Investment in research and development by Connecticut companies dropped 2 percent in 2009, mirroring a troubling national trend and hindering future state economic growth.
Eight of the 10 major companies in Connecticut reduced their R&D spending in 2009, dropping the total from $6.73 billion to $6.59 billion over one year, according to a recently released report that listed R&D spending by the top 1,000 global companies. The Connecticut figures represent total spending worldwide by companies headquartered in this state, not necessarily R&D spending inside Connecticut.
Total spending by the 1,000 companies worldwide dropped 3.5 percent, the first decrease in the 13-year history of the study. The troubling figures were reflected in Connecticut’s number, which had shown R&D spending increasing steadily since 2004.
Even though the compound annual growth rate in R&D spending in Connecticut rose 2.7 percent over the previous five years, that’s still less than inflation, meaning R&D decreased steadily over the past half decade at least.
“If we are to be more serious about creating job growth,” said Jeffrey Feingold, Managing Partner of Tax Point Advisors, the leading national consulting firm specializing in assisting CPA’s and their clients in claiming the U.S. R&D tax credit and similar state credits, ”we need to address the diminishing expenditures in U.S.-based research and development. Among other steps, Congress and the President must immediately extend the Federal R&D credit, which expired in December of last year. The credit puts cash back into the coffers of companies developing new and improved products and processes, buying equipment, expanding facilities – and hiring workers. And, while many of those companies are in Fortune 1000, approximately 25-35% are small to mid-size companies, often employing 100 or fewer staff. These smaller firms typically account for about 70% of total U.S. employment, and an even higher number of new job creation during periods of economic recovery and growth. And many of these firms, such as fabricators, box manufacturers, mold makers, tool and die shops, food processes and product developers, all manner of firms with staff engineers, etc., have no idea that they qualify now for both the Federal and for many state R&D tax credits.”
Tax Point Advisors’ research experts believe that the Federal R&D tax credit, though expired as of 12/31/2009, will be renewed by Congress by next month. “An immediate renewal would be very helpful,” said Feingold, “still, the credit should now be made a permanent part of the tax code, rather than Congress just extending it temporarily as they have in year past.” In addition, Feingold added, “companies should consider the value of state R&D tax credit and related programs. Of the $16b in R&D tax credits claimed annually in the U.S., about half are for state programs.”
To spur R&D investment, CT state legislators have proposed letting companies cash in their R&D tax credits to build new facilities in Connecticut. With more than $1 billion in unused tax credits among the various industries, the Connecticut Center for Economic Analysis estimates the proposal would result in 4 million square feet of new facilities and 40,000 new jobs in the state.
About Tax Point Advisors (TPA)
Tax Point Advisors (taxpointadvisors.com) is the nation's premier provider of research and development tax credit studies. The firm comprises a trusted team of former Big4 accountants, engineers, and business advisors providing the highest degree of professional service. With offices across the United States, TPA assists CPA's and their clients in identifying and capturing their maximum Federal research & development tax credits, as well as state R&D tax credits.