2026 Connecticut State Tax Developments

Prior Year Legislative Summaries

The following is intended to provide an overview of certain legislation enacted during the 2026 regular session of the Connecticut General Assembly.  The information below is not intended to be a complete analysis of each and every aspect of recently enacted legislation but is intended to inform and alert taxpayers and practitioners of the enactment of such legislation.  The Department will issue additional and more detailed guidance regarding certain aspects of the legislation and will post such information to its website as it becomes available.

Corporation Business Tax:

• Modifications to the corporation business tax in response to recent federal tax law changes: Legislation modified Chapter 208 (Corporation Business Tax) to mitigate the impact of changes that were recently made to the deductions for deprecation and research and experimental expenditures under federal law that would have otherwise been incorporated into said chapter. With regard to depreciation, the legislation decouples the deduction from gross income relative thereto allowed under Conn. Gen. Stat. § 12-217 from the provisions of IRC § 168(n).  With regard to research and experimental expenditures, the legislation does the following: (1) it modifies the deduction from gross income relative thereto allowed under Conn. Gen. Stat. § 12-217 so as to delay by one year Connecticut’s conformity to the provisions of IRC § 174A and (2) it conforms the deduction allowable under Conn. Gen. Stat.  § 12-217 relative to research and experimental expenditures to the provisions of IRC § 174 as they existed on July 3, 2025 for the income years starting on and after January 1, 2022 and prior to January 1, 2026. The legislation also disallows, for the income years commencing on or after January 1, 2022, the deduction under Section 70302(f) of P.L. 119-21. Section 70302(f) of P.L. 119-21 allows eligible small businesses to retroactively deduct domestic research and experimental expenditures back to December 31, 2021. The legislation is effective from passage.

• Relief from Interest on Underpayment of Estimated Taxes and from certain penalties and interest: With regard to the specific income years identified in the legislation, any additional tax due in said income years that is attributable to certain of the changes made in Section 265 of 2026 Conn. Pub. Acts 68 shall not be included when calculating interest on the underpayment of estimated tax. In addition, the legislation authorizes the Commissioner of Revenue Services to waive penalties and interest on any additional tax that is due as a result of the State’s conformity to the research and experimental expenditures provisions of IRC § 174 as they existed on July 3, 2025 for the income years starting on and after January 1, 2022 and prior to January 1, 2026, provided any additional tax is paid on or before November 15, 2026 or the due date for the tax return on which the additional tax due is to be reported, regardless of extension. The legislation is effective upon passage.

Tax Credit provisions:¹

• Establishment of a refundable sales tax credit tied to the number of UConn athletic events held at the PeoplesBank Arena: Legislation establishes a credit whereby a “qualified operator” who has entered into both a “facility management agreement with the Capital Region Development Authority and a “qualified agreement” with the University of Connecticut can earn a credit that can be applied against said operator’s liability under Chapter 219 (Sales and Use Taxes).  Any credit that is earned may be claimed over a period of five (5) “academic years.” The first “academic year” in which a credit can be claimed commences July 1, 2027.  If a “qualified operator” earns a credit in an “academic year,” the operator is required to claim such credit on said operator’s sales and use tax return that includes the period ending July 31^st . In the event that the amount of the credit earned in any “academic year” exceeds the amount of the “qualified operator’s” sales and use tax liability as reported by said operator on its return for the period ending July 31^st , any excess amount shall be refunded to the operator. The total amount of credits available under the legislation is ten million dollars ($10,000,000) and no more than two million dollars ($2,000,000) in credits may be earned or claimed in any “academic year.  The legislation, which does include recapture provisions, is effective July 1, 2026.

