Expenditures Credit, and attach it to Form CT-1120K, Business Tax Credit Summary. The following information should be attached to Form CT-1120RC:
- A full and complete description of the nature of the research projects conducted by the company during the income year, and the location(s) where the research is conducted;
- A full and complete description of the methods used to obtain the amount spent directly on research and experimental expenditures conducted in Connecticut;
- A detailed description of each source of information used to complete the tax credit, including the methods and calculations of expense allocation, if any; and
- The job title and detailed description of each employee whose wages are included in the research expenditures.
Exchange of Tax Credit for Refund
A qualified small business that cannot take this tax credit in an income year in which it could otherwise be taken, as a result of having no tax liability, may exchange such tax credit with the State of Connecticut for a credit refund equal to 65% of the value of the tax credit or may elect to carry such tax credit forward as indicated above.
For the purpose of exchanging tax credits, qualified small business means a company that has gross income for the previous income year that does not exceed $70 million and has not met the gross income test through transactions with a related person.
A qualified small business may receive no more than $1,500,000 of tax credit refund for any one income year. A qualified small business that files a Form CT-1120 is permitted to exchange this tax credit if:
- The company’s apportioned amount of net income is zero or negative, regardless of the amount of its capital base tax; or
- The company’s capital base tax is equal to $250.
A qualified small business that files as part of a combined group on a Form CT-1120CU is permitted to exchange this tax credit if the group pays tax on the capital base and:
The qualified small business’s apportioned amount of the combined group’s net income is zero or negative, regardless of its portion of the capital base tax; or
- The qualified small business’s portion of the capital base tax is equal to $250.
A qualified small business that wishes to exchange tax credits must complete Form CT-1120 XCH, Application for Exchange of Research and Development or Research and Experimental Expenditures Tax Credits by a Qualified Small Business, and submit such form at the same time it files its return for the income year on or before the original due date or, if applicable, the extended due date of the return. No application for refund of the tax credit may be made after the due date or extended due date of the return.
Where to Get Additional Information
Direct inquiries to:
Connecticut Department of Revenue Services
450 Columbus Boulevard
Hartford CT 06103
1-800-382-9463 (Connecticut calls outside the Greater Hartford calling area only), or
860-297-5962 (from anywhere)
Statutory and Regulatory References
Conn. Gen. Stat. §§ 12-217j and 12-217ee; IRC §174
updated March 22, 2022