Substitute House Bill No. 7166, now Public Act No. 25-165, significantly revises the tax credit framework for research and development (R&D) expenses in Connecticut, repealing Section 12-217n and establishing new criteria effective from January 1, 2025. The bill redefines "qualified small business" to "taxpayer" and includes specific provisions for single-member limited liability companies engaged in manufacturing. It mandates that R&D expenses must be incurred within the state and not funded by external grants unless the funder is part of a combined return. The legislation introduces a tiered credit system based on R&D spending, with a six percent credit for qualified small businesses and a more complex calculation for larger businesses. It also allows for the carryforward of unused credits and stipulates that no credit can be claimed until prior credits are utilized.

Additionally, the bill outlines new eligibility and certification processes for aerospace companies seeking tax credits, requiring a memorandum of understanding with the commissioner and a certificate of eligibility to ensure no significant reduction in historical economic base functions. It establishes a framework for calculating tentative tax credits for companies with R&D expenses exceeding $200 million, incorporating workforce reduction criteria. The bill also modifies the production tax credit system, specifying eligible expenditures and introducing a nonrefundable administrative fee for application processing. It allows for the transfer of tax credits among taxpayers and mandates compliance with reporting requirements. Overall, the bill aims to enhance support for R&D and production activities in Connecticut while ensuring accountability and transparency in the tax credit process.

Statutes affected:
Raised Bill: 12-217jj, 12-217kk
CE Joint Favorable Substitute Change of Reference: 12-217jj, 12-217kk
FIN Joint Favorable: 12-217jj, 12-217kk
File No. 885: 12-217jj, 12-217kk
Public Act No. 25-165: 12-217n, 12-217j, 12-217jj, 12-217kk, 32-7v, 32-5a, 12-217ll