• Establishment of a Tax Credit for qualified small businesses that offer employees an Individual Coverage Health Reimbursement Arrangement: Legislation establishes a credit for “qualified small businesses” that offer employees an “individual coverage health reimbursement arrangement, as described in Section 9831(d) of the Internal Revenue Code.”  In order to qualify for a credit under the legislation, a “qualified small business” must employ fewer than fifty (50) employees in Connecticut.  The credit, which can be claimed against the tax imposed under Chapters 207 (Insurance Companies and Health Care Center Taxes), 208 (Corporation Business Tax) or 229 (Income Tax), other than the liability imposed by Conn. Gen. Stat. § 12-707, is equal to the lesser of: (A) the sum of qualified contributions made by the “qualified small business” during the income year, or (B) one thousand dollars per covered employee. Any tax credit earned under the legislation may be claimed in the first income year during which the business offered an “individual coverage health reimbursement arrangement” and the immediately succeeding income year and any amount of the credit that is not used in the income year during which it was earned expires and is not refundable. In order to claim a credit, a “qualified small business” must first make application to the Commissioner of Revenue Service. If the Commissioner approves an application, the Commissioner is required to issue the “qualified small business” a certification letter that lists the amount of the credit available to said business during the two income years in which it may be claimed. All applications will be reviewed and considered on a first come first serve basis and the maximum amount of credit available in any income year under the legislation is five million dollars ($5,000,000). The legislation authorizes the Commissioner to enter into a memorandum of understanding with the Connecticut Health Insurance Exchange for purposes of administering this provision. The legislation is effective from passage and applicable to income and taxable years commencing on or after January 1, 2026.

• Establishment of a Research and Development Tax Credit for Partnerships and S Corporations: Legislation establishes a tax credit for any “qualified small business,” which term is defined to mean and include any partnership or S corporation that has gross income that does not exceed seventy million dollars, that may be applied against the tax imposed under Chapter 229 (Income Tax).  The credit is equal to six  per cent (6%) of the research and development expenses paid or incurred by a “qualified small business” for a taxable year. In order to obtain a credit under the legislation, a “qualified small business” must make application to the Commissioner of the Department of Economic and Community Development (“DECD Commissioner”).  If the DECD Commissioner determines that such business is likely to pay or incur research and development expenses for a taxable year, said Commissioner is required to issue a notice to such business that sets forth the amount of the credit that has been reserved for said business. Under the legislation, the maximum amount of credit that a “qualified small business” may apply for in any taxable years is one million five hundred thousand dollars ($1,500,000) and the aggregate amount of credits that may be reserved under this section for any taxable year shall not exceed twenty-five million dollars ($25,000,000). Under the legislation any “qualified small business” that receives approval from the DECD Commissioner is required to verify its expenditures within ninety (90) days after the close of the taxable year. If verified, the DECD Commissioner is required to issue the “qualified small business” a voucher setting forth the actual amount of the credit that the “qualified small business” is eligible to claim in said taxable year.   If the amount of the credit exceeds a “qualified small business’” Income Tax liability, the “qualified small business” may apply to the Commissioner of Revenue Services to exchange the credit for a refund equal to ninety per cent (90%) of the excess if the credit was earned by a biotechnology business and sixty-five per cent (65%) of the excess if the credit was earned by a “qualified small business” other than a biotechnology business. Said claims must be made at the same time the “qualified small business” files the return upon which such credit is claimed. The legislation also provides that the credit allowed under this section must be claimed before any other credit allowable against the Income Tax. The legislation is effective upon passage and applicable for taxable years commencing on or after January 1, 2026.

• Extension of the provisions of the Film Production Tax Credit: During its 2023 legislative session, the General Assembly expanded the limitation on the amount of credit an eligible taxpayer is allowed to claim against taxes owed under Chapter 219 (Sales and Use Taxes) from seventy-eight per cent (78%) to ninety-two per cent (92%) for the income years commencing on or after January 1, 2024, but prior to January 1, 2026. This legislation extends said provision to include the income years commencing prior to January 1, 2028. The legislation is effective from passage.

