R&D credits are an important financial consideration for companies across a broad range of industries. In addition to the federal R&D credit, over 40 states use some form of credits to reward R&D activities in some measure. Many of these state-level credits, however, cannot be fully enjoyed if their value exceeds the income tax liability of the Company, or the cap on the percentage of liability that can be offset by the credits. Those states offering an R&D credit generally provide carry-forward options, and some look-back opportunities, that alleviate this to a certain extent. A handful of states (such as PA, AR, ND, CT, IA, MD, NDE, NY, LA, AL, and AZ) go so far as to make the credits refundable or transferable (i.e., the ability to sell the credits to another company), although, in some cases, under limited circumstances.

This month Connecticut passed legislation allowing companies to capture the value of stranded R&D credits. The Department of Economic and Community Development (DECD) now has authority to allow companies to utilize unused R&D credits towards major investments in buildings, infrastructure and Connecticut-based venture funds. The program is capped at $50 million and builds on an earlier use of this incentive structure, deployed for United Technologies Corporation and allowed through a special legislative dispensation to use $400 million in credits for the expansion of its Pratt Whitney subsidiary in East Hartford.

Check out this article, "Connecticut 's new stranded tax credit program aims to unleash investment," originally published in the Hartford Business Journal for more detail.