AN ACT CONCERNING A RESEARCH AND DEVELOPMENT TAX CREDIT FOR SMALL BUSINESSES.

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General Assembly Raised Bill No. 5319
February Session, 2026 LCO No. 1994

Referred to Committee on COMMERCE

Introduced by:
(CE)

AN ACT CONCERNING A RESEARCH AND DEVELOPMENT TAX
CREDIT FOR SMALL BUSINESSES.
Be it enacted by the Senate and House of Representatives in General
Assembly convened:

Section 1. (NEW) (Effective from passage and applicable to taxable years 1
commencing on or after January 1, 2026) (a) For purposes of this section: 2
(1) "Research and development expenses" means research or 3
experimental expenditures deductible under Section 174 of the Internal 4
Revenue Code of 1986, as in effect on May 28, 1993, determined without 5
regard to Section 280C(c) of said code or to any elections made by a 6
taxpayer to amortize such expenditures that were otherwise deductible 7
on its federal income tax return; and basic research payments, as defined 8
in Section 41 of said code; that (A) are paid or incurred for such research 9
and experimentation and basic research conducted in the state, and (B) 10
are not funded by a grant, contract or governmental entity or a person 11
other than the taxpayer; 12
(2) "Commissioner" means the Commissioner of Economic and 13
Community Development; 14
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(3) "Qualified small business" means a partnership or an S 15
corporation, as both terms are defined in section 12 -699 of the general 16
statutes, that (A) has gross income for the previous taxable year that 17
does not exceed seventy million dollars, and (B) has not, in the 18
determination of the commissioner, exceeded such gross income 19
threshold through transactions with a related person, as defined in 20
section 12-217w of the general statutes; and 21
(4) "Biotechnology business" means a qualified small business 22
engaged in the business of applying technologies, such as recombinant 23
DNA techniques, biochemistry, molecular and cellular biology, genetics 24
and genetic engineering, biological cell fusion techniques, and new 25
bioprocesses, using living organisms, or parts of organisms, to produce 26
or modify products, to improve plants or animals, to develop 27
microorganisms for specific uses, to identify targets for small molecule 28
pharmaceutical development, or to transform biological systems into 29
useful processes and products. 30
(b) (1) The Department of Economic and Community Development 31
shall administer a system of tax credit vouchers, within available 32
appropriations, to allow qualified small businesses to earn and utilize 33
credits for research and development expenses. 34
(2) For taxable years commencing on or after January 1, 2026, there 35
shall be allowed a credit for qualified small businesses against the tax 36
imposed under chapter 229 of the general statutes, other than the 37
liability imposed by section 12 -707 of the general statutes. Such credit 38
shall be equal to six per cent of the research and development expenses 39
paid or incurred by a qualified small business for a taxable year and 40
shall only be allowed to the extent a qualified small business has applied 41
for and received a tax credit voucher pursuant to this section. 42
(c) (1) Any qualified small business may apply to the commissioner, 43
in a form and manner and at a time prescribed by the commissioner, to 44
reserve an allocation for a credit based on the amount of research and 45
development expenses such business intends to pay or incur for a 46
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taxable year. The application shall contain such information as the 47
commissioner deems necessary to administer the provisions of this 48
section. 49
(2) If the commissioner determines that such business is likely to pay 50
or incur research and development expenses for a taxable year, the 51
commissioner may issue a notice to such business, reserving a credit 52
under this section based on the amount the business intends to pay or 53
incur. In determining whether to issue such a notice, the commissioner 54
shall prioritize qualified small businesses that, in the commissioner's 55
opinion, exhibit a likelihood for growth in the state or will best 56
contribute to the economic ecosystem of the state. 57
(3) No qualified small business may reserve more than one million 58
five hundred thousand dollars of credits under this section for any 59
taxable year. The aggregate amount of credits that may be reserved 60
under this section shall not exceed twenty -five million dollars for any 61
taxable year. 62
(d) (1) Not later than ninety days after the end of a taxable year, any 63
qualified small business that received a notice under subsection (c) of 64
this section shall submit verification, in a form and manner prescribed 65
by the commissioner, of the research and development expenses 66
actually paid or incurred by such business for such taxable year. If the 67
commissioner determines, after reviewing such verification, that the 68
qualified small business paid or incurred such expenses for the taxable 69
year, the commissioner shall issue a tax credit voucher to such business 70
in an amount equal to six per cent of such expenses, provided such 71
amount shall not exceed the amount reserved for such business under 72
subsection (c) of this section. 73
(2) The commissioner shall notify the Commissioner of Revenue 74
Services and the Secretary of the Office of Policy and Management of 75
each tax credit voucher issued under subdivision (1) of this subsection. 76
(e) If the qualified small business is an S corporation or an entity 77
treated as a partnership for federal income tax purposes, the credit may 78
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be claimed by the shareholders or partners of such business. If the 79
qualified small business is a single member liability company that is 80
disregarded as an entity separate from its owner, the credit may be 81
claimed by such business's owner, provided such owner is subject to the 82
tax imposed under chapter 229 of the general statutes. 83
(f) To the extent the credit exceeds a taxpayer's liability under chapter 84
229 of the general statutes, the taxpayer may apply to the Commissioner 85
of Revenue Services to exchange the credit, at the same time the 86
taxpayer files the return upon which such credit is claimed, for a credit 87
refund equal to ninety per cent of the excess if the credit was earned by 88
a biotechnology business and sixty -five per cent of the excess if the 89
credit was earned by a qualified small business other than a 90
biotechnology business. 91
(g) The credit allowed under this section shall be claimed before any 92
other credit allowable against the tax imposed under chapter 229 of the 93
general statutes. 94
(h) The commissioner may adopt regulations, in accordance with the 95
provisions of chapter 54 of the general statutes, to carry out the 96
provisions of this section. 97
This act shall take effect as follows and shall amend the following
sections:

Section 1 from passage and
applicable to taxable years
commencing on or after
January 1, 2026
New section

CE Joint Favorable C/R FIN