• Establishment of a tax credit for Family Caregivers: Legislation establishes a tax credit based on “eligible expenditures” incurred by a “family caregiver” for the care and support of an “eligible family member.” The credit, which can be applied against the tax imposed by Chapter 229 (Income Tax), other than the liability imposed by Conn. Gen. Stat. § 12-707, will be equal to fifty per cent (50%) of the eligible expenditures incurred by such family caregiver in a taxable year and shall not exceed two thousand dollars ($2,000) for any taxable year. In the event that two or more “family caregivers” claim the credit authorized by this legislation for the same eligible family member, the maximum allowable credit will be allocated in equal amounts between each of the “family caregivers.”  In order to claim a credit, a “family caregiver” may apply to the Commissioner of Revenue Services for tax credit voucher. All applications will be reviewed and considered on a first come first serve basis and the maximum amount of credit available in any income year under the legislation is one million eight hundred thousand dollars ($1,800,000). The legislation is effective January 1, 2027, and applicable to taxable years commencing on or after January 1, 2027.

• Certain taxpayers who are eligible for a Film Production Tax Credit may apply to Department of Economic and Community Development for an additional tax credit: Legislation establishes a process by which certain taxpayer who are eligible for a Film Production Tax Credit may apply to the Department of Economic and Community Development (“DECD Commissioner”) for an additional amount of credit. Under the legislation, which is effective for two income years (the income years commencing January 1, 2027, and prior to January 1, 2029), an “eligible production company” that incurs production expenses or costs in connection with a state-certified qualified production for which principal photography shooting occurs in Bridgeport, Hartford, or New Haven, or any combination of them, for at least twenty (20) days is eligible to earn a credit that is based on said expenses. Under the legislation, the DECD Commissioner is required to notify each qualified production company in writing that it may be eligible for an additional credit hereunder and is required to do so in the eligibility certificate the DECD Commissioner issues to said company pursuant to Conn. Gen. Stat. § 12-217jj(h). Any additional credit available under this section is subject to verification by the DECD Commissioner and shall be set forth in the tax credit voucher issued by DECD under Conn. Gen. Stat. § 12-217jj.  The legislation provides that the amount of an additional credit that can be earned by a qualified production company ranges from thirty per cent (30%) of the qualified costs and expenditures incurred by said company up to fifty per cent (50%) of said costs and expenditures, provided that the total amount of all additional credits allowed under this legislation cannot exceed one million five hundred thousand dollars ($1,500,000). Any credit that is earned under the legislation may be applied against the tax imposed under chapter 207 (Insurance Companies and Health Care Centers Taxes), chapter 208 (Corporation Business Tax), chapter 211 (Community Antenna Television Systems and One-Way Satellite Transmission Businesses Taxes) or chapter 219 (Sales and Use Taxes) and may be claimed in the income year in which the production expenses or costs were incurred, or in the five immediately succeeding income years.  The legislation also provides that any credit earned thereunder may be sold, assigned or otherwise transferred in accordance with the provisions of Conn. Gen. Stat. § 12-217jj(e). The legislation is effective July 1, 2027, and applicable to income years commencing on or after January 1, 2027.

• Repeal of tax credit for expenditures related to traffic reduction programs: Legislation repealed Conn. Gen. Stat. § 12-217s.  The legislation is effective from passage.

• Establishment of a tax credit for certain employers who provide a “qualified commuter transportation benefit” pursuant to an “approved commuter benefit plan”: Legislation establishes a tax credit that can be earned by an “eligible employer” who provides a “qualified commuter transportation benefit” pursuant to an “approved commuter benefit plan.” The credit, which is administered by the Commissioner of Transportation, can be applied against the tax imposed by Chapter 207 (Insurance Companies and Health Care Centers Taxes), Chapter 208 (Corporation Business Tax) or Chapter 228z (Affected Business Entity Tax). The credit is based on the amount of “qualified commuter benefit expenditures” made by an “eligible employer” in the applicable income year.  ln order to claim a credit under the legislation, an “eligible employer” must submit an application to the Commissioner of Transportation.  If an application is approved, the Commissioner of Transportation shall reserve a credit for the “eligible employer.”  The total amount of all tax credits which may be reserved by the Commissioner of Transportation under the legislation shall not exceed seven million five hundred thousand dollars ($7,500,000). Under the legislation, an “eligible employer” for whom a credit was reserved must obtain an annual approval from the Commissioner of Transportation.  Upon such approval, the Commissioner of Transportation will issue the “eligible employer” a tax credit voucher that will set forth the amount of the credit said employer is eligible to claim in the income year covered by said voucher. The legislation provides that any credit allowed thereunder that is not used in the income year for which it was allowed may be carried forward for the three (3) immediately succeeding income years or until the full credit has been used, which occurs first.  The legislation also provides that any credit allowed thereunder may be sold, assigned or otherwise transferred, in whole or in part, to one or more taxpayers subject to the Corporation Business Tax and such taxpayers may sell, assign or otherwise transfer, in whole or in part, such credit. Although the Commissioner of Transportation is primarily responsible for the administration of this credit, the legislation provides that the Commissioner of Transportation and the Commissioner of Revenue Services may “examine any books, papers or records relating to an approved commuter benefit plan or any credit claimed under the provisions of this section for purposes of verifying compliance and accuracy.” The legislation is effective January 1, 2027, and applicable to income years commencing on or after January 1, 2027.

