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In this fast-moving industry, BioCT keeps policy makers and influencers abreast of the latest developments and changing needs of the life science community.
Good afternoon Chairmen Fonfara and Horn, Ranking Members Fazio and Polletta, and distinguished members of the Finance Revenue and Bonding Committee:
My name is Jodie Gillon and I am the President and CEO of BioCT. I’d like to thank this committee for having historically been supportive of our efforts over the last several years to enhance the Research and Development tax credits in Connecticut for the bioscience industry, and we are very appreciative that Governor Lamont has also recognized what this committee has recognized all along, by including this important change in his proposed budget for this biennium. BioCT is in strong support of the provisions of Senate Bill 1246 that increase the R&D tax credit exchange rate and that accelerates the phase out the Capital Base Tax.
The Connecticut R&D tax credit generates a substantial return on investment that helps create jobs in the technology sectors, which in turn generates income tax dollars for the state of Connecticut. The credits also help to build the ecosystem of companies in Connecticut that provide goods and services to research and development companies.
Currently, Connecticut companies operating at a loss may exchange the research & development tax credit for 65% of its value. The cash exchange provision is critical to early-stage development companies, especially in the biotech sector where the runway to generating revenue can be 7-10 years. In Massachusetts, biotechnology companies may exchange up to 90% of the credit’s value if job creation metrics are reached. New York’s cash exchange rate is 100 percent. An increase in the value of the credit exchange, equal to the New York level of 100% could make an even more significant impact on smaller biotechnology companies that may operate at a loss for years until research and development results come to fruition.
While Connecticut’s R&D tax credit is accessible to C Corporations, other business entity types including S Corporations, partnerships and LLCs are not permitted to claim the Connecticut R&D credit. Whether this was due to an error in draftsmanship or an intentional omission, the time has come to allow non-corporate entities the right to claim the R&D credit. Expanding the eligible group of qualified small businesses to include biotechnology S Corporations, medical technology partnerships, and limited liability corporations would allow for more growth in the life science industry.
The Connecticut Corporate Minimum Tax (generally referred to as the Capital Stock Tax) basically taxes the equity of a corporation in Connecticut and is apportioned based on where a corporation is managed and controlled. In 2019, the Connecticut legislature enacted HB 7424 to phase out the Capital Stock tax beginning in 2021 and ending in 2024. This phase out was then deferred by Connecticut and pushed to years beginning in 2024 and ending in 2028. Each resulting in a reduction of five-tenth mills to the rate.
The Capital Base Tax, widely viewed as unfair and uncompetitive, is especially punitive to biotech corporations that are pre-revenue. Biotech companies can endure a 7-10 year runway before making a single sale. The Capital Base Tax starts taxing them in the first year they receive investment regardless of revenue or profit.
Hard earned investment dollars earmarked for hiring employees and purchasing materials are required to be set aside to pay Capital Taxes. Many states that historically imposed capital type taxes have recently repealed such taxes due to the negative taint and perception they have on the state. Accordingly, I am in support of a two year acceleration of the phase out of the Capital Base Tax (if not an immediate repeal).
BioCT appreciates the opportunity to submit written testimony on this bill and to inform committee members of our efforts to improve Connecticut’s tax climate to allow our life science industry to compete with our neighboring states to retain businesses and talent.
Respectfully submitted,
Jodie Gillon
President & CEO, BioCT