Income tax:

• New subtraction modification for certain retirement income: Legislation provides for a subtraction modification for any income received from the U.S. government as retirement pay for retired members of the commissioned corps of the Public Health Service, as defined in Section 101 of Title 10 of the United States Code. The legislation is effective July 1, 2026 and applicable to taxable years commencing on or after January 1, 2026.

• New subtraction modifications for income received for attending a funeral as a member of an honor guard and for certain pay received by members of the National Guard: Legislation provides for two new subtraction modifications – (1) one for the amount of any compensation received for attending a funeral as a member of an honor guard detail pursuant to Conn. Gen. Stat. § 27-76 and (2) the other for the amount of any pay received by a member of the National Guard as a result of such member being ordered out for active service pursuant Conn. Gen. Stat. § 27-16. The legislation is effective July 1, 2026, and applicable to taxable years commencing on or after January 1, 2027.

• Revisions to the Angel Investor Tax Credit (Conn. Gen. Stat. § 12-704d): Legislation made changes to the definition section of the Angel Investor Tax Credit.  More specifically, the legislation added a definition of the term “control” and a definition of the term “related person” to said section. The legislation also modified the requirements of a “Connecticut business.”  More specifically, the legislation reduced the requirement that a “Connecticut business” have fewer than twenty-five employees, not less than seventy-five fifty per cent (75%) of whom reside in Connecticut to requiring that said businesses have not less than fifty per cent (50%) of their employees reside in Connecticut. The legislation is effective from passage and applicable to taxable years commencing on or after July 1, 2026.

Sales and use taxes:

• The monies required to be deposited into the firefighter’s cancer relief account are to be remitted to the State on Sales and Use Tax Returns: Legislation amends Conn. Gen. Stat. § 16-256l so that those “providers” who are required thereunder to collect fees from their subscribers are to remit such fees, which fees are used to fund the firefighter’s cancer relief fund, to the State on their Sales and Use Tax returns.  On a monthly basis starting August 1, 2026, the Commissioner of Revenue Services is required to deposit all such fees remitted by “providers” on their Sales and Use Tax returns into the firefighter’s cancer relief account established pursuant to Conn. Gen. Stat. § 7-313h.  This legislation is effective from passage.

• Amendment to the definition of “gross receipts” relative to the firefighter’s cancer relief account: Legislation amends Conn. Gen. Stat. § 12-409(a)(9)(B) so as to exclude therefrom “the amount of any subscriber fee assessed pursuant to section 16-256l.”  This amendment was made so as to make clear that the fees reported by “providers” on their Sales and Use Tax returns pursuant Conn. Gen. Stat. § 16-256l are neither to be included in nor considered to be “gross receipts” for purposes of Chapter 219 (Sales and Use Taxes). This legislation is effective from passage.

• Expansion of provisions governing “Sales Tax Free Week”: Legislation amends Conn. Gen. Stat. § 12-407e so as to (1) expand the items of clothing and footwear that qualify for exemption thereunder to include cleated shoes and backpacks and (2) increase the exemption amount per qualified item of clothing and footwear from one hundred dollars ($100) to three hundred dollars ($300). This legislation is effective from passage.
• New exemption for “nonelectronic school supplies” used for nonbusiness purposes: Legislation adds a new exemption for “nonelectronic school supplies that are purchased for nonbusiness purposes.” The legislation requires that the Commissioner of Revenue Services “issue policies and procedures to (A) identify a list of qualifying school supplies under this subdivision, and (B) establish criteria to determine when a purchase is made for business purposes.” The legislation further directs that the Commissioner of Revenue Services “post such policies and procedures on its Internet web site and submit such policies and procedures to the Secretary of the State for posting on the eRegulations System at least fifteen days prior to the effective date of any such policy or procedure.” This legislation is effective July 1, 2026, and applicable to sales occurring on or after July 1, 2026.

Second Hospital User Fee:

• Changes to the Second Hospital User Fee: Legislation made numerous changes to the Second Hospital User Fee (“SHUF”).  These changes include the following:
  • Establishment of a New Account: Legislation establishes the “hospital supplemental payment account,” the funds of which are to “be expended by the Commissioner of Social Services for the purpose of making payments to hospitals, hospital-affiliated medical groups and faculty practice plans, as such terms are defined in subsection (a) of section 17b-239e of the general statutes, during the fiscal years commencing on or after July 1, 2026.”  To fund this account, the SHUF revenue collected by the Commissioner of Revenue Services for periods occurring on or after July 1, 2026 is required to be deposited into the “hospital supplemental payment account.” The legislation is effective from passage.
    • User Fee Rate Change: Under the legislation, the rates for the SHUF have changed as follows:
      • In-patent rate: the SHUF inpatient rate has been lowered to from six per cent (6%) to four per cent (4%) from July 1, 2026 through June 30, 2031 and to three and one-half per cent (3.5%) effective July 1, 2031 and periods thereafter; and
      • Out-patient rate: the SHUF outpatient rate has been modified to collect the following amounts, less the amount of inpatient user fee, for the state fiscal years commencing July 1, 2026, to the state fiscal year commencing July 1, 2030:
        • Fiscal year commencing July 1, 2026 $974,000,000
        • Fiscal year commencing July 1, 2027 $997,756,916
        • Fiscal year commencing July 1, 2028 $1,022,172,694
        • Fiscal year commencing July 1, 2029 $1,047,265,629
        • Fiscal year commencing July 1, 2030 $1,073,054,525 

For state fiscal years commencing on and after July 1, 2031, the amount shall be one billion seventy-three million fifty-four thousand five hundred twenty-five dollars ($1,073,054,525), unless modified through any provision of the general statutes.

• Base Year Change: Under the legislation, the base year (the year of revenue upon which the SHUF is calculated) has been updated to federal fiscal year 2024 and further requires that said base year be updated every five (5) years thereafter.  To accommodate this change and the change to the user fee rate, the Department is required to (1) gather information from the hospitals concerning their net patient revenue for federal fiscal year 2024; (2) calculate the effective rates for the next five (5) years; and (3) modify its forms accordingly. These changes must be made in time for quarterly return due September 30, 2026, and the information must be gathered before July 1, 2026.
• Any Children’s General Hospital has been added to the tax base: Under the legislation, any children’s general hospital has been included in the definition of “hospital” for purposes of the SHUF and any such hospital shall be subjected to the SHUF, unless the Centers for Medicare and Medicaid Services does not allow the repeal of their exemption.

Nursing Home and Intermediate Care Facility Day User Fees:

• Legislation repeals changes made during the 2025 legislative session: During its 2025 regular session, the Connecticut General Assembly shifted the Nursing Home and Intermediate Care Facility User Fees from fees that were based on “resident days” to taxes that are based on revenues.  That legislation was effective July 1, 2026 and was applicable to calendar quarters commencing on or after July 1, 2026.  During its 2026 session, the Connecticut General Assembly repealed the legislation it enacted in 2025 relative to these fees.  In so doing, the Connecticut General Assembly restored the Nursing Home and Intermediate Care Facility User Fees back to fees that are based on “resident days” and did so before the 2025 legislation became effective. The legislation is effective from passage.